There are still some legal maneuverings underway, but the city of Seattle has walked back plans to impose a steep levy – a “head tax” – on almost 600 businesses. Other areas across the U.S. are considering similar levies.
Last week, the Seattle city council voted 7 to 2 to revoke a law it had passed in May that would have implemented a tax of $275-per-employee on any company with more than $20 million in gross annual revenue. The tax was set to take effect at the beginning of 2019. NAIOP was part of a large coalition that opposed the city council’s head tax.
“The City Council passed the head tax expressly designed to cater to a very vocal curated constituency, while most people working and living in the city had little part in creating this initiative,” said NAIOP Washington State Director Ed McGovern. “Once the politics and targeted rhetoric driving this plan were exposed in the news media, the City Council realized it had awakened a sleeping giant: a Seattle populace that has found itself disconnected with the political philosophy of its leadership.”
The bigger the business, the higher the cost would have been. Revenue from the tax was to be spent building about 600 affordable housing units over the next five years.
Yet to achieve that modest goal, the law would have imposed massive costs. One way to calculate those costs is by square foot. Each employee in Seattle uses 150 square feet of office space. By that calculation, each 150 square feet of office space in Seattle would have cost $275 more than it does today. Just one new building currently under construction will contain 645,000 square feet of office space. That could house 4,300 workers and would have cost more than $1.1 million per year in head taxes alone.
Some large employers were already taking steps to have the tax repealed by voters. Companies including Amazon, Starbucks and Vulcan had teamed to launch the “No Tax on Jobs” campaign. Before the city council vote, the campaign had already gathered more than 45,000 signatures to place the repeal initiative on the November ballot. That’s more than twice the number of signatures the measure required. The campaign went ahead and filed the signatures last week, shortly after three local lawyers sued over the way the City Council repealed the head tax. However, the lawsuit isn’t seeking to have the council vote overturned.
While Seattle is stepping away from a head tax, other places are considering similar levies. NAIOP chapters across the nation should be prepared to deal with similar tax schemes. “There’s now consideration of similar taxes in Mountain View, California, home to Google, and in neighboring Cupertino, where Apple is located,” CNN reports. The city council in Mountain View, where the mayor says he supports a head tax, is expected to vote on June 26. The Tax Foundation reports that Cupertino’s mayor favors taxing large businesses $1,000 per employee. San Jose, Sunnyvale and Redwood City, all in California, already feature some form of head tax.
Nearby regions were swift to react to Seattle’s plan to tax job creation. Nearby Pierce County announced last month that it planned to “implement family-wage job credits of at least $275 per new job created after Jan. 1, 2019.” Pierce County Executive Bruce Dammeier added that, “When it comes to creating jobs, messages matter, and the message we are sending loud and clear is that we want businesses to choose Pierce County and we recognize how important they are to creating vibrant communities.”
Elsewhere, the Tacoma-Pierce County Chamber of Commerce released a video titled “No #HeadTax Here.” The Chamber of Commerce video tells viewers that “you’ll like Tacoma,” and says “we welcome jobs.” Bruce Kendall of the Economic Development Board for Tacoma-Pierce County told the News Tribune, “I’ve received inquiries over the last week from companies that have indicated they are exploring options for locations in Pierce County and they are telling me that’s why they are calling me, because the head tax passed.”
McGovern said the repeal highlights that Seattle remains interested in growing its labor force. “Anyone who has a stake in seeing Seattle continue to offer broad employment opportunities for themselves and their families would rationally find itself opposed to a plan that yells ‘take your jobs elsewhere’ to all of the great employers the City of Seattle has nurtured.” In Seattle and elsewhere, the CRE industry will stay alert for similar tax efforts that could punish job creation.
Peggi Lewis Fu is Executive Director, NAIOP Washington State.