Under the ironic sobriquet “Jump Start Seattle”, the Seattle City Council has passed a “progressive” tax on jobs at a time when many Seattle businesses are reeling from the coronavirus pandemic. We leave the discussion of the policy underlying this new tax to others. However, we can say for certain that businesses in Seattle are already re-evaluating their Seattle space needs, as well as how and where their employees will work in the future, given their recent experience with the forced transition to remote work. We can also state unequivocally that this new tax is a factor in their assessments.
The tax, which is scheduled to begin January 1, 2021, will be imposed on businesses with total payroll costs of $7 million or more, with the tax rate based on the annual compensation of Seattle employees. The tax rates are reflected in the schedule below:
There is a limited deduction for non-profit healthcare providers with respect to employees whose annual compensation is less than $400,000, which is scheduled to expire in 2023.
There are several exemptions from the tax: grocery businesses, businesses that only sell liquor, motor fuel distributors, state and local governments and businesses the city is prohibited by state or federal law from taxing.
As with any new tax, there are a number of technical issues that will arise in the administration and application, including which employees will be deemed Seattle employees and when/whether various benefits may be deemed taxable compensation.
This particular tax is the first of its kind in Washington and presents a number of legal issues as to its validity. There are also a number of planning opportunities that may be available to businesses eager to minimize its impact.
1 To be clear, the tax on an employee earning $400,000 will be at least twice the tax of an employee earning $399,999.
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