Seattle City Council members on Wednesday scrutinized a proposed tax overhaul that would temporarily eliminate business taxes for thousands of small companies while significantly raising rates on the city’s biggest revenue generators — including major tech firms such as Amazon, Zillow and Expedia.
The Seattle Shield Initiative would for a limited time scrap the business and occupation (B&O) tax for companies earning up to $2 million annually, while boosting rates on receipts above that threshold. City officials project the restructured tax would generate an additional $90 million per year, with funds designated for human services programs.
The proposal comes as Seattle grapples with a $251 million budget deficit that could worsen with anticipated federal funding cuts.
“The Seattle Shield Initiative is more than just a policy proposal,” said City Councilmember Alexis Mercedes Rinck, who is co-sponsor with Seattle Mayor Bruce Harrell. “It’s our response to an unprecedented challenge while our city faces a budget deficit and federal cuts that threaten the services that our residents depend on.”
Seattle has struggled for years to find politically viable funding solutions for city services, affordable housing, and downtown recovery efforts following the COVID pandemic. In November, the council narrowly rejected a 2% capital gains tax on stock and bond sale profits exceeding $262,000.
Deputy Mayor Greg Wong emphasized the need for the tax change to support housing stability and address food insecurity in an increasingly unaffordable city. He also highlighted the importance of funding public safety measures that help keep small businesses afloat by reducing crime in their areas.
Council raises concerns
While attendance was light at Wednesday’s committee meeting, participating council members identified several potential issues:
- Cumulative effects: Councilmember Bob Kettle questioned how the proposed B&O changes would interact with the existing Payroll Expense Tax, also known as JumpStart, which already targets large employers including Amazon. Kettle criticized Seattle’s pattern of “one-off” tax solutions, advocating instead for comprehensive “structural tax reform strategy to set ourselves up for success in the long run.”
- Business ecosystem impact: Council President Sara Nelson sought details on feedback from small- and medium-sized businesses that wouldn’t face higher taxes directly but partner with larger companies that would. She noted that $2 million in gross revenue, while substantial, could still impact vulnerable businesses. “The work is cut out for me and my colleagues to really try to now get feedback from the people that will be impacted,” Nelson said.
- Grocery stores at risk: Councilmember Joy Hollingsworth raised concerns about grocery stores — community anchors that operate on notoriously slim profit margins. “They might appear profitable from the outside due to their gross revenue, but the net income tells a completely different story,” she said. “I just want to elevate not all big businesses are the same.”
- Revenue volatility: City staff noted that the proposal would shrink the B&O tax base from 21,000 taxpayers to just 5,000, potentially creating less predictable revenue collections.
The measure requires City Council approval before advancing to voters in the Nov. 4 general election. If approved, the new tax structure would run from 2026 through 2029, with potential for renewal.
Key details
Under the Seattle Shield Initiative:
- The B&O tax threshold exemption increases from $100,000 to $2 million in gross revenue.
- Businesses that exceed that threshold would not pay tax on the first $2 million.
- An estimated 76% of small- and medium-sized businesses would no longer pay the tax.
- About 90% of all businesses would pay less than they do currently.
- Retail, wholesale and manufacturing businesses above the $2 million exemption would pay 34 cents per $100, up from 22 cents.
- Service companies would see a jump from 43 cents per $100 up to 65 cents.
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