SEATTLE — A King County judge has tossed out a lawsuit against Seattle’s new tax on high-earning workers at big businesses, ruling that it is within the city’s authority to tax businesses.
The Seattle Metropolitan Chamber of Commerce had challenged the city’s “JumpStart” tax, arguing it was a tax on employees and calling it “illegal, invalid, and unenforceable.”
But King County Superior Court Judge Mary Roberts sided with the city, ruling the tax applies to businesses, not their employees, and “is a constitutionally permissible excise tax on the privilege of doing business.”
“The City has authority to tax all business activities in the City,” Roberts wrote. “Employees do not pay the tax. The court concludes that the payroll expense tax is a permissible tax on the privilege of doing business.”
The JumpStart tax, which the City Council approved last summer, is expected to generate more than $200 million a year to fund affordable housing, community-led development, local business assistance and Green New Deal investments.
“Our success in this lawsuit wasn’t in doubt considering the Legislature’s express authorization to impose a progressive tax like this, coupled with precedential case law,” Seattle City Attorney Pete Holmes said in a statement. “The COVID-induced recession has only deepened existing inequalities, and the JumpStart tax revenues are essential to housing the unsheltered and preventing people from losing their homes in the first place.”
Seattle City Councilmember Teresa Mosqueda, the lead sponsor behind the tax, which passed 7-2, called the lawsuit “frivolous” and said the city now has assurance of the new, progressive revenue stream.
It was the City Council’s second attempt to impose a tax on big businesses. The city initially passed a head tax in 2018, but repealed the law only weeks later, under pressure from the business community.
Under the JumpStart tax, businesses with at least $7 million in annual payroll will be taxed at rates of between 0.7% to 2.4% on salaries and wages paid to Seattle employees who make at least $150,000 per year.
The top 2.4% rate, which was meant to apply to a company like Amazon, will be levied on salaries of at least $400,000 at companies with at least $1 billion in annual payroll. Stock grants will be taxable, but not stock options, council staff have said.
Under the tax, a company with an $8 million payroll and a single employee making $180,000 would pay a tax of 0.7% on that one salary of $180,000 per year — or $1,260.
Rachel Smith, president and CEO of the Seattle Metropolitan Chamber of Commerce, said they “are working with our legal team to explore next steps.”
“Today’s ruling underscores the need for the city to put forward a sustainable recovery plan to emerge from the pandemic and revitalize our region,” Smith said. “The projections for the JumpStart Tax depend on businesses reopening and many more people coming back to work in Seattle.”