(The Center Square) – A King County Supreme Court judge has upheld a Seattle payroll tax for six-figure workers, which some see as yet another step toward a state income tax.
It was this month a year ago that the Seattle City Council passed "JumpStart Seattle". Payroll tax applies to companies with $ 7 million or more annual payroll that employ Seattle workers who earn $ 150,000 per year or more at a rate of up to 2.4%. It has been dubbed “Amazon Tax” because of its focus on big companies like online retail giant. That year the collections began.
The tax should fill COVID-induced funding gaps, fund existing urban services, and pay for affordable housing projects. The payroll tax is expected to bring the city in $ 214 million by the end of the year. Part would have paid for a $ 86 million COVID relief package that Seattle's Mayor Jenny Durkan vetoed it in August.
Seattle Chamber of Commerce sued the city months later on the tax in December, arguing that it violated workers' right to earn a living or a principle the state Supreme Court ruled unconstitutional in the 1952 Cary vs. Bellingham case. Mary Roberts, King County Supreme Court Justice, disagreed.
In her ruling, Roberts sets the tax on employers, not employees. She wrote that while Jumpstart Seattle was a valid "privilege of doing business" excise tax, it was not the court's intention to rule on the wisdom of the tax.
"Wage tax is a consumption tax measured against labor costs and paid by business with employees in the city," wrote Roberts. "Workers do not pay the tax. The court concludes that wage tax is an allowable tax on the privilege of doing business."
The Washington Constitution gives municipalities far-reaching powers to levy taxes. Robert, in its judgment, cited a 1951 statement from the Attorney General's office that "(a) city may impose a general income tax on workers based on the city's payroll."
Roberts also denied the board's challenge in its judgment on Friday with prejudice and forbade filing another lawsuit on the same grounds.
Chamber officials expressed their disappointment with the verdict in a statement on Friday. They say they plan to consult with their legal team to work out the next steps related to the challenge.
"We believe our attorneys have come up with a strong case as to why this employee compensation tax is beyond the authority of the city, and we are working with our legal team to explore the next steps," said Rachel Smith, President and CEO the Seattle Metropolitan Chamber of Commerce. “The JumpStart tax projections depend on businesses reopening and many more people returning to Seattle. We are ready to work with the city guides on good policies. "
A payroll tax or "poll tax" has been in the making since former Seattle Mayor Greg Nickels first proposed it in 2006. It reappeared in 2017 with numerous revisions as a means of funding homeless services.
In 2019, Seattle passed a poll tax of $ 275 per employee, which is expected to raise $ 47 million from companies with gross sales of $ 20 million, or about 3% of companies across the city. The city council overturned it in 2019 following opposition from Amazon and Starbucks.
Tax law is at the fore in the courts this year since the state legislature passed a 7% Capital gains tax on profits of over $ 250,000 in the last session. This tax remains in legal limbo, along with a Trade and trade tax.