Seattle’s proposed “head tax” would cost Amazon about $20 million annually, earning it the nickname of the “Amazon tax.” But tech giants headquartered hundreds of miles away — including Facebook, Google, Apple, and Uber — could also be subject to the tax if the City Council passes the controversial legislation next week.
That’s because each of those companies operates a fast-growing engineering center in Seattle, some with thousands of employees in the city.
The tax — which has ignited a fierce debate between Amazon and the tech industry, labor unions, housing advocates, and the City Council — doesn’t discriminate between businesses headquartered in Seattle or outside of it. Instead, it would be calculated based on the amount of money a company makes within Seattle city limits.
More than 100 out-of-town tech companies have set up engineering centers to mine the Seattle region’s world-class talent pool. Many of those companies are located in Seattle, and a number of them could be subject to the proposed tax.
The tax has many supporters, including some who say that moderating the tech industry’s expansion in Seattle would be healthy, giving the city a better chance to address the transportation and housing problems that have been exacerbated by the tech boom.
But discouraging out-of-town tech companies from setting up shop in Seattle would ultimately be dangerous for the city, contends Jon Scholes, president of the Downtown Seattle Association. “If you have choices of whether you want to be in Kirkland or Bellevue or Seattle and can be in places that don’t have BO ( business and occupation) and a head tax, but can still draw from the general workforce and talent pool within the region, I think companies are going to seriously consider whether they want to be in Seattle or outside the city limits,” Scholes said.
Companies such as eBay and Salesforce, which have engineering centers in nearby Bellevue, Wash., would not have to pay the Seattle tax. That could give those companies a leg up over rivals, with relatively lower expenses for their Seattle-area operations. It could also prompt companies to consider shifting operations from Seattle to the suburbs. Amazon is reportedly considering a major Bellevue expansion.
Here’s how the proposed head tax would work:
- Companies reporting more than $20 million in annual gross receipts in Seattle would qualify, as long as that money is earned in the city. “Gross receipts,” in this case, means any money the business receives through sales or other means, regardless of profit margins.
- Seattle would determine which companies are making more than $20 million in the city based on the amount a company pays in the municipal business and occupation (BO) tax. For retailers, that number is based on sales to Seattle customers. For service providers, such as tech companies, it is calculated using a formula that compares a company’s payroll costs in Seattle to its total payroll, and gross receipts in Seattle to worldwide gross receipts.
- For any company that meets the threshold, the proposal under consideration would levy a 26 cent tax per employee in Seattle for each hour worked. That amounts to approximately $500 per employee annually.
GeekWire has submitted a public records request for the city’s list of 585 businesses that would qualify for the tax. As of now, the city is declining to release that list, citing state and city laws protecting taxpayer information. But some companies have released enough public information about their employee count and revenue to predict whether they would be taxed.
Eight software engineers
Take Facebook, for example. The Bay Area tech giant employs at least 2,000 in Seattle, which amounts to about 7.2 percent of the company’s total global workforce. Facebook made $40.6 billion in revenue in 2017. If each employee contributed equally to Facebook’s revenue, then the 2,000 working in Seattle were responsible for about $2.9 billion last year — well above the $20 million threshold that qualifies businesses for the head tax in Seattle.
Using those metrics, with 2,000 employees at $500 annually, Facebook would be on the hook for about $1 million a year under the new tax. That’s a small slice of the company’s revenue, but approximately equivalent to the base salaries of eight software engineers, based on Seattle’s going rate.
That’s a very rough estimate, but gives a sense for what’s at stake for some of the tech companies that have set up Seattle outposts. While those individual engineering centers may not be as big as Amazon in Seattle, collectively they’ve played a significant role in the city’s tech boom.
Seattle has added 220,000 jobs over the past decade, nearly a 15 percent increase. Roughly 60 people move to Seattle every day, many of them attracted to high-paying tech jobs in the city. Unemployment in King County stood at 3.4 percent in March, according to data from the Washington State Employment Security Department.
Out-of-town tech giants have quickly become some of the city’s top employers. Facebook just opened a new office building that could grow its 2,000-person Seattle team by another 1,000 workers. Google employs more than 3,000 people split across Seattle and a campus in Kirkland, Wash. The search and cloud giant is in the process of building a large campus in the South Lake Union neighborhood, Amazon’s backyard.
Google, Facebook and others didn’t respond to requests for comment. Uber declined to comment.
Seattle estimates the new tax — in a state and city that does not impose income taxes — would generate about $75 million per year to build affordable housing and fund services for the homeless. The Seattle Metropolitan Chamber of Commerce and others in the business community say they aren’t comfortable with that price tag because there isn’t enough transparency into how the city’s existing $63 million annual homeless services budget and other voter-approved dollars are spent.
Addressing the homeless crisis
But a new report out this week suggests that number is far too low. The study concluded that it would require about $400 million a year, conservatively, to solve the homelessness crisis in King County. The consulting firm McKinsey and Company originally launched the report in partnership with the Chamber but the business group is no longer affiliated with it, Crosscut reports.
Seattle’s homeless crisis has been in a state of emergency since 2015. Over the past decade, the population boom and restrictive zoning codes have led to soaring housing costs. Last year, a study found that Seattle’s homeless population was the nation’s third-highest, behind only New York and Los Angeles.
The City Council says it needs more revenue to keep up with the growing crisis, while opponents of the head tax are frustrated that the problem does not appear to be improving despite the city’s growing budget for homeless services.
Amazon turned up the heat in an already fiery debate over the head tax last week by pausing construction on a new office tower at its Seattle headquarters until the City Council votes on the head tax. The company, which employs more than 40,000 people in Seattle and is currently seeking a second headquarters in North America, said it may also put one of its biggest future office spaces — The Rainier Square project — back on the market. The combined projects would house more than 7,000 new Amazon employees. Amazon would bear the brunt of the new tax, paying about $20 million annually.
More than 130 business leaders joined the chorus of opposition to the tax this week, submitting an open letter to the city that called the plan “misguided.”
After Amazon’s announcement, Seattle City Councilmember Kshama Sawant held a press conference at the tech giant’s headquarters, imploring her colleagues not to back down on the head tax, despite Amazon’s threats.
But Sawant struggled to get her message across as dozens of Seattle ironworkers, who could be impacted by an Amazon construction slowdown, drowned her out with chants of “no head tax.”
Many of those same ironworkers crowded a special meeting of the City Council on Wednesday, to voice opposition to the tax for fear they will lose their jobs if it passes. Even more housing advocates showed up to the meeting, stressing the need for more affordable housing.
“To the folks who say that this is going to be a job killer, we need folks to build that housing, folks with hard hats, folks in this room,” said Jon Grant, a former City Council candidate, at the meeting Wednesday.
The four councilmembers sponsoring the measure defended the legislation following Amazon’s announcement last week, saying in a collective statement that the tax plan was not conceived to target one company, but “Amazon made the conversation about them.” The council still plans to go ahead with a vote on the tax May 14.
But the Council isn’t entirely unified on the issue. Councilmember Debora Juarez said at Wednesday’s meeting she wants to find a way to move forward with the plan, but “$500 for a head tax is just too much.”
“When you’re just thinking this is against one company,” she said, “you are forgetting the economic ecosystem of the city.”