The Seattle Metro Chamber this morning filed a lawsuit against the City of Seattle for passing a payroll tax on businesses operating within the City limits. The Chamber cites several reasons for the lawsuit, including,

• The legality of the tax. Previous cities that have passed similar taxes have had the tax ruled unconstitutional by the Washington Supreme Court.
• The negative impact to Seattle’s economic recovery.
• No plan from the City Council to address the Cities most pressing issues.
• The competitive disadvantage the tax will place Seattle in compared to the rest of the region.

The Chamber states on its website that more than 210 stores and businesses have permanently closed in Seattle since the start of the pandemic, along with the loss of tens of thousands of jobs. City budget projections warned that a payroll tax would “add to business costs, possibly slow down the employment recovery, and make Seattle less attractive relative to other cities in the region.”

The Seattle Council passed the payroll tax July 7, 2020. This was after previous attempts at passing an income tax had met with strong opposition from employers and employees forcing the City Council reconsider its position.

The new payroll tax attempts to circumvent the direct taxation on the employee and places the tax burden on the employer.

By taxing the employer directly and prohibiting the employer from deducting “from the employees’ compensation to pay for this tax,” the City Council is attempted to thread the needle to avoid imposing a constitutionally prohibited graduated income tax.

Extending the employer compensation tax to these entities and individuals, the proposed tax begins to look and feel a lot like an income tax.

After a summer of rioting and destruction, plus COVID shut-downs, Seattle leaders should not be taxing the same businesses that are on the verge of collapse. As the Seattle Chamber puts it, “Rebuilding our economy is the best way to support the infrastructure, programs, services, and neighborhoods that make this region a world-class community.” 

For those looking for greater detail on the legal challenge, the Chamber is hosting a member briefing this Friday at 1:00 p.m. via Zoom.