Seattle chamber sues city over new payroll tax

Attorneys for the City of Seattle are getting ready to defend a new tax on big businesses now that the Seattle Metropolitan Chamber of Commerce is suing the city over it.

Seattle will start to charge a payroll tax on large businesses in the new year. But the chamber of commerce is seeking to have the tax thrown out, arguing that it illegally taxes the "right to earn a living" and violates the state constitution.

The city attorney's office says it will "certainly defend" the tax, and is preparing a response.

RELATED: Seattle Council passes new payroll tax slated to start in 2021

Seattle's new payroll tax operates differently, depending on the business:

• It is levied on businesses with an annual payroll of $7 million per year or more. It would target payroll for employees making $150,000 per year and up.
• The tax rate varies depending on the size of the company and the level of employee compensation. It ranges from 0.7- 2.4%.
• Grocery stores and government entities are among those exempt from the tax. Non-profit healthcare entities are also exempt for three years.
• It will take effect in 2021 and sunset in 20 years.

The city estimates the payroll tax will produce $200 million in new revenue next year. Officials have argued that the funds will help make up for pandemic revenue losses, which is why it is nicknamed the "JumpStart tax." After 2021, the money is slated to go toward business support and affordable housing.

The plan has been controversial within the business community and among Seattle residents. Many argue that such a tax discourages investment within the city, and will deter future businesses from settling into town. A lawsuit was therefore somewhat anticipated — either brought about by the chamber or companies impacted by the tax.

Seattle Mayor Jenny Durkan had aired caution about the tax when the City Council approved the payroll tax in July. The tax is among various issues that the mayor and the council have not agreed on. Durkan announced this week that she will not run for re-election and will finish her term in 2021.

The JumpStart tax isn't City Council's first attempt at an employee-based tax on the city's largest businesses.

There was an unsuccessful attempt to pass a head tax in 2017. The Council returned with a remodeled version in 2018, which passed, but not after causing a great divide among Seattle residents both for and against the idea. Two months after the Council passed the 2018 head tax, it reconvened and repealed it.