Seattle’s “JumpStart” corporate payroll tax remains in place after an appeals court in Washington state on Tuesday upheld an earlier decision that found the tax legal.
The Seattle City Council passed JumpStart Seattle in 2020 in an effort to increase funding for housing projects and other city services. The measure taxes salaries of more than $150,000 per year at companies with annual payroll costs of $7 million or more, and raised $248.1 million in revenue in 2021, $48.1 million more than expected.
Shortly after the approval, the Seattle Metropolitan Chamber of Commerce sued to stop the tax in King County Superior Court. The lawsuit alleged that the city unlawfully levies a tax on “the right to earn a living”, citing the precedent of Cary against the city of Bellingham in which the Washington State Supreme Court ruled that a city cannot tax its ability to earn a living.
Earlier this month, the King County court dismissed the lawsuit and the Washington State Court of Appeals has now upheld that ruling.
“The city’s payroll tax is easily distinguishable from the tax levied in Cary. In Cary, the income tax was levied on the employee, while here the payroll tax is levied on the company itself,” the appeals court ruled. “We conclude that the city’s payroll tax is an excise tax on corporations levied under powers conferred on the city by the state legislature and the state constitution.”
The Seattle Chamber is reviewing the decision and “will determine our next step in consultation with our members and our attorneys,” said a statement from CEO Rachel Smith. She noted that a majority of Seattle voters find city taxes too high, according to a recent voter survey commissioned by the chamber.
The same survey also found that a similar percentage of respondents, about 60%, thought the city needed more money to tackle homelessness.
Most of the $200 million that Seattle has planned to raise will fund affordable housing projects in the city. About 20% of the tax is allocated to environmental and economic development projects, including staff training and childcare.
The tax rate varies with the largest companies paying the most. For 2022, JumpStart is expected to bring in more than $277 million, according to forecast figures reported in March, $43.6 million more than expected.
The full text of the ruling is below.