SUMMARY: Proposed Tax on Corporate Payroll
Councilmembers Kshama Sawant and Tammy Morales
UPDATED: April 3, 2020
Tax on Corporate Payroll Package:
1. Tax Proposal (More details found on Pages 2 through 4):
a. Impose a new emergency corporate payroll tax on the City’s largest businesses
that will generate approximately $500 million annually.
b. Create a 1.3% tax on businesses with more than $7 million of annual payroll;
c. Exempt non-profits, grocery stores, small- and medium- sized businesses, and
government employers.
d. Impose the tax beginning June 1, 2020; businesses to remit taxes owed for 2020
and 2021 in February 2022.
2. Spending Plan Proposal (More details found on Pages 2 through 4):
a. Appropriate $200 million generated through the Interfund Loan bill for
emergency cash assistance in 2020 for up to 100,000 low-income households
including those that have lost income directly as a result of the coronavirus crisis.
b. Direct the first $205 million in 2021 to repay principal and interest on the
Interfund Loan.
c. Direct 5% of the revenue in 2021 and 3% in all subsequent years for start-up and
ongoing administration costs.
d. Direct 75% of the remaining revenue1 for investments to build up to 10,800 units
of new social housing in the first 10 years2.
e. Direct 25% of the remaining revenue for investments in housing-related
strategies called for in Seattle’s Green New Deal (GND).
3. Interfund Loan (IFL) Proposal
a. Authorize up to $200 million in emergency loans for spending related to the
COVID-19 civil emergency in 2020.
b. Authorize up to $50 million loans from up to six potential fund sources to ensure
flexibility. The IFL will not exceed a cumulative total of $200 million.
c. Request that the Executive implement this authorization in a manner that
minimizes or eliminates impacts on the City’s other planned uses of its
Consolidated Cash Pool during the period of the Interfund Loan; and require the
Executive to provide a report within three weeks after the bill becomes law
about how this task will be accomplished within the flexibility provided.

1

“Remaining revenue” means revenue available each year after repaying the principal and interest on the
Interfund Loan (2021 only) and start-up and ongoing administrative costs (2021 and beyond).
2
Under this proposal, social housing is defined as affordable housing that is either publicly owned or owned or
operated by a public development authority (PDA) or a nonprofit housing provider that enters into a regulatory
agreement with the City that includes rent and income restrictions.

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 Tax Proposal
1. What is the annual revenue goal?
$500 million annually; with no sunset.
a. How many businesses would be subject to the tax?
800 businesses based on Employment Security Data (ESD) shared by the King County
Office of Economic and Financial Analysis (OEFA) with the City Budget Office.
b. How much would the typical business pay?
The actual tax bill will depend on the size of each business’s payroll. A business with 200
employees that pays each employee $100,000/year would have an annual tax bill of
$260,000 (200 employees X $100,000 per employee X 1.30% = $260,000).
c. What percent of businesses would be exempt from this tax?
98% of businesses.
2. What is the exemption threshold?
The tax applies to businesses with annual payrolls greater than $7 million. That’s the top 2%
of businesses by payroll.
3. Beyond the payroll size tax exemption, which business types are exempt?
Exempt categories include government and education, not-for-profit organizations, and
grocery stores.
4. What specific businesses would be taxed?
A list of businesses ranked by amount of payroll is not available because the City does not
maintain such a list. The City maintains information on businesses’ taxable gross receipts,
but information about the taxable gross receipts for individual businesses is highly
confidential and therefore not available.
5. What percentage of businesses would be taxed under this proposal?
At a $7 million threshold, this tax would apply to the top 2% of businesses, as measured by
size of payroll, based on ESD data transmitted by OEFA.
6. When would the new tax take effect?
June 1, 2020. The proposed corporate payroll tax would take effect in June 2020, but tax
payments would not be collected until 2021 or 2022. Therefore, 2020 emergency spending
for COVID-19 response will require an emergency Interfund Loan (IFL) of $200 million
dollars. The IFL loan will be repaid, with interest, beginning in 2021.
7. What are the costs and staffing for a new corporate payroll tax?
The Department of Finance and Administrative Services (FAS) estimates $5 million for onetime system costs; and $500,000 for annual system operations; and between 12 to 15 fulltime equivalent (FTE) positions with an annual cost of $1.6 million to $2 million.

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 8. How was the tax rate calculated?
Using wage data received from the ESD, OEFA determined that the size of the payroll tax
base in Seattle was approximately $61.8 billion in 2018.
Exemptions
To adjust the base for exemptions, OEFA deducted the following amounts from the $61.8
billion total payroll:
13.5 billion, which represents businesses with payrolls less than $7 million;
• $7.9 billion, which represents payroll for Government and Education; and
• $1.9 billion, which represents payrolls for Nonprofits and Grocery stores.
• After removing exempt payrolls, the revised 2018 tax base is $38.5 billion.
Adjusting for Inflation
Since these figures are 2018 data, and the new tax would start in 2020, an inflation
adjustment was applied. The 2018 revised tax base was increased by 13.9% (the difference
between the 2018 ESD and the Seattle-wide compensation base used to develop HB 2907, a
state payroll tax proposal. After applying this adjustment, the inflated 2021 tax base is $43.8
billion.
Adjusting for Uncertainty
The unprecedented nature of the COVID-19 public health emergency, including the impact
of social distancing on the economy, has been met with record breaking federal fiscal and
monetary policy responses, as well as state and local fiscal aid to businesses. It is unknowable how these considerations will impact 2021 payrolls of the larger businesses that
would be subject to this tax. Considering this uncertainty, the tax rate estimate of 1.3%
(discussed further below) applies a 12% reduction to the payroll base. It is intended to be a
conservative reduction, as the true extent of the impacts is unknown.
This reduction represents the share of the total 2018 covered employment represented by
the 'Accommodation and Food Services' and ‘Arts, Entertainment and Recreation' business
sectors, which are the sectors most clearly impacted by the social distancing policy. After
applying the 12% reduction, the revised payroll base is $38.6 billion. Similarly, it is unknown
how this tax will impact future business employment decisions. However, no adjustment is
made for this uncertainty.
Calculating the Tax Rate
A 1.3% rate is calculated by dividing the desired revenue target of $500 million into the
payroll base of $38.6 billion: $500 million/$38.6 billion = 1.3%.

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 9. How is the tax applied?
The tax is applied to compensation paid by businesses to their employees that work
primarily in Seattle, or that are not primarily assigned to any single location and reside in
Seattle. Employees include individuals that provide work for compensation by a business,
and includes members of limited liability companies, partners, owners of pass through
entities, sole proprietors, and independent contractors. A business may not make any
deductions from employees’ compensation to pay for this tax.

Spending Plan Proposal
1. Spending Plan for 2020
Emergency Cash Assistance (2020 only)
In response to the economic impacts of the COVID-19 crisis, the spending plan for the proposed
tax on corporate payroll would direct up to $200 million dollars in 2020 for emergency cash
assistance to low-income households. The $200 million would support up to 100,000
households with $500 payments per month over four months in 2020.3
To distribute the emergency cash assistance as quickly as possible, the intent is to build on the
Emergency Grocery Voucher Program4 by distributing cash to households currently enrolled in
existing assistance programs (e.g., the Utility Discount Program, Fresh Bucks, etc.). Fifty
percent of the funds ($100 million) will be distributed to low-income households enrolled in
existing City assistance programs, or State assistance programs administered by the City.
The remaining 50% of the funds ($100 million) will be distributed to those impacted by the
COVID-19 crisis but not enrolled in existing assistance programs. These funds would be
prioritized for distribution to low-income households including, but not limited to, those who
are:
• unemployed or had their work hours severely reduced;
• seniors;
• immigrants and refugees,
• at risk of deportation;
• experiencing homelessness or lack a permanent address;
• households with language barriers;
• experiencing domestic violence; and
• low-income households not enrolled in existing assistance programs.

3

Any costs associated with the Executive’s administration and distribution of these funds could reduce the total number of
households supported.
4
Attachment 1 provides more details on Emergency Grocery Store Voucher Program

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 After distributing the first of the four payments, any unallocated funds may be distributed to
either households enrolled in existing City assistance programs or to the priority households
listed above.
2. Spending Plan (by Category) for 2021 and Beyond
In 2021, approximately $205 million will be used to repay the principal and interest owed on
the IFL for direct cash assistance in 2020. After repayment of the IFL in 2021, the annual
spending of the new tax will be as described below.
After accounting for start-up and ongoing administrative costs, 75% of the anticipated revenue
would be dedicated to developing and acquiring social housing affordable to households with
incomes from zero to 100% of AMI,5 and to provide services for Permanent Supportive Housing
(PSH) units. The remaining 25% of the tax revenue, after startup and administrative costs,
would support implementation of select housing-related strategies identified in Seattle’s Green
New Deal (GND) Resolution 31895.
Social Housing Investments6
Depending on the mix of housing investments, the new revenue could provide $1.8 billion for
about 5,600 housing units by year five and $4 billion for about 10,809 housing units by year 10.
In addition, $70 million could support the operating and service costs for about 1,400 PSH units
by year five and $382 million for about 3,393 PSH units by year 10.
A new Social Housing Board is proposed that would guide and oversee all housing development
and preservation investments. The 21-member board would include three representatives from
each Council district; members will include renters and homeowners, individuals from
historically underrepresented groups, as well as individuals with housing development and
finance experience.
Green New Deal Investments
The following housing-related strategies identified in the GND resolution would be prioritized
for funding:
•
•
•

Investments to convert residential housing units from natural gas and heating oil to
electric heat; 7
Weatherization of existing residences;
Solar installations; and

5

AMI is the household income for the median (“middle”) household in a region. The Department of Housing and Urban
Development (HUD) annually calculates and publishes AMI figures for a specific area.
6 Unit production estimates are based on average per unit costs in projects funded by the City or the Seattle Housing Authority
that include primarily one bedroom and studio units. Per unit costs will vary depending on the location, size, mix of units, etc.
7

As an example, about 38,000 existing housing units could be converted to electricity for the heat source if all the
revenue proposed for GND investments was used for this purpose. This assumes the cost to convert the heat
source to electricity is $16,000 per unit.

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 •

Investing in job training programs to equip workers with skills needed in the green
economy and assist workers whose jobs currently depend on the fossil fuel industry to
transition to a green economy.

Further, the investments in housing development and preservation are consistent with the
following housing-related strategies identified in the GND resolution:
•
•
•

Create more affordable housing located near transit hubs, green space, and
neighborhood amenities to reduce dependence on private vehicles;
Use anti-displacement strategies and alternative housing models, such as: acquisition of
existing affordable housing in areas at risk of displacement, community-owned
cooperative housing, community land ownership, etc.; and
Increase housing density to meet current unmet demand for affordable housing and
projected future population growth.

The GND Oversight Board established by Ordinance 125926 would guide and oversee the
proposed investments in GND housing-related strategies. The Board would invite workers who
are employed by the fossil fuel industry, or those in jobs that may be displaced due to the
implementation of this spending plan, along with their unions, to coordinate on “just”
transition recommendations to minimize economic harm to affected workers.

End

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