Seattle Chamber Files Lawsuit Challenging Payroll Tax

The Seattle Metropolitan Chamber of Commerce filed a lawsuit in King County Superior Court challenging the city’s recently enacted payroll tax.

The lawsuit alleges that the Seattle City Council imposed a tax on the right to earn a living. It cites as precedent Cary v. City of Bellingham, in which the state Supreme Court ruled that a city cannot tax the ability to earn a living. It is the third time in the past four years that a tax passed by the city of Seattle has drawn a lawsuit.

The tax goes into effect in January. It will tax businesses that have $7 million or more in Seattle-based payroll the prior year. In addition, a business must have employees with annual compensation of $150,000 or more to be subject to the tax. The tax ranges from 0.7% to 2.4%, depending on payroll expense and the amount of employee compensation that exceeds $150,000.

The city estimates that the tax will affect around 1% of Seattle businesses.

The chamber says more than 210 stores and businesses have permanently closed in Seattle since the start of the pandemic. The lawsuit says the payroll tax will prove fatal to the economic recovery of downtown Seattle.

It also claims that the City Council rushed to pass the payroll tax devoid of any spending accountability, rather than evaluating the citys spending and $1 billion general fund.

Business in my neighborhood is at a standstill, with many of our small businesses having to close their doors permanently, says Danah Abarr, executive director of the South Lake Union Chamber of Commerce. People are avoiding downtown altogether and instead of asking how they can help, the City Council is adding another barrier to recovery with this tax. Our businesses need this tax to end if we hope to recover any time soon.