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On July 6, 2020, the Seattle City Council approved an ordinance for a "JumpStart" payroll expense tax imposed on businesses operating in Seattle (with some exceptions). The tax will be used to provide services to Seattle's low-income population.

The payroll expense tax takes effect on January 1, 2021, with a sunset date of December 31, 2040. The tax rates may be adjusted beginning January 1, 2022, and on January 1 of every year thereafter.

The payroll expense tax is due and payable on a quarterly basis; however, the Director is given discretion to assign an annual reporting period to certain businesses.

Effective January 1, 2021, the following tax rates apply to businesses:

• Businesses with compensation expense of less than $7 million are exempt.
• Companies with compensation expense of $7 million but under $100 million pay at 0.7% on cumulative compensation of $150,000 to under $400,000 and 1.7% on compensation of $400,000 and above.
• Corporations with compensation expense of $100 million but under $1 billion pay at 0.7% on cumulative compensation of $150,000 but under $400,000 and 1.9% on compensation of $400,000 and above.
• Corporations with compensation expense over $1 billion pay at 1.4% on compensation from $150,000 to under $400,000 and 2.4% on compensation of $400,000 or more.

Exemptions

The following are exempt from the JumpStart payroll expense tax:

• Any business engaged in business in Seattle as a grocery business
• Any individual who is an independent contractor for purposes of the Seattle business license tax and whose compensation is included in the payroll expense of another business subject to the JumpStart tax
• Businesses that are preempted from taxation by cities pursuant to federal or state statutes or regulations, including:

• Insurance businesses and their agents as defined by RCW 48.01.050 and RCW 48.17.010, respectively, and whose total revenue is exempt from the Seattle business license tax
• Businesses that only sell, manufacture, or distribute motor vehicle fuel as defined in RCW 82.38.020 and exempted under RCW 82.38.080
• Businesses that only distribute or sell liquor as defined in RCW 66.04.010 and exempted in RCW 66.08.120
• Federal and state government agencies and any local governmental entity
• Nonprofit healthcare organizations that are exempt for their compensation between $150,000 and $400,000 for the first three years

Ernst & Young insights

This is not the first time that Seattle has incorporated a payroll expense tax. An ordinance was passed on May 16, 2018, that would have imposed the "Employee Hours Tax," a head tax on Seattle businesses with $20 million or more in taxable gross income.

CB 119250 (signed Ordinance 125578) was a scaled-down version of the previously proposed employer payroll tax that would have imposed a yearly surcharge of $500 per employee. The final version called instead for a yearly surcharge of $275 per employee.

The Seattle Washington City Council voted to repeal the employer payroll tax scheduled to take effect on January 1, 2019. The repeal came after a coalition of Seattle businesses pledged to place a repeal referendum on the November 2018 ballot. (Reuters news article, June 12, 2018.)

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