WA Court Upholds Seattle's JumpStart Payroll Tax

SEATTLE — Seattle's "JumpStart" tax has cleared a legal challenge from the Seattle Metropolitan Chamber of Commerce, with a state Court of Appeals on Tuesday ruling that the payroll tax is lawful.

The Seattle City Council voted 7-2 to approve the tax back in 2020, near the beginning of the pandemic. Unlike the 2018 head tax, which was unanimously approved and then quickly overturned, the JumpStart tax is more tightly targeted. The payroll tax rates range from 0.7 percent to 2.4 percent and apply only to salaries for employees making more than $150,000 annually. The highest end of the tax applies only to companies with $1 billion or more in payroll and only on employee earnings of $400,000 or more. In 2021, it earned more than $231 million for the city.

The Seattle Metropolitan Chamber of Commerce filed a suit in late 2020 challenging the payroll tax's legality, claiming the law was rushed and oversteps the city's authority by unlawfully taxing "the right to earn a living." As The Seattle Times first reported, the tax was upheld in King County Superior Court last year, and now a second time by the Division I Court of Appeals.

In a statement, Seattle Chamber of Commerce President and CEO Rachel Smith expressed disappointment with the ruling, and said the chamber was weighing its options going forward.

"The Chamber brought the payroll tax lawsuit forward because we believe the tax is illegal based on Washington State Supreme Court precedent," Smith said. "We will review the decision and determine our next step in consultation with our members and our attorneys."

The Chamber's lawsuit alleged that the tax was illegal under the precedent set by Cary v. Bellingham, a 1952 case that found taxes on net income were a form of illegal property tax. The Court of Appeals disagreed.

"Engaging in business is a substantial privilege on which the City may properly levy taxes, and the use of a business’s payroll expense is an appropriate measure of that taxable incident," the appellate court's ruling concludes.

In her statement, Smith criticized the city for levying the tax, while still falling behind on the budget.

"The payroll tax is projected to generate more than $277 million in revenue this year, yet despite this and other revenue tools the city has exercised, it has identified a budget gap," Smith's statement reads. "It is our hope, and the expectation of the voters via the latest Index research, that during the upcoming budget process the city of Seattle will look at all the revenue and resources it has and craft a budget that reflects the priorities of the voters."

Meanwhile, JumpStart's sponsor, Seattle City Councilmember Teresa Mosqueda, has issued a statement celebrating the city's victory.

“Thanks to the City’s legal team and the broad coalition of businesses, labor unions, community-based organizations, affordable housing advocates, environmental groups, immigrant rights activists, and more – all who built JumpStart Seattle – our progressive payroll tax continues to be the law of the land," Mosqueda's statement reads. "We’ll continue investments in affordable housing, equitable development, the city’s Green New Deal, economic resilience, and workforce development to help build a stronger, healthier, and more economically diverse Seattle."

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