Business Tax Plan Moves Forward, Larded With New Exemptions and Spending Categories

The tax exemptions could lower revenues by more than $10 million, while the new spending categories, including transportation, go far beyond the original intent of the "Seattle Shield" proposal.

By Erica C. Barnett

The Seattle City Council moved a heavily amended proposal to raise business and occupation taxes on larger companies one step closer to the ballot on Wednesday, approving the measure in the budget committee while leaving open the possibility that it could be amended further next week, when it goes to a full council vote.

The proposal would exempt all gross business revenue up to $2 million from local B&O tax, raising taxes on the highest-grossing businesses to offset the small-business tax relief and pay for programs that might otherwise be cut due to a projected $241 million budget deficit.

The potential ballot measure, proposed by City Councilmember Alexis Mercedes Rinck and Mayor Bruce Harrell late last month, was originally supposed to raise about $90 million a year to fund programs that support food access, gender-based violence services, small business supports, emergency shelter, homelessness prevention, workers' rights and protections, and housing stability.

Rinck has been calling the proposal the "Seattle Shield" bill, because it's meant to shield Seattle from the worst impacts of federal cuts to critical, life-saving services.

Thanks to amendments piled on Wednesday afternoon by Rinck's colleagues Maritza Rivera, Joy Hollingsworth, and Rob Saka (plus a potential future amendment from Dan Strauss), the proposal is on track to bring in about $11 million a year less than originally estimated. The council's amendments also broadened the measure so it can fund programs far outside its original scope.

Introducing two amendments that will exempt Seattle Children's Hospital and Fred Hutchinson Cancer Care from the tax, at an estimated annual revenue reduction (or cost) of more than $9 million, Rivera argued that funding for cancer treatment and pediatric care represented "the very problem this bill is claiming to address—that is, impacts to our residents, including our kids, based on federal cuts and policy changes attacking those who need these critical services."

Rivera added that when Rinck and Harrell first proposed the tax, "it was not clear that that nonprofits pay B&O tax." In Washington State and in Seattle, most nonprofits are taxed exactly the same as for-profits, except that some of their fundraising activities are tax exempt. "These are nonprofits, these are not businesses," Rivera said of the two hospitals she singled out for exemptions.

Strauss plans to propose an additional tax exemption for stevedoring—companies that load and unload cargo from ships—on the grounds that maritime trade is critical to Seattle. That exemption, which Strauss said he'd introduce on Monday, would reduce the proceeds from the new tax by another $1.5 million a year. In all, the new exemptions could reduce annual revenues from the tax by almost $11 million, or around 12 percent.

The city doesn't have precise revenue estimates because businesses—including hospitals structured as nonprofits—don't have to report their revenues publicly.

After voting for the two exemptions, Rivera and Nelson blanched at the idea of increasing the size of the tax to make up for lost revenue, saying they hadn't had a chance to thoroughly study the impact of such a rate increase. "It's unfortunate that this was sort of—that this landed in our laps at the sort of the last minute," Nelson said. "It just feels rushed to me. ... It's unfortunate that this didn't come to us earlier in the year."

Rinck countered that the only reason she brought up the idea of increasing the tax rate was the last-minute amendments from Rivera and Strauss; had they not introduced new tax exemptions in the last week, she wouldn't have proposed increasing the tax to offset the losses their exemptions would cause.

"If we had known about any tax credits coming sooner than on Monday, I think we would have worked quickly to try and understand what an adjusted rate would look like," Rinck said.

In addition to the exemptions, the council also adopted several amendments expanding how the new tax, if it passes, can be used. The changes will allow this council, and future councils, to spend the so-called Seattle Shield dollars not just on human services and homelessness programs but on "transportation projects" of all kinds, arts and culture programs, anything related to public health, business workforce development, storefront repairs, and substance use treatment, among other new spending categories.

Rinck, and others who opposed expanding the proposal so far beyond its original purpose, noted that the city already has dedicated funds that pay for arts (the admissions tax), workforce development (the Families, Education, Preschool, and Promise levy), and transportation (the recently renewed transportation levy, which is the biggest in the city's history). Saka justified including transportation on the potential spending list because Trump has threatened to pull transportation funds from cities, like Seattle, that have low marriage and birth rates.

The impact of adding so many new spending categories to the legislation is unknown. Public commenters, including advocates for people at risk of going hungry in Seattle, expressed concern about spreading the "peanut butter" of limited funding too thin by using the tax proceeds as a slush fund for individual council members' priorities.

The committee also approved an amendment from Councilmember Bob Kettle, who was absent, that will require the mayor's office to come up with high-level balanced budget proposals for two years beyond the scope of the biennial budget. Last year, Harrell proposed a budget that was balanced through 2026 but fell out of balance in 2027, with a total projected deficit of $158 million between 2027 and 2028. Another Kettle amendment passed that would remove a sunset date of 2033 (with the possibility of a four-year extension) and lower the tax rate beginning that year.

The full council will take up the proposal next Monday, just before the August 5 primary election that marks the deadline to get it the measure on the November ballot. On Monday morning, the city's Office of Economic and Revenue Forecasts will present its latest revenue projections, which will reveal whether this year's budget deficit is smaller or larger than the $241 million shortfall projected in April.