An appeals court judge upheld Seattle’s JumpStart payroll tax on Tuesday, upholding a decision made by King County Superior Court last year.
In a statement released Tuesday, the Division I Circuit Court of Appeals ruled that Seattle’s JumpStart tax was lawful and upheld a lower court’s dismissal of a lawsuit filed by the Chamber of Commerce in late 2020.
“Doing business is a significant privilege on which the city may properly levy taxes,” the report said. “And using a company’s labor costs is a reasonable measure of that taxable incident.”
The tax, passed by the Seattle City Council in 2020, requires companies with annual payrolls of at least $7 million to pay between 0.7% and 2.4% of wages and salaries paid to Seattle employees earning at least $150,000 per year. The highest rate applies only to salaries of $400,000 or more at companies with $1 billion or more in annual wages.
In 2021, the first year of collection, JumpStart brought the city $231 million in revenue, exceeding the city’s estimate of $200 million.
While corporations are responsible for the tax, some believe JumpStart is an unlawful tax on those earning a living wage, citing Cary v. Bellingham. The 1952 Washington Supreme Court case considered taxes on net income to be illegal property taxes.
The latest lawsuit was originally filed by the Seattle Metropolitan Chamber of Commerce in December 2020, when the chamber asked King County Superior Court to scrap the tax, calling it “illegal, void and unenforceable.”
After the original lawsuit was dismissed by a King County Superior Court judge last summer, the board appealed the decision.
In a written statement Tuesday, the chamber did not say whether it intends to appeal the decision.
“The Chamber brought the payroll tax lawsuit because we believe the tax is illegal based on precedent from the Washington State Supreme Court,” said Chamber President Rachel Smith. “We will review the decision and determine our next step in consultation with our members and our attorneys.”
Smith also criticized the city’s use of tax revenues, citing the city’s projected $117 million in revenue shortfall in 2023.
“It is our hope, and the expectation of voters based on the latest Index research, that during the upcoming budget process, the City of Seattle will review all of the income and resources it has and create a budget that reflects voter priorities. ‘ said Smith.
Council member Teresa Mosqueda, chair of the council’s budget committee and a JumpStart advocate, celebrated the decision.
“Thanks to the city’s legal team and the broad coalition of businesses, 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 state ‘ Mosqueda wrote in a statement on Tuesday.
“JumpStart was – and with today’s win, continues to be – one of Seattle’s greatest tools to address our city’s most pressing issues,” she added.
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