Ama­zon shows mus­cle in Seat­tle tax fight

Bat­tle ends in compromise, but sim­i­lar spats could be in store for other cities

USA TODAY US Edition - - FRONT PAGE - El­iz­a­beth Weise

SAN FRAN­CISCO – If Seat­tle’s bitter pub­lic fight with Ama­zon over a new tax on em­ploy­ees is a sign of the fu­ture for cities vy­ing to be­come the com­pany’s next head­quar­ters, there’s a take-home mes­sage: You can push Ama­zon, but you have to be pre­pared for it to push back — hard.

On Mon­day, Seat­tle’s city coun­cil unan­i­mously passed a mea­sure that will re­quire com­pa­nies with rev­enues of more than $20 mil­lion a year pay an an­nual $275 tax per em­ployee de­spite strong push­back from Ama­zon — the city’s largest em­ployer — and other large busi­nesses in­clud­ing Star­bucks.

The vote came af­ter weeks of hear­ings, demon­stra­tions, heated pub­lic meet­ings and a threat by Ama­zon to stop con­struc­tion of its new­est Seat­tle tower and pull out of leas­ing another.

The dispute ended in some­thing of a draw Mon­day. For Seat­tle, the ini­tial re­sult should be another $45 mil­lion in the city’s cof­fers each year to build low-cost hous­ing and to aid the home­less — prob­lems many feel have been ex­ac­er­bated by the in­flux of thou­sands of highly-paid tech work­ers at Ama­zon who have driven up rents and pushed out lower-in­come res­i­dents.

Though it passed, in many ways the fi­nal vote was a victory for Ama­zon. The orig­i­nal pro­posal had called for a $500-a-head tax on all Seat­tle busi­nesses with more than $20 mil­lion a year in gross rev­enue. The tax passed by the coun­cil was a compromise at slightly more than half that, though at $275 per em­ployee it is still the largest head tax in U.S. his­tory.

The com­pany minced no words

when the coun­cil voted.

“We are dis­ap­pointed by to­day’s City Coun­cil decision,” Ama­zon vice pres­i­dent Drew Her­dener said in a state­ment. “We re­main very ap­pre­hen­sive about the fu­ture cre­ated by the coun­cil’s hos­tile ap­proach and rhetoric to­ward larger busi­nesses, which forces us to ques­tion our growth here.”

At the same time, it backed away from its pre­vi­ous threats to pull out of its most re­cent building project in Seat­tle, a 17-story of­fice tower that will have 1 mil­lion square feet of of­fice space and will house as many as 8,000 new em­ploy­ees. It also said it would con­tinue plans to lease the Rainier Square sky­scraper, which will have 720,000 square feet of of­fice space and be the Pa­cific North­west’s sec­ond-tallest building when it is com­pleted in 2020.

There had been con­cern Ama­zon might scale back hir­ing plans for Seat­tle, but that doesn’t seem to be hap­pen­ing. Ac­cord­ing to the Seat­tle Times, in the two weeks since Ama­zon said it was go­ing to stop its buildup in Seat­tle be­cause of the tax, it has posted new ads for 547 new Seat­tle-based jobs. Cur­rently, it has 5,700 jobs open in Seat­tle, up from 4,000 a few months ago.

The show­down is one fa­mil­iar to res­i­dents in the San Fran­cisco Bay Area, where pub­lic anger has risen over who should pay for the civic woes that can re­sult from fast growth, high salaries, too-lit­tle hous­ing and ris­ing in­come in­equal­ity. Tech firms es­pe­cially, be­cause they have fewer work­ing class and blue col­lar po­si­tions com­pared to their highly-paid tech­ni­cal staffs, have been a light­ning rod for these con­cerns.

For the 20 cities on Ama­zon’s fi­nal­ist list for its sec­ond head­quar­ters — a prize worth more than $5 bil­lion and 50,000 white-col­lar jobs — their first re­sponse should be to run to the phone, said Thomas Cooke, a pro­fes­sor at Ge­orge­town Uni­ver­sity’s McDonough School of Busi­ness who writes on tax ethics and li­a­bil­ity.

“Any­body who’s on the wait list should be com­mu­ni­cat­ing with Ama­zon to say, ‘That’s not our style. Some­thing like this has never been pro­posed in our city,’ ” he said.

Oth­ers think see­ing Ama­zon’s hard­ball tac­tics might give those ea­ger cities pause. “This is brinks­man­ship at its best, and this is a tension that re­ally could im­pact how positive the re­la­tion­ship will be with the city ul­ti­mately se­lected,” said Wil­liam Riggs, a plan­ning strate­gist and pro­fes­sor at the Uni­ver­sity of San Fran­cisco.

While hous­ing shortages and in­come in­equal­ity are com­mon across the na­tion, Seat­tle is in a dif­fer­ent po­si­tion from other cities where its HQ2 might go. In Wash­ing­ton state, nei­ther state or lo­cal gov­ern­ment are al­lowed to tax in­come. Also, state law caps real es­tate tax in­creases to no more than 1% a year.

“It’s a very chal­leng­ing en­vi­ron­ment in which to raise rev­enues. So from that unique per­spec­tive, the pro­posed tax on work­ers seems like the best avail­able to Seat­tle right now,” said Matthew Gard­ner, a se­nior fel­low at the In­sti­tute on Tax­a­tion and Eco­nomic Pol­icy, a Wash­ing­ton D.C.-based, non-par­ti­san non­profit, fo­cused on fed­eral, state and lo­cal tax re­form is­sues.

At the same time, Ama­zon has a well- de­served rep­u­ta­tion for ag­gres­sively avoid­ing taxes. In fact, it chose Wash­ing­ton state as its home in part be­cause of its small pop­u­la­tion, al­low­ing the com­pany to make most of its sales where it had no phys­i­cal pres­ence and there­fore wasn’t required to pay sales tax.

“Ama­zon ap­pears to have built its busi­ness plan from day one on avoid­ing taxes,” Gard­ner said.

Whether other cities will be as deeply af­fected by Ama­zon’s ar­rival as Seat­tle is not clear. An anal­y­sis by Fitch Ratings pub­lished two weeks ago found most large met­ro­pol­i­tan ar­eas be­ing con­sid­ered for HQ2 prob­a­bly wouldn’t see much real es­tate im­pact.

Most of the fi­nal­ists have “large pop­u­la­tions, well-de­vel­oped in­fra­struc­ture and suf­fi­cient hous­ing sup­ply to sup­port the needs of Ama­zon’s work­ers. We do not ex­pect HQ2 to have much, if any, im­pact and only in the long term,” said Amy Laskey, man­ag­ing di­rec­tor for U.S. pub­lic fi­nance with Fitch Rating. Only in the smaller cities, such as Raleigh, N.C., Indianapolis, Ind. and Colum­bus, Ohio could any change be sig­nif­i­cant enough to af­fect de­mand on hous­ing and in­fra­struc­ture, she said.


Iron­worker Adil­son Cor­reia, cur­rently help­ing build the Ama­zon Block 20 of­fice building, rallies at Seat­tle City Hall. Cor­reia op­poses the tax.

Seats are filled be­fore Mon­day’s Seat­tle City Coun­cil meet­ing, where the coun­cil ap­proved a “head tax,” much to Ama­zon’s dis­may.

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