US appeals court upholds decision that payroll tax is legal

A Washington US state appeals court has upheld its earlier decision that Seattle City Council’s payroll tax on big businesses is legal.

The council passed the tax, known as JumpStart, in 2020 in order to provide more funds for housing projects and other city services. It taxes salaries exceeding $150,000 (£122,300) per year at organisations with annual payroll expenses of $7 million (£5.7 million.

The Seattle Metropolitan Chamber of Commerce has since sued to stop the tax in King County Superior Court. The lawsuit alleged that the city unlawfully imposed a tax on “the right to earn a living,” and cited the Cary v City of Bellingham case, in which the Washington state Supreme Court ruled a city could not tax the ability to earn a living. The King County court then dismissed the lawsuit earlier this month.

The appeals court ruling stated: “The City’s payroll expense tax is readily distinguishable from the tax imposed in Cary. In Cary, the income-based tax was levied on the employee, while the payroll tax here is levied on the business itself. We conclude that the City’s payroll expense tax is an excise tax on businesses imposed under powers vested in the City by the state legislature and the state constitution.”

In a statement, Rachel Smith, chief executive officer of Seattle Metropolitan Chamber of Commerce, said the team is reviewing the decision and “will determine our next step in consultation with our members and our attorneys”.