According to GeekWire, Seattle voters have overwhelmingly approved Proposition 2 with 67.7% support in King County’s unofficial results. The measure completely eliminates business and occupation taxes for small and medium-sized businesses with gross receipts of $2 million or less. To offset this revenue loss, large companies will see their B&O tax rate jump from 0.427% to 0.65% for service businesses. The change is expected to generate an additional $81 million annually for human services and city programs. About 90% of Seattle’s small and medium businesses will pay fewer taxes under the new rules. The proposal was unveiled in June by Mayor Bruce Harrell and Councilmember Alexis Mercedes Rinck to address the city’s substantial budget shortfall.
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The great Seattle tax shift
Here’s what’s really happening: Seattle is fundamentally restructuring who pays for city services. Small startups and businesses under $2 million in revenue get a complete tax break. A services company making $1 million annually currently pays $4,270 in B&O tax – that’s now zero. But that money has to come from somewhere, so larger companies are taking the hit with a more than 50% rate increase.
And let’s be real – when we talk about “larger companies” in Seattle, we’re basically talking about Amazon. The city’s largest employer now faces another tax increase after years of tension over tax policy. Jon Scholes from the Downtown Seattle Association called this “a boneheaded proposal of epic proportions” back in June, warning it would “defund Seattle’s tax base.”
The budget reality behind the move
Seattle isn’t doing this just to be nice to small businesses. The city’s facing what they describe as a “gaping budget deficit” over the next two years. They need that $81 million annually, and they’re betting that taxing fewer but larger entities is the way to get it.
But here’s the thing – this creates a pretty interesting incentive structure. If you’re a tech startup hovering around that $2 million revenue mark, you’ve got a strong motivation to stay just under it. And if you’re Amazon or other large employers, you’re now paying significantly more to operate in Seattle. The city’s basically betting that these companies won’t shift operations or jobs elsewhere because of the tax hike.
What this means for Seattle’s tech scene
On paper, this looks great for startups. No B&O tax means more cash to reinvest in growth. But there’s a potential downside – if the tax increases drive larger companies to reduce their Seattle footprint, that could hurt the entire ecosystem. Big tech companies create demand for smaller tech services, they spin off talent that starts new ventures, and they anchor the local economy.
So is this smart economic policy or short-term budget fixing? The election results show voters clearly think it’s the former. But the real test will be whether this actually stimulates small business growth without driving larger employers away. The full details of Proposition 2 show this is a temporary measure, but temporary taxes have a way of becoming permanent.
