According to GeekWire, Seattle voters have overwhelmingly approved Proposition 2 with 67.7% approval in King County’s unofficial election results, which will reshape the city’s business and occupation tax by eliminating B&O taxes entirely 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 increase by more than 50% from 0.427% to 0.65% for service businesses, with only revenue above $2 million being taxed. The new rules are expected to raise an additional $81 million per year for human services and other city programs while addressing Seattle’s substantial budget shortfall. About 90% of small and medium-sized businesses in Seattle will pay fewer B&O taxes, with a services company currently paying $4,270 annually on $1 million in revenue seeing that bill eliminated entirely. The proposal was unveiled in June by Seattle Mayor Bruce Harrell and Councilmember Alexis Mercedes Rinck and adds another chapter to the strained relationship between Amazon and city lawmakers over tax policy.
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Who actually benefits here?
Look, this is basically a classic redistribution play. Early-stage startups and small service businesses get a huge break – we’re talking thousands of dollars annually that they can reinvest in hiring or growth. For a company hovering around that $1-2 million revenue mark, suddenly not writing that $4,000+ check to the city is meaningful. That’s runway extension. That’s another junior developer they can afford.
But here’s the thing – the math gets brutal once you cross that $2 million threshold. A company doing $3 million in revenue suddenly goes from paying nothing to facing the new higher rate on everything above $2 million. There’s going to be some interesting accounting happening right around that cutoff point.
The Amazon elephant in the room
So we all know the history here. Seattle and Amazon have been dancing this tax tango for years, and it’s never been particularly graceful. The company already moved significant operations to Bellevue, and this feels like another push in that direction.
Jon Scholes from the Downtown Seattle Association called this “a boneheaded proposal of epic proportions” back in June, and he’s not wrong about the risk. When your largest employer and taxpayer keeps getting hit with new levies, eventually they start asking why they’re headquartered there at all. But the voters have spoken – 67.7% is a landslide. The public sentiment seems to be that big tech can afford it.
What this means for Seattle’s ecosystem
I think there’s a genuine tension here between supporting the startup scene and maintaining the tax base that funds city services. On one hand, making Seattle more attractive for early-stage companies could pay long-term dividends if those companies grow and stay. But if successful companies feel penalized for crossing certain revenue thresholds, do they stick around?
The city’s facing a gaping budget deficit and needed revenue somewhere. They’re betting that the economic activity from more small businesses will offset whatever frustration this causes among larger employers. It’s a gamble, and we’ll see how it plays out in relocation decisions and expansion plans over the next few years.
One thing’s for sure – the election results show Seattle voters are willing to experiment with tax policy in ways that would make other cities nervous. The full details of Proposition 2 are now set to become reality, and the business community will be watching closely to see who really wins and loses.
