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Will Seattle's 'Amazon Tax' Spark Copycat Proposals Aimed at Silicon Valley's Biggest Firms?

Employee Tax Targeting Top Employers Finds Favor in California Tech Markets Struggling with High Housing Costs, Traffic Congestion
June 8, 2018
Inspired by Seattle's controversial effort to levy a 'head tax' on its largest employers, the Silicon Valley cities of Cupertino, home to Apple's new spacehip complex, and Mountain View, the location of Alphabet's sprawling Googleplex, are sprinting to qualify similar tax measures on California's Nov. 6 local ballot.

Meanwhile, officials in Sunnyvale and several other nearby cities, are contemplating their own employee tax measures.

The recent moves in California reveal how deeply the Seattle tax measure, which passed last month despite scathing criticism and threats to halt expansion from Amazon.com, has resonated with leaders in tech markets who are struggling to address mounting concerns over traffic congestion, skyrocketing housing costs and other unwelcome byproducts of the extended tech industry boom.

The Mountain View City Council voted unanimously Tuesday to move forward with plans to approve a progressive tax measure that would raise up to $10 million a year by imposing a tax on a half-dozen of the city's largest employers, led by Google, which has 24,000 employees and would be subject to a tax of up to $6.6 million a year. The council is scheduled to take a final vote on the measure June 26 to put the measure before voters in five months.

Neighboring Cupertino commissioned a poll of residents by Voxloca which found that 71 percent of likely city voters in November support progressively increasing the business tax on the city's largest companies. Companies with over 5,000 employees would pay the highest tax, and Cupertino only has one of those, Apple, which at 26,000 employees makes up two-thirds of the employment base. Apple opened its new $5 billion, 13,000-employee Apple Park headquarters last year, and thousands more work at Apple's storied 1 Infinite Loop address and surrounding buildings.

Apple would be levied a $7.4 million annual tax under a scenario outlined by city staff this week, while a sole proprietor with a one-room office would pay about $160. A small store or average-size restaurant occupying a 2,000 square feet of commercial space would be taxed about $220 a year, while a large grocer like Safeway would pay about $1,700.

No Apple representative spoke before the council, however, and Cupertino Chamber of Commerce board member Kevin McClelland said while the chamber supports transportation improvements and he doesn't have an objection in principle to a business tax, he recommended the city proceed carefully and take its time , shooting for the 2020 ballot.

"There seems to be a lot of rush, with a lack of information," McClelland said. "There are thoughtful ways this can be done."

Other council members, including Steven Scharf and former Mayor Barry Chang, said waiting until 2020 would mean missing out on two years of potential revenue to find local solutions to the region's traffic and housing issues.

"We have a major transportation problem," Chang said. "I'd like to see us get it done this year. It will be a disaster if we don't do anything."

The council agreed to consider the measure again at its June 19 meeting and must approve legislation by July 3 to quality for inclusion on the November ballot.

THE PROS AND CONS OF TAXING TECH

Like many large employers, Amazon has long used the power of facility site selection as a bargaining chip in tax issues with states and cities, and its anger over being singled out under the Seattle law has drawn headlines across the country.

However, a handful of cities already have some form of business tax based on employee headcount, including Denver and Pittsburgh. At least so far, Apple, Google and other large companies have not issued statements critical of the efforts in Cupertino and Mountain View.

Tax policy analysts differ on the net effectiveness of taxes targeting large employers. Some experts argue that they indirectly hurt smaller companies that congregate around giant companies, while other analysts maintain a head tax is a reasonable option for local governments struggling to raise revenue to address growth issues associated with the tech firm's rapid growth of the tech firms.

"Clearly these proposals target the tech sector, coming as they do in the hometowns of Alphabet, Apple, and Amazon," said Jared Walczak, senior policy analyst at the Tax Foundation. "But while these taxes may target the 'As,' their impact runs from A to Z."

The impact of a head tax extends far beyond the largest employers, Walczak contends, often hitting low-margin businesses like supermarkets and smaller companies such as suppliers and smaller tech companies wanting to be located near an Amazon or Apple. Those companies could take a big hit if major employers reduce their footprint.

"If revenues are tight now, imagine what they could be if employment declines," Walczak said.

While Walczak acknowledges large employers like Amazon and Google can cause added traffic congestion and strain other services, "how a city raises additional revenue matters."

"Whatever you tax, you get less of. Levying a new tax on quite literally employing people is the wrong strategy," he said.

A head tax may be a good option to raise needed revenue given limited local fundraising alternatives, countered Steven M. Rosenthal and Richard C. Auxier, senior fellow and research associate with the Tax Policy Center of the Urban Institute and Brookings Institution.

"We agree that Seattle could design its head tax a little better. But the root question, and one that other cities might watch closely, is: how are fiscally constrained cities supposed to find revenue as their populations and services grow?" Auxier and Rosenthal said in a recent commentary.

They further noted that other U.S. cities, such as Pittsburgh and Denver, have smaller employee tax programs that raise more modest sums from employers.

Pittsburgh’s tax is $52 a year on employees engaging in an occupation within the city while Denver imposes a $117 annual tax on employees who perform services in the city, with revenues used to fund police, fire, emergency medical and other services.

"The cities believe the costs of these types of services are related to employment levels," Rosenthal and Auxier said.

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