Seattle proposes business tax overhaul increasing exemptions and changing rates

In a pivotal meeting held at Seattle City Hall, city officials gathered to discuss significant changes to the business and occupation tax, a crucial revenue source for the city. The atmosphere was charged with anticipation as committee members prepared to outline a proposal that could reshape the financial landscape for local businesses.

The current business and occupation tax, levied on gross revenues rather than net profits, has been a topic of debate. With rates varying based on business activity—0.222% for retail and services, and 0.427% for other sectors—the tax structure has been deemed burdensome for many small businesses. Currently, businesses earning less than $100,000 annually are exempt from paying this tax, but the proposed changes aim to raise this exemption threshold to $2 million, a move that could significantly lighten the tax load for a vast number of local enterprises.

The proposal, which is contingent on voter approval in the upcoming November 2025 ballot, also introduces a new standard deduction of $2 million for non-exempt businesses. This adjustment is expected to exempt approximately 75% of tax filers from paying any business tax, reducing the number of businesses liable for the tax to around 5,000. However, to offset the revenue loss from these exemptions, the proposal includes an increase in tax rates for the remaining businesses, projected to generate an additional $90 million for the city’s general fund.

As the discussion unfolded, committee members highlighted the importance of these changes in the context of Seattle's economic environment. The city currently boasts the highest business tax rates in the region, a fact that has raised concerns about competitiveness. The proposed adjustments aim to balance the need for revenue with the necessity of fostering a supportive environment for local businesses.

The meeting concluded with a sense of urgency and responsibility, as officials recognized the potential impact of these changes on the local economy. With the proposed tax adjustments set to take effect in January 2026, the committee's discussions will play a crucial role in shaping Seattle's financial future and its relationship with the business community. As the city prepares to present these changes to voters, the outcome will undoubtedly influence the economic landscape for years to come.