Repeal of Seattle Square Footage Business Tax

Effective January 1, 2016, the Seattle City Council amended the Seattle Municipal Code to end the square footage business tax. The square footage business tax was enacted in response to state legislative changes codified in RCW chapter 35.102. Specifically, since January 1, 2008, municipal gross receipts business taxes have required the apportionment of service income under a two-factor apportionment formula comprised of a payroll factor and a service income factor. The City of Seattle feared that the change in calculating taxable service income would lead to a substantial decrease in business license tax revenue. Thus, the square footage business tax was intended to complement the business license tax and to protect against adverse revenue impacts. As a result of improving economic conditions and the City’s ability to adapt over time, the City Council unanimously approved simplifying its tax code by ending the square footage business tax. Seattle Municipal Code Section 1, Subsection 5.46.030.A has been amended to reflect this change. Taxpayers will still be liable for the square footage business tax for all periods between January 1, 2008 and December 31, 2015.

The Takeaway for Businesses Located in Seattle

Although the repeal of square footage business tax affords businesses with physical locations in the City of Seattle some relief, the two-factor service income apportionment calculations can be convoluted and may have a substantial impact on a business’ bottom line.