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February 2021

New Seattle "payroll expense" tax includes real estate brokerage firms

February 4, 2021


In July of 2020, the Seattle City Council approved a "payroll expense" tax on businesses in Seattle with annual payrolls in excess of $7 million. The objective of the tax was to have large employers, with employees who earn more than $150,000 per year, pay more to the city to fund various housing and assistance programs.

The Seattle Finance Department completed its review of the tax in December and issued a Director's final rule which clarified that the tax applies to real estate brokerage firms. The rule defines "payroll expense" to include sales commissions paid to independent contractors.

Seattle King County REALTORS®, with the assistance of legal counsel, has developed an FAQ to answer questions about how and when the tax applies to real estate brokerage firms. Although the tax is only paid by a brokerage firm with a payroll of $7 million or more, the tax may apply to real estate brokers earning more than $150,000 who perform more than 50% of their duties within Seattle, and to real estate brokers who do not perform 50% of their services in Seattle but reside in Seattle. (see FAQ) Editor's Note: SKCR plans to update the FAQ to provide more assistance to real estate brokerage firms.

"The Seattle Council clearly cast a wide net in an attempt to tax businesses which have any sort of footprint in the city," said Seattle King County REALTORS® CEO Russ Hokanson. "Business owners deserve certainty from the City, so we will seek clarification of key definitions in the tax related to real estate."

The tax went into effect on January 1, 2021, but the first payments aren't due until January of 2022. The Seattle Chamber of Commerce has filed a lawsuit challenging the legality of the new tax.


Read FAQ here:

https://www.nwrealtor.com/wp-content/uploads/2021/01/FAQ-2021-01-29.pdf


Read Director's Rule here:

https://www.nwrealtor.com/wp-content/uploads/2021/01/Seattle-Payroll-Expense-Tax-Directors-Rule.pdf


About the Chamber Lawsuit:

https://www.seattlechamber.com/home/advocacy/advocacy-news/details/2020/12/08/chamber-files-lawsuit-against-seattle-payroll-tax