Seattle payroll expense tax rules — Legislation, draft rules, and legal challenge

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January 2021

Overview

Update: Seattle has finalized its payroll expense tax rules, effective January 1, 2021. The final rules generally adhere to the draft rules, except that they remove a provision stating that "an employee's home is not a business location of the taxpayer."

Seattle has proposed rules for its new payroll expense tax that took effect January 1, 2021. The draft rules address areas of ambiguity in the ordinance adopted by the Seattle City Council in July (see PwC’s Insight for more on the new payroll expense tax law). A lawsuit has been filed challenging the Seattle tax, and there is a draft legislative proposal for a state-level payroll expense tax.

The takeaway

Businesses should analyze the Seattle ordinance and draft rules to understand their obligations under the new payroll expense tax and required accruals. In addition, if this tax is determined to be material, taxpayers should review their records and determine if a method to establish their employees’ work location and percent of time spent in any Seattle office exists or needs to be established.

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Peter Michalowski

State and Local Tax Leader, PwC US

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