Seattle's City Council passed a scaled-down version of a new corporate tax aimed at tackling a housing crisis in Washington state's biggest metropolis that lawmakers said was linked to the economic boom created by companies such as Amazon.com Inc. (AMZN - Get Report) and Starbucks Corp. (SBUX - Get Report) .
The so-called Amazon Tax will cost the city's biggest companies, with annual sales of more than $20 million, around $275 a year for each full-time employee over a period of five years. While that figure is about half of the original proposal of $500, Seattle hopes to raise around $250 million from the new tax plan and use the cash to build affordable housing and improve services for the city's homeless.
Amazon is a holding in Jim Cramer's Action Alerts PLUS.
"It seems only fair that as so many struggle to make their way through a tax system that's rigged in favor of large corporations, that we ask those same corporations to financially contribute to the public health and housing solutions designed to address those consequences," the council said in a statement signed by the bill's supporters.
Amazon shares fell slightly on Tuesday after having risen 36.8% so far this year to give the online retailing giant a market cap of $780 billion. Starbucks shares also fell slightly on the session.
However, executives at Amazon and Starbucks blasted the decision, with the former suggesting it may re-think its expansion plans a city in which it employees 40,000 people.
"We remain very apprehensive about the future created by the council's hostile approach and rhetoric toward larger businesses, which forces us to question our growth here," Amazon vice president Drew Herdener told Reuters even as he noted that the company had re-started a stalled construction project following the 9-0 city council vote.
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"If they cannot provide a warm meal and safe bed to a 5-year-old child, no one believes they will be able to make housing affordable or address opiate addiction," Starbucks's senior vice president of global public affairs John Kelly said in a statement.
The council decision may also cast a shadow over Amazon's move to set up a second global headquarters -- which it's calling HQ2 -- that CEO Jeff Bezos has said will bring billions of dollars in up-front and ongoing investments, along with tens of thousands of high-paying jobs and an estimated $5 billion in related tax revenues.
"It's important to us to invest in the communities where we operate in ways that benefit our neighbors and our employees," Amazon said last year when it announced the HQ2 project. "In Seattle, Amazon has donated to hundreds of charitable organizations across the city that support people of all backgrounds and income levels."
Amazon has narrowed it search to 20 finalist cites, including Toronto, and despite the promised creation of 50,000 new jobs, Fitch Ratings has said it doesn't anticipate a near-term ratings impact for the local government that ultimately wins the bidding.
"The jobs brought by HQ2 will only affect the local governments that can capture the attendant property, sales and income taxes," Fitch noted last month. "The projected 50,000 jobs the regions will gain varies from a minimal impact on the New York-Newark-Jersey City MSA, which has a labor force of more than 10 million, to a more significant 7.4% of the labor force in Raleigh, North Carolina. The increase in salaries paying more than $100,000 per year varies as well."
An editorial in last week's LA Times, however, claimed that Amazon was pitting the bidding cities against each other by encouraging offers of tax incentives and infrastructure investment promises.
"When Amazon announces its HQ2, 19 cities are likely to, at first, feel the sting of disappointment," the paper argued. "But they should pause and consider that the winning city probably gave away excessively high tax breaks and incentives, and their own city officials did not."