Seattle voters will decide this November on the “Seattle Shield” initiative, a ballot measure to overhaul the city’s business-and-occupation (B&O) tax system. The proposal aims to give startups and small business breathing room while safeguarding city services — a balancing act with big implications for Seattle’s tech ecosystem.

At the heart of the measure is a dramatic increase in the B&O tax exemption threshold, from $100,000 to $2 million. That change would wipe out B&O taxes entirely for about 90% of smaller companies and new ventures. For example, a services business earning $1 million annually currently pays more than $4,000 in B&O tax per year.

To offset the revenue loss, companies making above $2 million would face higher rates on earnings beyond that threshold. For service businesses, the rate would climb from 0.427% to 0.65%. The impact on larger firms is significant: a company with $100,000,000 in revenue would owe an additional $213,920 annually — roughly 50% more than it pays now.

For early-stage startups, the proposal feels like relief. Many operate for years without net income, reinvesting heavily in development and growth. Eliminating B&O obligations during those lean years could free up funds for hiring, product development, or simply staying afloat. But as companies scale, the picture shifts. Because B&O is based on gross receipts rather than profit, high-revenue but not-yet-profitable startups may feel squeezed under the new rates.

The broader context matters, too. Washington’s tax landscape has already seen significant changes in recent years, from the JumpStart payroll tax in 2020 to this year’s new levy on high earners. For startups weighing where to build and grow, Seattle’s shifting tax mix could factor into decisions about expansion, relocation or staying put.

Supporters of Seattle Shield say the measure protects small businesses while maintaining critical funding for city programs, estimating it could generate $81 million annually. Critics counter that raising taxes on larger firms risks driving away employers and weakening downtown’s fragile commercial base.

This post was based on information found on GeekWire. 

Seattle’s tax overhaul may reshape the startup landscape – W[REPORT]