Amazon's fight with Seattle gives second headquarters cities a taste of their future

Elizabeth Weise | USA TODAY

Show Caption Hide Caption Amazon has suspended plans to expand in Seattle Amid a city counsel vote on new tax.

SAN FRANCISCO – Amazon and Seattle are in a showdown over who should pay for the civic woes that can come from fast growth, high salaries and a housing crunch.

The e-commerce giant has paused construction of its newest tower in its headquarters city after the City Council proposed a tax on the largest businesses to help fund affordable housing. The debate got louder Thursday when members of Iron Workers Local 86 showed up at a rally in front of Amazon headquarters called by a socialist city council member.

The set-to comes as Amazon is nearing the end of a search for a second headquarters. Meant to be equal to its Seattle home, 20 cities are fighting for the right to land 50,000 jobs and $5 billion in investment. But some groups are worried that a win will also bring high rents and deepening inequality, as Seattle has experienced in the last decade.

The Seattle fight gives contenders, which stretch from Los Angeles to Nashville to Newark, a taste of how a fight can play out between a city and its most successful employer, whose relentless growth has overtaken the supply of homes and apartments.

The city is proposing a tax that would affect businesses that make $20 million a year or more, or about 3% of Seattle businesses, according to the council members who made the proposal. It would require those employers to pay an additional 26 cents per hour or $500 more per employee annually. The council estimates it would raise $75 million a year. Amazon made $3 billion in profits last year.

About 75% of the tax money would go toward funding more affordable housing and the rest towards emergency and shelter services for the homeless.

After two years, the head tax switches to a payroll tax that will tax larger companies at a higher rate than smaller companies.

In response to the proposed tax, Amazon has paused its Block 18 project in downtown Seattle, across the street from its main headquarters building. The 17-story building, which will have 1 million square feet of office space, is meant to house between 7,000 and 8,000 new employees.

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"Pending the outcome of the head tax vote by City Council, Amazon has paused all construction planning on our Block 18 project in downtown Seattle and is evaluating options to sub-lease all space in our recently leased Rainier Square building,” Amazon Vice President Drew Herdener said.

When completed, the Rainier Square skyscraper will have 720,000 square feet of office space and be the Pacific Northwest’s second-tallest building.

Amazon is also ramping up its technical hiring in other cities. In the last two weeks, it has announced that it’s adding 3,000 jobs in its Vancouveroffices in Canada and another 1,000 in Boston.

In a statement, the four council members making the proposal said it was never meant to target one company, but "Amazon made the conversation about them when they expressed their intentions to pause construction on their new office tower pending a vote on our Progressive Tax on Business."

Amazon has grown at a remarkable clip since it was first founded in the Seattle area in 1994. Today, it has workers in more than 40 buildings and occupies one-fifth of Seattle’s first-class office space, totaling more than 10 million square feet. It is estimated to have about 45,000 employees in Seattle currently.

In the past 10 years, Seattle's population has increased by 100,000 to 704,000, according to the U.S. Census Bureau.

While the city has been adding about 10,000 new apartments a year, a high number compared to Silicon Valley, it is still not enough to house all the new employees coming there to work at Amazon or work in businesses that service the company and its workers.

This has been one cause of the city's rapidly increasing rental and purchase prices for housing, gentrification and homelessness.