Seattle considers a fee over a tax to cover app-based service regulations
(The Center Square) – Seattle city officials are choosing to pursue a fee on network companies operating in the city, rather than a tax that was previously considered.
The proposed network company fee is intended to generate revenue to cover regulatory costs of implementing app-based labor standards. This includes the administration of network company licenses and fees, and the implementation of app-based worker labor standards.
The fee would be on network companies operating in Seattle. According to the proposal, the fee is set at 10 cents per online order for the delivery of goods or provision of other services in Seattle. The city could adjust the fee based on “consideration of projected costs, regulatory needs, fee revenue, and other factors.”
“The key point about a fee as opposed to a tax is that the expenditure of the fee revenue needs to directly relate from the activity that is being regulated, which in this case would be network activity and treatment of app-based workers,” Karina Bull, Seattle City Council legislative analyst, explained at Tuesday’s Public Safety and Community Services Committee meeting.
The proposed fee is estimated to generate at least $2.1 million and up to $3 million per year, according to city staff. There are an estimated 40,000 app-based workers in the city, but there is limited data for online orders.
All revenue generated from the fee would be deposited into the Seattle Office of Labor Standards Fund “solely to recover the following regulatory costs,” according to a presentation.
“The first priority would be paying for the city’s administration of the network company license and collecting those fees,” Bull explained.
Fee administration expenditures are expected to be up to $260,000 in 2024 for one-time software development costs and up to $106,000 per year beginning in 2024 for ongoing implementation.
As for App-Based Worker Deactivation Rights Ordinance expenditures, up to $200,000 would be spent in 2024 for one-time outreach and set-up costs. That would be followed up with $1.2 million per year through 2026 for ongoing procedural enforcement, and up to $1.6 million per year beginning in 2027 for ongoing full enforcement.
Seattle City Councilmember Lisa Herbold said her interest in pursuing a fee rather than a tax is informed in part by ensuring that the funds are protected for the Seattle Office of Labor Standards to dedicate to the city’s app-based labor standards.
“[A tax] creates a scenario where the future council could receive an ordinance every budget year reallocating the [revenue] from the special fund into the general fund,” Herbold said. “With a fee, as I understand it, that cannot occur.”
By law, a fee can only be spent on activities related to the regulation that the city has established.
App-based companies that are subject to this fee are also subject to the city’s recently passed legislation that includes minimum pay, paid-sick leave and deactivation rights.
Seattle City Councilmember Alex Pedersen voiced his concern that the subjected companies may pass down the fee to its customers.
There would be an exemption on the fee for online orders solely for delivery of grocery items. Any orders solely for groceries such as fruits and vegetables would be exempt from the fee. Any orders with a mix of groceries and non-grocery items would be covered by the 10-cent fee.
Groceries would have the same definition as Washington state law, which includes, but is not limited to, meat, poultry, fish, fruits, vegetables, grains, bread, milk, cheese and other dairy products.
Bull noted that the policy is still in development so there are still a number of questions to be determined over the course of the next month. The network company fee will be considered during the upcoming annual budget deliberations in the next two months.
The fee would become effective on Jan. 1, 2024, if approved by the city council and Mayor Bruce Harrell.
