Harrell Proposal Would Restructure B&O Tax To Aid Small Businesses

Seattle Mayor Bruce Harrell and Councilmember Alexis Mercedes Rinck have introduced a proposal aimed at addressing the city’s $251 million budget shortfall by restructuring the Business & Occupation (B&O) tax to provide relief for small and medium-sized businesses while generating $90 million in new annual revenue. The revenue would be dedicated to preserving critical human services programs threatened by potential federal funding cuts and economic instability linked to the Trump administration.

The proposal would raise the B&O tax exemption threshold from $100,000 to $2 million in gross receipts, eliminating tax obligations for approximately 76 percent of current B&O taxpayers—about 16,500 small and mid-sized businesses. Additionally, it would create a new deduction, allowing all businesses to pay tax only on receipts above $2 million. In total, around 90 percent of businesses currently paying the B&O tax would see their taxes reduced or eliminated entirely.

To balance the new exemptions and address the budget deficit, the City would increase B&O tax rates in 2026. For retail, wholesale, and manufacturing businesses, the rate would rise from 22 cents to 34 cents per $100 of gross receipts. For service companies, which comprise a larger segment of Seattle’s economy, the rate would increase from 43 cents to 65 cents per $100. These adjustments would be effective from 2026 through 2029, with an option for the City Council to renew them through 2033. The proposal would require City Council approval before appearing on the November 2025 general election ballot.

Mayor Harrell said the proposal offers both immediate relief and long-term protection for essential services.

“This plan would reduce taxes for 90% of Seattle businesses while raising a needed $90 million to protect city investments against Trump threats to federal funding and to our local economy. Seattle’s small businesses create jobs and build communities – and they need our help. This balanced approach delivers tangible relief for small- and medium-sized businesses and puts Seattle in the best position to prepare for Trump’s economic chaos and continued ideological bluster, while we further provide essential services and maintain critical housing investments for our residents.”

Councilmember Rinck said the plan is a necessary step to shield the city from destabilizing federal policies and budget shortfalls.

“The Trump Regime continues to slash and burn essential programs that working families and our most vulnerable neighbors depend on. Everything from affordable housing and emergency shelters to food programs and worker protections are under threat. Seattle has no choice but to take action to protect our communities. We have a plan to fight back – the Seattle Shield Initiative.

“Under Seattle Shield, voters would have a choice this November to give small-and-medium mom and pop shops the ability to stay open, while ensuring the largest corporations contribute more to safeguard our city and residents from the Trump Administration.”

The changes would have a measurable impact on local businesses. A business with $5 million in gross receipts would only be taxed on the $3 million exceeding the new $2 million exemption. That company’s B&O bill would decrease from $15,200 in 2025 to about $13,972 in 2026, a savings of more than $1,200. By contrast, a business earning $12 million in revenue would see its bill rise from $31,920 to $39,587.

Local small business owners have expressed strong support for the proposal, describing it as both practical and timely.

“B&O taxes can be regressive for small businesses like Island Soul,” said Theo Martin, owner of Island Soul. “In these uncertain times, this is an opportunity to invest revenue back into my employees and restaurant. For me, the Mayor and Councilmember Rinck are responding to this unique moment in time and that the City is reinvesting back into me and my small business.”

Eric Chan, owner of Jade Garden Restaurant, said the tax relief would directly benefit his staff.

“As a small business for over 22 years, our employees are the backbone and everything for us. Most of our employees have been with us over a decade, if not longer. Being able to reinvest these funds back to them would mean everything for us!”

Matt and Elyssa Cichy, owners of West Seattle Arcade and Gary’s Place, said the proposal would ease financial strain and keep businesses afloat.

“The expense of running a small business in Seattle is exorbitant, and this proposal will be a much-needed relief for us and other entrepreneurs, while still helping to reduce the deficit. We strongly support Councilmember Rinck and Mayor Harrell’s advocacy for the small business community!”

The $90 million in new revenue would be used to backfill funding for key programs threatened by reduced federal support. These include housing vouchers and shelter beds, food and nutrition access, services for survivors of gender-based violence, and other essential human services. City leaders say that without this action, such programs face serious risk amid a volatile economic and political climate.

According to city officials, the proposal offers a way to preserve essential services while strengthening economic resilience in the face of federal threats and local revenue shortfalls.

“The inclusion of funding for the Office of Labor Standards is critical,” said Katie Garrow, Executive Secretary-Treasurer of MLK Labor. “Our city can’t protect what it doesn’t fund, and vulnerable workers—especially immigrants, women, and low-wage earners—deserve enforcement that actually works. This measure ensures that businesses doing well contribute their fair share, so we can expand access to food, shelter, safety, and opportunity.”

If adopted by the City Council and approved by voters in November 2025, the changes would take effect in 2026.