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Seattle Proposition 2 raised the city business and occupation (B&O) tax threshold from $100,000 to $2 million in gross receipts and created a $2 million standard deduction. It also increased the two listed tax rates through 2032, with lower rates scheduled to begin in 2033. The changes took effect January 1, 2026, according to the City of Seattle. They apply to the city tax, not Washington state’s separate B&O tax.
What changes to Seattle’s B&O tax did Proposition 2 make?
King County Elections’ official 2025 Proposition 2 text lists these changes to Seattle’s city tax:
| Provision | Before Proposition 2 | Under Proposition 2 |
|---|---|---|
| Gross-receipts threshold | $100,000 | $2 million |
| Standard deduction | Not stated in the cited ballot text | $2 million |
| First listed rate | 0.222% | 0.342% through 2032; 0.273% beginning in 2033 |
| Second listed rate | 0.427% | 0.658% through 2032; 0.526% beginning in 2033 |
The rates above convert the decimals in the ballot text: .00222, .00427, .00342, .00658, .00273 and .00526. The ballot text lists two rates; a business’s applicable rate depends on its tax classification. Proposition 2 also allows offsetting credits for comprehensive cancer centers and nonprofit pediatric hospitals. The official ballot text does not provide the details needed to determine an individual organization’s eligibility or credit amount.
When did the changes take effect?
Seattle Finance says the Proposition 2 changes took effect on January 1, 2026. The City says the amendments did not change how the business license fee is calculated or its requirements.
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How Seattle’s city B&O tax works
Seattle’s B&O tax is based on gross receipts, not net profit. Gross receipts generally reflect business revenue before expenses; a firm’s costs or low profit margin do not turn the city tax into a tax on profit. Seattle’s tax is separate from Washington state’s B&O tax, so businesses may need to consider both systems independently.
The higher rates do not, by themselves, show what every business will owe. The threshold, standard deduction, tax classification, applicable year and any qualifying credit also matter. A high-volume, low-margin business may therefore face a different economic burden from a higher-margin firm with similar receipts; that is an implication of taxing gross receipts, not a measured finding about Proposition 2’s effects.
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How to assess a business’s potential tax change
- Identify the tax and year. Determine whether you are calculating Seattle’s city B&O tax, Washington state’s tax, or both, and use the rate schedule for the relevant year.
- Check gross receipts and classification. Find the business’s Seattle gross receipts and the city tax category that applies; the category determines which listed rate is relevant.
- Apply the threshold and deduction. Compare the receipts with the $2 million threshold and account for the $2 million standard deduction under the applicable rules. Do not treat the rate increase as the whole calculation.
- Check for an eligible credit. Proposition 2 provides credits for comprehensive cancer centers and nonprofit pediatric hospitals; whether a particular entity qualifies depends on the applicable rules.
- Keep the license fee separate. The City says Proposition 2 did not alter the business license fee calculation or requirements.
The ballot’s threshold and deduction figures alone are not a complete tax worksheet. For a filing decision, use Seattle Finance’s current instructions for the business’s classification and circumstances.
Why city leaders proposed the reform
Mayor Bruce Harrell and Councilmember Alexis Mercedes Rinck announced the proposal on June 25, 2025. They presented it as tax relief for smaller businesses combined with additional revenue to support city services amid budget pressure and threatened federal funding. The announcement estimated $90 million in annual net revenue and said approximately 90% of businesses then paying Seattle B&O tax would owe less, while about 76% of current taxpayers would no longer owe the tax. Those were proposal-era estimates, not verified outcomes.
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On August 4, 2025, the Mayor said the City Council had unanimously approved sending the measure to voters and that he had signed it. That announcement put expected annual net revenue at approximately $81 million. The $90 million and $81 million figures were forecasts in separate official statements at different stages, not reports of revenue collected.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What the ballot said about benefits and concerns
The King County Elections explanatory statement said proceeds from increased rates would support the General Fund and offset revenue lost as fewer businesses paid the tax. It listed food access, gender-based violence services, small-business supports, emergency shelter, homelessness prevention, workers’ rights and protections, public health, workforce development and job readiness, arts and culture, and immigrant and refugee services. It also said up to $30 million could be used for tax administration and to mitigate specified federal funding reductions or policy changes. These are described uses, not evidence that the money was subsequently spent on those purposes.
The official supporting statement argued that the measure would reduce the burden on 90% of Seattle employers and eliminate city B&O taxes for more than 75% of the smallest businesses. Those percentages are supporters’ campaign estimates. The official opposition statement argued that rate increases could more than double the tax burden for medium and large firms and harm Seattle’s business environment; its statements about vacancies, relocation and employment are arguments in voter materials, not independently established effects of Proposition 2.
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Sources
- King County Elections: 2025 ballot measures, including Proposition 2 text and voter statements
- Seattle Finance: Seattle business and occupation tax
- Office of the Mayor: June 25, 2025 proposal announcement
- Office of the Mayor: August 4, 2025 announcement
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