SEATTLE — Amazon abruptly escalated a fight with its hometown on Wednesday, halting major expansion plans in Seattle because of a tax being considered by the City Council.
The new tax would charge large employers in the city about $500 per employee, with the money going to help alleviate a housing crisis. The tax is squarely aimed at Amazon, which is Seattle’s largest employer and frequently blamed by many residents for the city’s soaring housing costs.
The company said it would halt construction of a new building it was planning to erect downtown and reconsider occupying another that is already under construction, putting 7,000 or more jobs in jeopardy.
Late Wednesday morning, Drew Herdener, an Amazon spokesman, said that “pending the outcome of the head tax vote by City Council, Amazon has paused all construction planning” on a large building in downtown Seattle that was scheduled to begin construction later this year. Mr. Herdener also said Amazon was “evaluating options” to lease out space it had planned to use in another building that is already going up elsewhere downtown.
The decision took city officials and developers by surprise. In a statement, Seattle’s mayor said she was alarmed by Amazon’s announcement and added that she planned to work with members of Seattle’s business, labor and community leaders in the coming days to find common ground. The council is expected to vote on the tax proposal on May 14.
“I’m deeply concerned about the impact this decision will have on a large range of jobs — from our building trades, to restaurant workers, to nurses, manufacturing jobs and tech workers,” said Mayor Jenny Durkan. “At the same time, our city must urgently address our homelessness and affordability crisis and lift up those who have been left behind.”
Amazon’s decision comes as officials in other communities across the country are jockeying to bring Amazon’s business to town. The company is shopping for a second headquarters elsewhere in North America, saying it has outgrown Seattle. And just this week it announced plans to hire thousands more employees in Vancouver and Boston.
The plan the Seattle City Council is discussing would apply only to companies with at least $20 million or more annually in taxable gross receipts. The so-called head tax would be transformed into a payroll tax in 2021. Three-quarters of the estimated $75 million that the tax raises would go to building almost 1,800 affordable housing units in the city, with the rest funding services for the homeless, the City Council said.
Amazon, Seattle’s largest employer with more than 45,000 local employees, would owe $20 million to $30 million annually from the head tax and perhaps significantly more when the payroll tax kicks in.
For months, Amazon has been quietly lobbying behind the scenes against the tax proposal. Its unexpected announcement could be nothing more than a negotiating tactic to help extract concessions from the council.
Mike O’Brien, a member of the Seattle City Council, said Amazon representatives told him on Wednesday morning that they were pausing their expansion projects in the city, without leaving room for discussion.
“They’re not really asking for anything,” he said. “They’re just telling us what they’re going to do.”
Mr. O’Brien said Amazon should not be solely blamed for the homeless problem in Seattle, but that the company bears some responsibility. “From my point of view, we have a crisis in our town around housing affordability and homelessness,” he said. “They’re closely related and it’s related to the booming tech industry in Seattle.”
He added, “I need to run a city that has room for prosperous businesses, but doesn’t do it at the expense of people getting pushed into poverty.”
Greg Johnson, the president of Wright Runstad & Co., a development firm that is constructing the building that Amazon said it may lease out, said an Amazon executive told him of the plans on Tuesday night. Amazon has a lease for about 720,000 square feet in the 58-story tower.
“What’s troubling is the 4,500 people Amazon was going to put in the building, they’re now considering elsewhere, and I don’t think it’s elsewhere in Seattle,” Mr. Johnson said.
Seattle had a tax on hours worked by employees in the city starting in 2008, though it was phased out after several years. States typically grant the authority to tax at the local level, and 13 states allow some form of local income tax, according to Bill Fox, a professor at the University of Tennessee who specializes in state and local taxation issues.
Other cities with booming tech economies, like San Francisco, are also seeing housing prices soar because of intense local resistance to allowing more development. In Seattle, people unable to keep up with the costs live in their cars or in tents by the sides of freeways. Those who are better off park recreational vehicles in industrial neighborhoods.
In 2017, the Seattle area had the third largest homeless population in the country after New York and Los Angeles, according to an annual report to Congress by the Department of Housing and Urban Development.
After years of criticism for being disengaged from the civic life of its hometown, Amazon has in recent years attempted to show a more compassionate side in Seattle. It has agreed to allow a homeless shelter for families, Mary’s Place, to occupy space rent-free in another building that it is putting up. That is one of several buildings that Amazon still intends to complete.
Still, even within Amazon itself, there are haves and have-nots. While it is common for employees at its headquarters in Seattle earn $100,000 to $200,000 a year, workers at its fulfillment centers are paid only a tiny fraction of that. The company recently disclosed that median pay at Amazon last year was $28,446.
Amazon’s search for a second headquarters has also fanned criticism of the company, in large part because of the hefty tax incentives many of the 20 finalist locations have offered in an attempt to lure the company.
Mr. O’Brien, the Seattle city council member, described Amazon’s search as shopping around to see which city will give it the best deal. “We need companies that want to locate in a city and are willing to work together,” he said.
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