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San Francisco Gives Twitter Tax Break

April 6, 2011

San Francisco’s board of supervisors voted 8-3 on Tuesday to approve a tax break to keep Twitter from leaving the city, reports the Associated Press (AP).  

The measure exempts the microblogging service from paying the city’s payroll tax on new hires, and was part of an incentive package to revive a blighted neighborhood in the San Francisco’s Mid-Market area.

Although the tax break would apply to any business in the crime-stricken neighborhood, city officials supporting the plan cited Twitter as the “big fish” that could prompt an economic revitalization of the area.

San Francisco Mayor Ed Lee, who supported the plan, announced last month that Twitter had agreed to sign a six-year lease to move into a vacant office building if the tax break was approved.  However, critics of the legislation, including the city’s largest employees union, said the plan amounts to nothing more than a corporate giveaway.

Unlike other California cities, which tax businesses based on the amount of money they earn, San Francisco taxes companies with payrolls higher than $250,000 a flat 1.5 percent rate on compensation employees receive.

In 2004, additional language was added to the city’s tax code clarifying that the payroll tax also applied to stock options. 

For high-growth tech startups like Twitter, who are considering an initial public offering of stock, a tax on stock options could mean an enormous one-time charge that businesses worry could eliminate much of the capital they would raise.

In recent months, other tech companies have threatened to leave San Francisco due to its high rents and payroll tax structure.

“Our payroll tax is one of [Twitter's] biggest headaches,” said Board of Supervisors President David Chiu to AP’s Marcus Wohlsen.

“It puts San Francisco at a disadvantage. This is a forward in the right direction and for getting our economy back on track.”

Supervisor Scott Wiener agreed, saying that beyond keeping Twitter in the city, the tax legislation finally lets the board act on a long-standing issue.

“We talk a lot about keeping jobs in San Francisco, but it’s just an enormous amount of talk,” he told AP.

“We need to keep companies like Twitter in San Francisco.”

Twitter is projected to increase from 250 to 3,000 by July 2013, the San Francisco examiner reported.

Supervisor Jane Kim, whose district includes the Mid-Market area, also supported the new legislation.  She said the measure builds on San Francisco’s efforts to revitalize a neighborhood that has suffered high crime and vacancy rates for years.

However, opponents of the legislation said the tax break would set a bad precedent, saying it was “aid and abet” the disparity of wealth. 

Supervisor David Campos, who voted against the measure, acknowledged that something needs to be done to revitalize the Mid-Market neighborhood, but warned that excluding windfall stock options would keep much-needed revenue out of the city’s coffers.

“Something has to be done, but there needs to be a larger discussion about the tax implications for the city,” he told Wohlsen.

“I’m concerned about the implications to other neighborhoods.”

Twitter officials have said the company would move into the former San Francisco Mart building at Market and Ninth streets if the measure was approved.

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