Progressives Take on Twitter Tax Break in San Francisco

Progressive leaders on San Francisco’s Board of Supervisors, along with members of SEIU, are demanding an end to a tax break which has revitalized a portion of the city. At the center of the conflict is Twitter, which agreed not to move out of the city because of the tax change.

The current conflict began in 2011 when Twitter announced it was planning to move out of San Francisco in order to avoid the city’s payroll tax. Major companies like Apple, Google, and Facebook all have their headquarters located outside the city, which allows them to avoid this additional layer of taxation.

Rather than see Twitter close up shop, the city offered a six-year payroll tax break for anyone willing to move to a blighted district known as Mid-Market or, more colloquially, the Tenderloin. The companies would still pay tax at their current level but would not pay additional tax for new employees, an important consideration for a fast-growing tech company like Twitter.

In 2010 the Tenderloin had 31 percent of its storefronts vacant over a three-block area, the highest in the city. The stores that did survive were liquor stores or check-cashing outlets. Bloomberg News quotes real estate developer Oz Erickson saying, “This used to be a scary, dangerous place.”

The result of the tax break has been a transformation. One year after Twitter moved in, the storefront vacancy rate had dropped to 22 percent. Seventeen other tech companies, including Zendesk and Yammer, followed Twitter’s lead and moved to the area to take advantage of the tax deal. Other companies, such as Dolby, moved nearby though not within the tax-break zone.

The result is more employees in need of more and better housing, restaurants, etc. What was an area of blight just a few years ago is now gentrifying. More than 3,000 new housing units are opening up in the area, all of which have required a great deal of construction and refurbishment. San Francisco’s Mayor Lee says Mid-Market is “hot real estate” now.

Not everyone is happy about the improvement. Rising rents in the area make it tougher for city workers. Progressive Board of Supervisors member David Campos has led the charge against the tax break. Two months ago, and again last week, Campos led a march composed primarily of SEIU members to Twitter’s headquarters. The gist of the marcher’s complaint is that rich companies like Twitter and other tech companies should not be getting a payroll tax break.

Colin Crowell, Twitter’s vice president of global public policy, told Bloomberg News, “The taxes that they think the city is not receivingbecause of the tax arrangement, if the tax arrangement wasn’tthere, they still wouldn’t be receiving because Twitter and allthese other companies wouldn’t be there.” In other words, better half a loaf than nothing.

The San Francisco Chronicle notes that Supervisor Campos’s complaint is also somewhat hypocritical. In 2011 he and another progressive city supervisors sponsored legislation that created a tax break for stock options. The point of the legislation was to help companies going public avoid “a big spike in their tax bills if they remained in San Francisco.”

It turns out the tax break Campos supported has cost the city far more money than the one he opposes. The Chronicle reports the payroll tax break cost the city $1.9 million since 2012 while the stock option break “amounted to almost $4.9 million over the same period.”

Campos tells the Chronicle the stock option break was not a change in policy, simply “codifying the existing practice.” However, according to Greg Kato, who works for the city’s tax collector, Campos is “mistaken.” The city always collected “stock compensation.”

Here’s a clip showing what last Tuesday’s SEIU march on Twitter’s headquarters looked and sounded like.