Downtown San Francisco stands in this aerial photograph in San Francisco, California, U.S., on Monday, Oct. 5, 2015. Photographer: David Paul Morris/Bloomberg
San Francisco Photograph by David Paul Morris — Bloomberg via Getty Images

Here’s Why S.F. Residents Won’t Be Voting on Taxing Tech Companies After All

Aug 02, 2016

Taxing the rich tech companies to give back to the poor of San Francisco won't be happening through a recently proposed tax, but was it even a good idea to begin with?

On Monday, the "Homelessness and Housing Impact Technology Tax," as it's known, failed to pass during a meeting of San Francisco's Board of Supervisors Budget and Finance Committee, according to media reports. The proposed tax would have added an extra 1.5% payroll tax for tech companies and decreased the business registration fees for companies with less than $1 million in gross annual receipts.

Fortunately for opponents of the tax, such as sf.citi, an advocacy group representing a number of local tech companies, it won't be making it onto the city's November ballot. But despite its supporters' arguments in favor of taxing the city's tech companies, the Office of Economic Analysis isn't convinced it would have been a good idea in the long run.

In a report it issued earlier Monday, it concluded, among other things, that the tax would eventually make housing in San Francisco less affordable—quite ironic given that its revenue would be dedicated to more housing and services for the homeless.

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"While the tax would put downward pressure on housing prices in San Francisco, by limiting demand, our analysis indicates it would put greater downward pressure on earnings," the office wrote in its report. "For this reason, it would, on average, make housing less affordable in San Francisco," it added, despite predicting that the proposed tax would generate at least $70 million to $140 million in annual revenue.

"In addition, the proposed tax would reduce the stability of the City's business tax revenue, and increase administration costs," the report continued.

Supervisors who supported the tax characterized the economic impact report as myopic and theoretical, according to the San Francisco Gate.

The "Homelessness and Housing Impact Technology Tax" was introduced in June by San Francisco supervisor Eric Mar.

In some ways, the proposed tax would act as a counter to other taxation policies enacted in San Francisco over the past dozen years. In 2004, San Francisco amended its payroll taxation policy to include compensation beyond cash, including stock options, which is popular among startups. Startup employees commonly agree to be partially paid in the company's stock under the assumption it could someday be worth hefty sums of money if the startup strikes it big.

Unfortunately, this policy can also push startups out of San Francisco, so the city added two payroll tax exclusions in 2011, helping startups avoid some taxes on their stock options. One of these exclusions is the controversial "Twitter tax break," a six-year deal that has let Twitter and other qualifying tech companies bypass the city's payroll tax if they move into the less vibrant Mid-Market neighborhood in downtown San Francisco and agree to give back, such as the community center Twitter funded.

For more on what's happening in San Francisco, watch:

The following year, the city decided to switch from a payroll tax to a new tax on gross receipts (roughly, gross revenue), a change slated to happen gradually from 2014 to 2018. The proposed payroll tax would have gone into effect in 2018 to supplement the gross receipts tax and whatever residual payroll tax was left.

Instead, raising the gross receipts tax would be a more effective solution for generating additional revenue, according to the Office of Economic Analysis. (Check out the complete report here.)

Of course, this likely won't be the end of such tax proposals. With the most recent boom in the local tech industry, San Francisco has struggled to keep its housing affordable and larger-picture tensions between the haves and the have-nots have only continued to grow.

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