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WeWork Gets Tax Rebate Meant for Its Small-Business Tenants
- Guthur 7y agoAny company with local revenue of over $100 million and world wide revenue of nearly a billion should just not be eligible for tax breaks. It's really just that simple. Frankly just remove tax breaks completely and make the whole system simpler and cheaper.
- scarejunba 7y agoWhy? A low-margin high-revenue high-employment company is great for the local economy if the margins are low due to labour costs. City admins absolutely want that company way more than a hundred guys each making a hundredth at way higher margin. This way labour eats up more surplus and that's what you want if you're running a city.
- squirrelicus 7y agoWhat do you mean "if the margins are due to labor costs"? Margins are always due to all costs and the sales price.
- cortesoft 7y agoRight, but labor costs might be a large or small portion of the total costs.
- squirrelicus 7y agoWhich doesn't address the flexibility of the margin. Carbon fiber might cost more than an operator of a machine that turns carbon fiber into a useful good.
- scarejunba 7y agoSorry, I picked the wrong word. If labour is a large part of total costs that's superior to it going to a single person outside the city c.p. etc. etc.
- squirrelicus 7y agoThat's not obviously true by itself without some underlying unspoken premises we probably do not share. I reject mercantilistic views of economy. They belong in the 1600s where they died.
- scarejunba 7y agoYeah, you know, I'm not really convinced myself to be honest. Obviously you want to take advantage of comparative advantage, etc. but is a more prosperous city one which has a less unequal income or wealth or does optimizing for top-line wealth just create everything else along the way? I don't really know. I'm pretty comfortable abandoning the view. It wasn't built on a strong basis.
- squirrelicus 7y agoIncome inequality is weakly correlated with everything. It seems to be a necessary consequence of both the most and least prosperous societies. Honestly, income inequality is a red herring of left politics and public schooling. If the most prosperous societies have high income inequality, then the question must be asked: does it matter? Unless you want to design a utopia. That goes swimmingly every time, I promise. Edit: If income inequality is a consequence of freedom, it's a very, very tiny price to pay. Don't optimize for the economy. Optimize for freedom. Empirically, that's how you create prosperity.
- curryst 7y agoI think the percentage of the cost of the final product sunk into labor acts more like a VAT. Sure, the manufacturer making carbon fiber canoes may spend more on carbon fiber than the operator. But what percentage of the carbon fiber supplier's cost to manufacture is labor? And what about the the labor costs in the tools the supplier uses? Etc. It's a cumulative percentage, not just at the last mile. Similar to how VAT is calculated (at least in my admittedly limited understanding of VAT). I think this is in contrast to highly automated industries (tentatively). I think the train of thought is that lower labor costs results in a higher concentration of wealth as less wealth is distributed since there are lower labor costs. However, I would posit that the more direct measure is profit percentages. Hypothetically, if labor costs go down, and profit margins stay the same (ie if the savings are passed on to consumers), then I would imagine there would be an increase in consumption. Where the money gets back to workers may change (as increased consumption would mean increased demand for the materials McDonalds uses, which likely have higher labor costs). High profit percentages, however, typically benefit those that own some of the company. This is entirely conjecture, I am not well versed in economics. If there is some flaw in this (and I'm sure there are several), I would love to be corrected for my own education!
- EpicEng 7y agoLabor cost mean that that money is going back into the hands of workers. there are plenty of other costs that don't benefit the average person nearly as much.
- squirrelicus 7y agoPretty all costs eventually go into the hands of workers through the beautifully complex web of economy. I know this isn't the same as distinguishing between cost of labor and cost of non labor things like keyboards and shovels. But the cost of those things benefits the average person that build them, or built their components, and so on. Even the profit taken by the rich ends up benefitting the average person because, well, where does all that loan money come from? Not sure what your point is beyond a humanities professor ignorantly preaching saying "profit bad"
- EpicEng 7y agoAn ever widening wealth gap would disagree with you there. I'm not a doom and gloom tear down the system guy by any means, but wages have not risen alongside the wealth of the rich in this country lately. >Not sure what your point is beyond a humanities professor ignorantly preaching saying "profit bad" Not sure why you felt the need to throw that in. Your argument (what little there is) is essentially trickle down economics, which is BS.
- squirrelicus 7y agoOkay, that's my point. If you have a thousand wealths and I have one wealth, that's worse than if I have a million wealths and you have a quintillion wealths. No, not trickle down economics. It's history. The standard of living of the impoverished is dramatically higher than the rich of yore, and continually rising. And the reason is unequivocally capitalism. Your view of the wealth gap is just not relevant because economics is not a zero sum game. The pie is not a fixed size. The promise of capitalism is that we get to grow the size of the pie. This isn't speculation or opinion. It's one of the few things we know for certain in economics. Yes, the wealthy are getting wealthier faster than the poor are getting wealthier. But the one thing people who think that's a bad thing cannot explain is why that's a bad thing. It's not obvious that it's even possible to dramatically enrich everyone like capitalism very definitely did in the past without disproportionately enriching the few. That just may be a consequence of the only process of collective enrichment that appears to have ever existed on the planet.
- EpicEng 7y ago> It's really just that simple. it's really not, and it certainly isn't when you speak in terms of revenue instead of profit.
- squirrelicus 7y agoTax breaks and similar incentives exist to nudge the market in the direction the government would like. I may not approve, as a conservative person, as I always advocate for a simple flat tax on all entities. But I'm not the politicians who decide they want to incentivize various behaviors in the market. The real point I want to make is in order to simplify the tax structure, you rob the politicians of their main economic design power. No more tax incentives for solar, high efficiency windows, developing in high crime areas, and the like. I'm willing to pay that price, but are you? (The royal you, i.e. us). The final point, the real crux of the matter, is that politicians cannot predict all the consequences of the tax breaks they create. If tax breaks exist, people should try to get them, otherwise the whole incentive structure doesn't operate. Then some people who were not intended to get the break find edge cases in the legal language to exploit. If the politicians can't predict all the edge cases of the incentives they design (which they can't) then we end up with things that seem outrageous until you read the law and go "oh, that's the loophole. Shitty, but seems legal.". This is why the federal code is so complicated. People making the tax code more complicated over time to try to specifically target the incentives. Just like a legacy codebase, in fact. Except that it's subjective when you evaluate it. Edit: typos
- Barrin92 7y agothe other alternative is always to collect taxes in a straight-forward manner and hand out subsidies rather than tax breaks. Not that subsidies are not potentially also subject to abuse, but they seem at least somewhat more robust and controllable than the labyrinth that is the modern tax code.
- squirrelicus 7y agoSubsidies have the same problem if they target a class of recipients. If they target recipients directly, then we are simply in crony capitalist land where politicians' friends and doners get competitive advantages and risk monopolization. It also creates an incentive structure that can have toxic implications for the company and products, since the government is effectively a customer, but the product being purchased is subsidy qualification -- potentially at the expense of the laborers or customers. Imagine if your product manager had to take the politicians' product whims into account when prioritizing your backlog. Edit: my political commentary: this is the fundamental problem that converted me to conservatism from center-leftism. I believe it's not possible to create an equitable structure and a level playing field while the government meddles in the economy.
- gtirloni 7y ago> The New York-based company that revolutionized the commercial property business Has it?
- scarmig 7y agoIt's definitely innovated the form of marketing boring old shit into something new and revolutionary.
- dyarosla 7y agoInnovated or more accurately executed well? There’s a subtle distinction here.
- munk-a 7y agoNot only did it revolutionize the commercial property business - it also then proceeded to disrupt that revolution with a counter-revolution. (And no, it absolutely hasn't revolutionized anything, but when you're a tech company everyone feels obligated to give you more credit for some reason)
- adonnjohn 7y agoExcept they're not really a tech company.
- barbecue_sauce 7y agoTech adjacent maybe?
- nodesocket 7y agoIn return for offering tenants flexible month to month office space at heavily discounted rent, WeWork get’s the business tax break. I don’t see any reason for outrage.
- Turukawa 7y agoIt's not heavily discounted. But the offices are very, very small.
- munk-a 7y agoHere's the specific way they're accomplishing eligibility from the article: > Here’s how the tax arrangements work: WeWork divides each of its properties into dozens or even hundreds of individual areas. Each of those spaces, known as hereditaments, is then separately assessed for tax purposes. > That allows the company to claim back the taxes on any area that is empty or small enough to be eligible for relief if they are occupied by a small company with no other offices. I feel like pretty much any company could qualify under these conditions, if you declared your office building a desk access pool and declared income on each segment as an individual employee. It seems super weird that WeWork should be able to consider contiguous office space as separate isolated offices.
- Turukawa 7y agoI provided some of the data used in this article (via FOI-request, used at sqwyre.com). The scale of the number of the hereditaments (taxable units) is remarkable and overloads local tax authorities. We're talking thousands, with regular tenant changes. Even in central London, there are only a handful of municipal staff to deal with all businesses. What you end up with is equivalent to a denial-of-service attack against rates authority staff. They're overwhelmed. That's the real risk to communities. If tax relief claims are industrialised, it puts endless pressure on the services those taxes were supposed to pay for. These are local taxes, so that's libraries, community centres, road maintenance, etc. WeWork may not be a tech company when it comes to what they're selling, but it is when it comes to how they deal with tax.
- wdb 7y agoOf course, you can not give the tax relief claims to multinationals until it has been verified ;)
- munk-a 7y ago> If tax relief claims are industrialised, it puts endless pressure on the services those taxes were supposed to pay for. These are local taxes, so that's libraries, community centres, road maintenance, etc. I can understand how the existing system may have issues with this - but the total presence of WeWork definitely doesn't qualify for a rebate... and if the filing rate of the company seems absurd then the government should reject all the filings by that company and fine the company trying to abuse the system. Unlike computer logic where weird edge cases can be exploited due to the speed and complexity of the system... when it comes to taxes this stuff is going in front of human beings and the government can always bring a hammer down.
- Wowfunhappy 7y ago> and the government can always bring a hammer down. And if the government lacks the power to do so, that needs to be changed.
- 7y ago
- aresant 7y agoThis is a massively complicated and nuanced issue that has kicked around the Supreme Court in the UK. Here's the game: 1) There are taxes levied on business users of commercial office property in the UK. 2) Independent small businesses may apply for tax relief if they rent a space that has a rateable value of less than £15,000. (1) 3) The intention of this relief was to provide small business users with a fighting chance to be able to afford office space. 4) The "total rateable" value" of a massive open coworking space is obviously higher than £15,000 but if you're a business renting 2 desks maybe you should qualify for the small business relief? 5) Coworking landlords figured out that they could qualify for the tax breaks THEMSELVES if they cut their own properties into dozens (or hundreds) of small plots or pieces called hereditaments. 6) Then in effect you have these hundreds of hereditaments claiming the small business tax and collecting rent from a small business. WeWork is a slightly worse abuser of the game played by virtually all coworking operators in the UK. The "coworking" lobby has published a study outlining their view (1). At the core Her Majesty's Revenue and Customs set up a system that didn't count on the inevitable "enterprise" player paying tax attorneys to abuse them, and the two sides should probably sit down and sort out something reasonable. But instead they're suing eachother to oblivion and employing armies of attorneys :). (1) https://www.gov.uk/apply-for-business-rate-relief/small-business-rate-relief https://www.gov.uk/apply-for-business-rate-relief/small-busi... (2) https://lep.london/sites/default/files/The%20affordability%20crisis%20-%20business%20rates%20aren%27t%20working%20for%20london%27s%20open%20workspaces.pdf https://lep.london/sites/default/files/The%20affordability%2...
- moron4hire 7y agoI guess law school grads gotta get paid somehow...
- munk-a 7y agoLaws are hard and the legal system is complicated but (4) is where it breaks down to me. If there was a company leasing 100k worth of space in total they clearly shouldn't qualify, if the client is leasing 10k worth of space, maybe they should qualify... if that company mostly closes but has time to run out on their lease which they use by sub-leasing the property then still, _maybe_ they should qualify, their sub-leasors probably should qualify assuming the property isn't marked up in the sub-leasing. Any company attempting to declare stewardship of multiple hereditaments should have the book thrown at them. Anyone using subsidiary companies to distribute their hereditaments should also have the book thrown at them... I'll just assume the UK got into this weird tax system because real-estate investors tend to have an out spoken amount of power in politics and tend to create some of the most absurd tax loop holes... especially since there is a specific coworking lobby.
- espeed 7y agoWeWork remains woefully insecure [1] -- IP is likely leaking out of it like a sieve -- and with a real-estate structure that's positioned as a too-big-too-fail [2], what could possibly go wrong... [1] The Cyber-Insecurity of WeWork – Shared Offices and Cracking WiFi with Weak WPA2 Passwords https://www.digitaloperatives.com/2018/10/10/the-cyber-insecurity-of-wework-shared-offices-and-cracking-wifi-with-weak-wpa2-passwords/ https://www.digitaloperatives.com/2018/10/10/the-cyber-insec... [2] The CBINSIGHTS research report (WeWork strategy teardown)... "WeWork’s $47 Billion Dream: The Lavishly Funded Startup That Could Disrupt Commercial Real Estate" https://www.cbinsights.com/research/report/wework-strategy-teardown/ https://www.cbinsights.com/research/report/wework-strategy-t...
- cnst 7y agoRe: The Cyber-Insecurity of WeWork – Shared Offices and Cracking WiFi with Weak WPA2 Passwords Sorry, but the password complaint is just ridiculous. What's exactly the point of a strong password if it's still shared with a million (or whatever) WeWork members across the globe, and could easily be figured out by simply asking just about anyone (of course, noone actually remembers it, as you only enter it once), or by taking advantage of one of the many ways to get a sample of the offering? They list https://www.xkcd.com/936/ https://www.xkcd.com/936/, which is indeed a great one, but what WeWork should reply to them is this, https://xkcd.com/538/ https://xkcd.com/538/, which is the truth.
- espeed 7y agoBoth practices are bad. Sharing passwords and weak passwords is doubly bad. Don't do that. A $47 billion company like WeWork should know better.
- delfinom 7y agoYep. If WeWork is pushing free WiFi and framing themselves as a "psuedo-tech company", they should also be heavily advocating VPN usage their "members". Not doing so means they are probably eavesdropping.
- anigbrowl 7y agoLike Theranos, WeWork is a company that just seems to be one grift on top of another, getting away with it by doing it in plain sight.
- munk-a 7y agoWeWork trying to sell themselves as a billion dollar company seems pretty overambitious, but I don't think it's anywhere near the level of repeatedly lying about actually doing business and the progress of research and development. If WeWork were filling with S1 never having actually rented out space in practice - then they'd be like Theranos.
- paxys 7y agoIs WeWork selling a product or technology that they don't have and doesn't actually exist?
- jessaustin 7y agoThis reminds me of when I worked overseas for Lucent; they hired an accountant who tried to file such that they would get a tax deduction that was supposed to go to the employee. Fortunately IRS saw through that shenanigan.
- benj111 7y agoSo as I understand it, tennants should be able to request the money back from Wework?
- Turukawa 7y agoYep. If I were a WeWork tenant and would ordinarily qualify for the Small Business Rates Relief, I'd be asking them about that...
- rabbitonrails 7y agoMy attempt to read this potentially important article on my iPhone X was murdered by four successive layers of popup screens asking for cookie consent, then a subscription, then 2 advertisements.
- sdorker 7y agoThis is a common business model. Eg Terminal.io gets R&D credits for the employees it hires on behalf of other startups.
- sabujp 7y agothere should always be penalties for abuse, e.g. dosing people with GDPR takedowns