4 ms·

What makes Twitter and Zynga more deserving of tax breaks than any other company in the city? Honest question.

maxharris 16y ago
I'd rather work somewhere else than pay even higher taxes, and lots of people are thinking exactly this same thing. SF isn't being competitive with the surrounding towns.
mcritz 16y ago
The author makes the case that these companies are driving job growth, and that the tax on stock being treated as payroll is unusual and counterproductive.
ihodes 16y ago
I don't think that was the point of the article. Rather, Arrington was commentating on the state of taxes in San Francisco, and he used Twitter and Zynga as an example of high-profile companies which were facing these taxes.
aresant 16y ago
Two notes: a) Not more deserving, but most companies in the city don't have to deal with the secondary tax mentioned. The 1.5 payroll taxes on gains from stock options is aimed at high-growth / go-public companies. b) The article is asking why do this to ANY company in the city. Even in small biz an additional 1.5% in regular payroll taxes hurts.
- blazer 16y ago
  And most importantly they are big whales not startups. TC is talking about two big billion vauated companies and their problems.
deleted 16y ago
[deleted]
pg 16y ago
As it says in the article, the problem is that the law covers not just salary but employees' stock gains as well. Twitter and Zynga uncomplainingly pay payroll tax on salaries like other companies, but the growth in their valuation combined with the fact that lots of employees get stock means that if the law were enforced, Twitter and Zynga would be hit with huge extra bills that other companies aren't.
- crux_ 16y ago
  This is probably because other companies either aren't in SF, or aren't winning the Startup Lottery. You yourself have long advocated that the former greatly increases your chances of the latter. Now, it's late, so correct me if I'm wrong in my thinking here: If twitter magically gained $3 billion in additional valuation, and all employees cashed in all their options, all at once, it would result in a "huge" tax bill of .... $13 million or so. Compare to the ~$270 million in capital gains taxes the employees would have racked up when they exercised their options. Yeah, I think that Twitter could live just fine with that. Making a large and loud public fuss is cheaper, of course. In light of all that, I think "huge" is a misleading word to use. (Assumptions: a full 30% of the company as employee options; directly translating a higher valuation into the strike-vs-share price spread that's actually taxed.)
  - pg 16y ago
    Actually I've never said that startups do better in SF specifically, but rather the Bay Area. This problem is limited to the city. The difference between the two cases is that the employees are being taxed out of money they have (if they exercise and sell) whereas the company is being taxed based not on revenues but on the appreciation of its stock. So a company whose valuation shot up in advance of anticipated revenues could find itself with a bill it had no money to pay.
    - idiopathic 16y ago
      Ah, OK, now I understand a problem I can agree with - so it's not so much the damage from paying 1.5% on a profitable transaction (employees exercise options as part of winning start-up lottery) but rather the company has to pay cash for a gain it only realised in paper. So now I understand why they were saying a company going for IPO would have to pay most of the money raised as taxes, rather than just 1.5% of it. Why is no one suggesting applying the 1.5% when cash exchanges hands? Everyone is either suggesting keeping the 1.5% as is, or scrapping it completely for stock options. But surely a middle ground allows cash for taxes as a small percentage of cash from profits?
latch 16y ago
I think it has more to do with the timing...in that, these are two companies that are going to be seriously affected by SF policies in the short term. Why Twitter and Zynga might be more deserving than a non tech company is because of the relatively high salaries of their staff. This extra disposable income flows up and down to the rest of the city. Look at it this way. You run a dry cleaning business. These are your choices: Your city can give Twitter a tax break to open shop near you (the same city). This will hopefully bring you new customers and help your business. This can work very indirectly. Twitter Employee >> Diner Waitress >> You. Or Your city can give you a tax break, but not one to Twitter. Twitter goes to a different city (because you can always find someplace that has lower taxes). Now neither you nor the diner have new customers. In theory, the tax break that you get ends up being less money than the extra money you would have made had Twitter opened shop.
- impendia 16y ago
  So, in other words, because Twitter and Zynga's staff get paid more, we should give them tax breaks.
hexis 16y ago
It has nothing to do with those companies deserving anything. The problem that is being solved is that if Twitter or Zynga leaves San Francisco and continues to grow and hire people in their new location, that will be used against the current politicians in upcoming elections. Challengers could point to the new jobs being created in another Bay Area city and say, "San Francisco could have had those jobs, but Politician X let them leave. I will make sure we keep the new jobs in San Francisco." On the other hand, if the current politicians give Twitter or Zynga too big of a tax break, they'll get challengers claiming that they gave away the store to these rich companies, along the lins of what some politicians are already saying about any proposed deal. Hence, the negotiations.
- mc32 16y ago
  >The problem that is being solved is that if Twitter or Zynga leaves San Francisco and continues to grow and hire people in their new location, that will be used against the current politicians in upcoming elections Maybe, but what you're saying is politicians are more interested in the politics in and of itself than really serving the citizens. They should do what they think will benefit the majority of the citizenry with disregard what it will do to their political 'career'. One other pet peeve I have with the city is its requirement that construction jobs must include a large percentage of city residents. This is a city which prides itself in being open and welcoming of the whole gamut of locals and all immigrant types. How does that reconcile? What if San Mateo county got the itch and said, you know what, anyone not from San Mateo working in San Mateo will be levied a non-resident payroll tax.

I'd rather work somewhere else than pay even higher taxes, and lots of people are thinking exactly this same thing. SF isn't being competitive with the surrounding towns.

mcritz 16y ago

The author makes the case that these companies are driving job growth, and that the tax on stock being treated as payroll is unusual and counterproductive.

ihodes 16y ago

I don't think that was the point of the article. Rather, Arrington was commentating on the state of taxes in San Francisco, and he used Twitter and Zynga as an example of high-profile companies which were facing these taxes.

aresant 16y ago

Two notes: a) Not more deserving, but most companies in the city don't have to deal with the secondary tax mentioned. The 1.5 payroll taxes on gains from stock options is aimed at high-growth / go-public companies. b) The article is asking why do this to ANY company in the city. Even in small biz an additional 1.5% in regular payroll taxes hurts.

blazer 16y ago
And most importantly they are big whales not startups. TC is talking about two big billion vauated companies and their problems.

deleted 16y ago

[deleted]

pg 16y ago

As it says in the article, the problem is that the law covers not just salary but employees' stock gains as well. Twitter and Zynga uncomplainingly pay payroll tax on salaries like other companies, but the growth in their valuation combined with the fact that lots of employees get stock means that if the law were enforced, Twitter and Zynga would be hit with huge extra bills that other companies aren't.

crux_ 16y ago
This is probably because other companies either aren't in SF, or aren't winning the Startup Lottery. You yourself have long advocated that the former greatly increases your chances of the latter. Now, it's late, so correct me if I'm wrong in my thinking here: If twitter magically gained $3 billion in additional valuation, and all employees cashed in all their options, all at once, it would result in a "huge" tax bill of .... $13 million or so. Compare to the ~$270 million in capital gains taxes the employees would have racked up when they exercised their options. Yeah, I think that Twitter could live just fine with that. Making a large and loud public fuss is cheaper, of course. In light of all that, I think "huge" is a misleading word to use. (Assumptions: a full 30% of the company as employee options; directly translating a higher valuation into the strike-vs-share price spread that's actually taxed.)
- pg 16y ago
  Actually I've never said that startups do better in SF specifically, but rather the Bay Area. This problem is limited to the city. The difference between the two cases is that the employees are being taxed out of money they have (if they exercise and sell) whereas the company is being taxed based not on revenues but on the appreciation of its stock. So a company whose valuation shot up in advance of anticipated revenues could find itself with a bill it had no money to pay.
  - idiopathic 16y ago
    Ah, OK, now I understand a problem I can agree with - so it's not so much the damage from paying 1.5% on a profitable transaction (employees exercise options as part of winning start-up lottery) but rather the company has to pay cash for a gain it only realised in paper. So now I understand why they were saying a company going for IPO would have to pay most of the money raised as taxes, rather than just 1.5% of it. Why is no one suggesting applying the 1.5% when cash exchanges hands? Everyone is either suggesting keeping the 1.5% as is, or scrapping it completely for stock options. But surely a middle ground allows cash for taxes as a small percentage of cash from profits?

latch 16y ago

I think it has more to do with the timing...in that, these are two companies that are going to be seriously affected by SF policies in the short term. Why Twitter and Zynga might be more deserving than a non tech company is because of the relatively high salaries of their staff. This extra disposable income flows up and down to the rest of the city. Look at it this way. You run a dry cleaning business. These are your choices: Your city can give Twitter a tax break to open shop near you (the same city). This will hopefully bring you new customers and help your business. This can work very indirectly. Twitter Employee >> Diner Waitress >> You. Or Your city can give you a tax break, but not one to Twitter. Twitter goes to a different city (because you can always find someplace that has lower taxes). Now neither you nor the diner have new customers. In theory, the tax break that you get ends up being less money than the extra money you would have made had Twitter opened shop.

impendia 16y ago
So, in other words, because Twitter and Zynga's staff get paid more, we should give them tax breaks.

hexis 16y ago

It has nothing to do with those companies deserving anything. The problem that is being solved is that if Twitter or Zynga leaves San Francisco and continues to grow and hire people in their new location, that will be used against the current politicians in upcoming elections. Challengers could point to the new jobs being created in another Bay Area city and say, "San Francisco could have had those jobs, but Politician X let them leave. I will make sure we keep the new jobs in San Francisco." On the other hand, if the current politicians give Twitter or Zynga too big of a tax break, they'll get challengers claiming that they gave away the store to these rich companies, along the lins of what some politicians are already saying about any proposed deal. Hence, the negotiations.

mc32 16y ago
>The problem that is being solved is that if Twitter or Zynga leaves San Francisco and continues to grow and hire people in their new location, that will be used against the current politicians in upcoming elections Maybe, but what you're saying is politicians are more interested in the politics in and of itself than really serving the citizens. They should do what they think will benefit the majority of the citizenry with disregard what it will do to their political 'career'. One other pet peeve I have with the city is its requirement that construction jobs must include a large percentage of city residents. This is a city which prides itself in being open and welcoming of the whole gamut of locals and all immigrant types. How does that reconcile? What if San Mateo county got the itch and said, you know what, anyone not from San Mateo working in San Mateo will be levied a non-resident payroll tax.