Editorial: No tax breaks for Twitter

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Twitter, the company that gave the world 140-character communications, is threatening to leave San Francisco and take 350 employees to a new headquarters in Brisbane. City officials are nervous — losing a world famous high-tech outfit that has plans to double its workforce in the next few years would be a blow to the city's reputation as a technology incubator.

So the Mayor's Office of Economic Development is scrambling to cut a deal, and the latest plans call for a payroll tax exemption that would cap the company's future tax bills at $250,000. Twitter's looking at office space on Ninth and Market streets, an area that needs an economic boost, and the supervisors — particularly Jane Kim, who represents that district — will be under immense pressure to sign off on the deal. In fact, Kim told us that Twitter has delivered a very clear message: either give us the tax break or we'll leave.

Bowing to that pressure would set a terrible precedent. The supervisors should say no.

Companies threaten local governments all the time, demanding zoning concessions, tax breaks, infrastructure upgrades and all sorts of other handouts, and typically they announce that tax relief is central to where they set up shop. In reality, the economics of business location decisions rarely hinge on local taxes. Greg Leroy, the author of the 2004 book The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation, cites a study showing that the cost of labor and transportation generally account for around 75 percent of the factors that drive business location decisions; taxes are less than 4 percent.

In Twitter's case, the payroll tax will be a tiny part of the price of leasing and moving into a new office that can accommodate significant growth. Payroll tax data is confidential, but it's not hard to make rough estimates. Twitter has abut 350 employees now, and if they make an average of, say, $70,000 a year (reasonable in a high-tech firm), then the company payroll is about $24.5 million a year, and the city's 1.5 percent tax comes to $294,000. At its current level of employment, the tax cut would be almost nothing.

Even if Twitter doubles its workforce, the amount it would save with the city's proposed tax break is only about $300,000 a year (the cost of two or three high-end employees out of the 350 the company wants to hire). If Twitter moves into the 200,000-square-foot space it's eyeing in Brisbane (sharing an office, reports say, with Walmart — how cutting edge!) and pays $25 a square foot in rent (probably low for nice office space), rent alone will be $8 million a year. Then there's the cost of all those workers driving (or taking a private bus) to a location badly served by transit. The payroll tax liability in San Francisco is tiny in comparison.

So this isn't an economic decision. It's corporate blackmail, the kind San Francisco sees all too often. "It's like this every time," Sup. John Avalos, who opposes the tax break, told us. "It's a race to the bottom."

Making it worse, the city can't legally give a tax break just to Twitter — the break would have to cover all companies either in a business sector or in a specific geographic zone. So the supervisors would either have to give tax breaks to a lot of other tech companies or, more likely, give the break to everyone moving into the Mid-Market area. That increases the cost to the city — and creates an odd situation. Under the Twitter proposal, big companies with big payrolls would get a break and small businesses would get nothing. (Black Rock LLC, which runs Burning Man, is also looking at space in Mid-Market, and the city's not offering that outfit — which employs 30 people and has an annual payroll of $3 million — any tax breaks.)

Frankly, there's no fair way to make this work. Any plan that does what Twitter wants will either benefit big companies at the expense of small ones, benefit new arrivals to the district at the expense of existing businesses, or cost the city so much money that it would be ridiculous.

We agree that the tech sector is an important part of the economy and that Twitter creates jobs in town and ought to stay here. But once you go down the path of caving in to corporate blackmail, it never ends.

 

Comments

I dunno, the Muni buses seem pretty full by the time they get to Ninth and market and the traffic patterns won't support additional vehicle commuters. NO breaks!

Posted by Guestsf24hr on Feb. 01, 2011 @ 6:49 pm

O for god's sake. Give them the tax break. The Mart is now essentially empty. The street is a wasteland. Bring in the Twitter employees who might acually spend money in the area and do something to improve it.

And get rid of the bums. That's a start.

(Please spare me the usual leftist drivel about "the homeless". I, like everyone else, have heard it for 20 years. Time to move on).

Posted by Scott on Feb. 02, 2011 @ 6:20 am

"Black Rock LLC, which runs Burning Man, is also looking at space in Mid-Market, and the city's not offering that outfit — which employs 30 people and has an annual payroll of $3 million — any tax breaks."

Well, we WANT Twitter and their ilk popping up, especially in that area. They bring what San Francisco needs (y'know, jobs, money, etc.).
On the other hand, Burning Man is stupid.

Posted by Guest on Feb. 02, 2011 @ 11:37 am

how the game is played, do you?

They can totally move to Brisbane, where they will get tax breaks up the wazoo.

These kinds of breaks are given to enterprises all over the world because it is in the long-term interest of the City.

350 well paid jobs in a ratty part of SOMA is EXACTLY what we need, and a reduction on payroll tax is a cheap price to pay.

No wonder the SFBG is doing so badly as a business if this is the extent of your business savvy.

Posted by Rick on Feb. 02, 2011 @ 11:48 am

Big corporations spend big bucks to buy politicians. In return they get a terrific ROI for lobbying, campaign contributions, and jobs for out-of office political "friends", because the politicians give them massive tax breaks from the public treasury well in excess of the money they give to enrich politicians.

Burning Man doesn't play the corruption game, so no tax breaks for them.

Posted by Guest on Feb. 02, 2011 @ 1:40 pm

There are only two large tech companies headquartered in SF - Salesforce and Dolby. Why isn't anyone else here? Clearly other localities south of SF are making it happen. In the meanwhile, SF builds out Mission Bay and offers huge tax breaks to biotech companies trying to get them to relocate from san diego and new jersey, instead of offering the same incentives to local tech firms? It's nuts.

Posted by Peter Y on Feb. 02, 2011 @ 1:44 pm

The irony is that Twitter founders were at the Commonwealth Club in October touting their corporate social responsibility and how important that is to the company.

It came across contrived, and clearly it was.

Local taxes reflect your corporate social responsibility. Does Twitter want to tweet about it but not practice social responsibility? That's what seems to be happening.

I think the city should call Twitter's bluff. Good luck in recruiting top engineers in a very hot market, to come to work in Brisbane. It would be corporate suicide, not to mention staff would know they were working for a company that doesn't take its social responsibility seriously.

Posted by Tom Foremski on Feb. 04, 2011 @ 2:39 pm

I doubt a move to Brisbane would be "corporate suicide" for a company like Twitter. They attract the best talent, much in the fashion that early dotcoms like google did - word of mouth. Referrals are of huge importance, not only as a bonus to an employee (bear in mind its taxable no matter what the amount) but also as comfort to the employer in knowing that the people you trust are most likely to bring in the people that they trust.

As for the "city" calling anyone's "bluff" - em er good luck with that.

As for social responsibility? Hello, the 1990s called, they want their nonsense catch-phrase back.

Bigger fool.

Posted by Ian Waters on Feb. 10, 2011 @ 11:34 pm

The big LOL here is that 30 Burningman 'employees' average $100k/year.

Posted by Guest on Feb. 07, 2011 @ 11:13 pm

Iindeed.

I think they meant in aggregate of the people who pump money into the money pit.

Posted by Ian Waters on Feb. 10, 2011 @ 11:35 pm

Cutting Twitter a tax break may create a new precedent that other companies would gladly follow. This would be a huge mistake, especially in these tough economic times!

Posted by Russell on Feb. 08, 2011 @ 11:10 am

This editorial exemplifies the shallowness of "progressive" "thinking."

Sure, Twitter might get a tax break. But right now there are precious few jobs on that stretch of Market, yet bringing in a whole slew of new workers would attract *other* businesses to sell them things (like coffee, food...), and those new jobs *would* bring in payroll tax and sales tax where there now are none.

My god, the lack of the most basic business sense in this piece makes the mind reel. Maybe someone should tell the SFBG editorial board that Communism collapsed 20 years ago.

Posted by Shallow Hal on Feb. 08, 2011 @ 8:27 pm

Shallow Hal, I don't know if you're blind or willfully ignoring whats out there; but there are plenty of businesses in mid-market from 5th to 10th that sell coffee, food etc.

They may not be twitterati worthy, but they are businesses and deserve respect.

Carls Jr, Subway and the like may be the product of an evil and belligerent self-hating "food war" we wage upon ourselves and is slowly killing the poor and ignorant, but they are operated and staffed by real people, all be they unwitting franchisees and desperate employees - oh wait I was once one of them damn!

For a dose of local flavor there's always What's up Dog? Ananda Fuara (if you don't mind morning star with a dose of culty) Hell the fox plaza deli isn't poison and you can always hoof it up to the many, many, many establishments in Little Saigon if a banh mi or pho is your thing and it is still cheap and probably very twitterable? twitteringly?

If the notion of crossing that dangerous civic center plaza and the risk of running afoul of those pesky progressive supes there's always the "n" number of fancified taco trucks bringing a food revolution to your taste buds and tweeting you when they're ready and at your door.

Personally i'm a bring my own lunch to work person. Sadly Quincys is not longer there and my guy tells me Twitter folks will find a way to lunch, if not at the trough at work, somewhere nearby.

Posted by Ian Waters on Feb. 11, 2011 @ 12:15 am
Posted by Guest on Feb. 09, 2011 @ 9:04 am

The difference? Neither Menlo Park, nor Palo Alto, nor Brisbane nor any other city in the Bay Area charges a 1.5% payroll tax. Only San Francisco. So no, Facebook didn't get that tax break, because they were never subject to that tax in the first place.

Posted by Guest on Feb. 18, 2011 @ 4:07 pm

As a newly returned citizen to the great city of San Francisco, let me be the first to welcome Twitter to Brisbane. After all, the cachet assigned to locating your home base in San Francisco could not possibly be worth a few hundred thousand. Especially for a company that will likely go for billions. Brisbane? Much better choice. Let me know if I can help load the truck.

Posted by Guest on Feb. 14, 2011 @ 1:41 pm

San Francisco shouldn't give Twitter a break--they should remove the payroll tax for all businesses! There is a reason that successful business like Oracle, HP, Facebook, Google, Intel, Apple are based in the Silicon Valley rather than SF proper. We in the valley celebrate success rather than penalize it like SF does. If SF continues their anti-corporate culture, Twitter should move further south than Brisbane. We would welcome them in Palo Alto where I live.

Related: http://techcrunch.com/2011/02/18/san-francisco-wants-to-tax-your-stock-o...

Posted by RelocateToPaloAlto on Feb. 18, 2011 @ 1:17 am

dumbest article of the year

Posted by Soup2Nuts on Feb. 18, 2011 @ 7:53 am

It's an editorial.

Posted by marke on Feb. 18, 2011 @ 8:12 am

Haven't the "progressives" done enough harm already? Twitter may also be worrying about the only-in-san-francisco stock options tax the city dreamed up. Is it really such a "dangerous precedent"? Imagine if San Francisco were more friendly to all businesses -- then we'd have more working people, more money in the economy, more prosperity. Remember when these companies *used to have headquarters* in San Francisco?

* Bank of America
* Chevron
* Esprit
* Robertson Stephens
* Hearst Corporation
* Peterbilt Motors
* Caterpillar Inc
* Rolling Stone

Now they're gone, and taken the jobs with them. When will "progressives" wake up to the fact that San Francisco is not going to progress anywhere without any jobs, without any money coming into the economy.

Silly wabits!

Posted by Guest on Feb. 18, 2011 @ 4:09 pm

Tax breaks for specific companies are problematic, but this just shows the problems with taxing companies in general. Corporations are supposed to make decisions based on financial reasons, not some sense of civic responsibility.

People, on the other hand, are not corporations. While it doesn't make a huge difference to a company where they're located, many of their employees want to live in the city. For whatever reason, they like San Francisco and what it stands for.

And that's why you actually end with weird situations like with the Google employees, where a substantial chunk of its younger employees live in the city, but get bused down to its Mountain View campus rather than work in the city.

So why not shift the tax burden from the corporation to the employees more directly? If they want to live in the city, they should pay the city. My understanding is that SF can't implement its own income tax b/c of state law, but surely there are other ways. Tax rent. Tax food. Tax gas. Figure out a way to make these taxes progressive. Whatever. The point is that whoever would pay those taxes would be less likely to move seven miles south than Twitter.

Posted by Andrew on Feb. 18, 2011 @ 4:50 pm

Andrew, Andrew, Andrew. Tax the employees directly, and progressively? Do you really think that people love the city so much that they'd stay? Let's see, if I live HERE, I can watch most of my earnings (yes, Andrew, EARNINGS not plunder pools for government) be misappropriated and misused. If I live THERE (anywhere outside proper), I can watch less of my earnings be misappropriated and misused. Oh, and I can afford to save for my kids' education.

Posted by Guest on Feb. 19, 2011 @ 2:33 pm