San Francisco Looks To Tax Tax-Dodging Tech Companies

Dave Johnson

All of us suffer consequences when corporations cheat. Silicon Valley’s tech companies make a lot of money, but many of them dodge paying taxes. San Francisco is going to try to do something about it. Three supervisors are proposing that the city tax tech companies to help pay the costs these companies impose on the city.

Silicon Valley housing costs have skyrocketed thanks to the high salaries and stock options tech companies pay to attract skilled workers. In San Francisco and much of the area, the median rent for a one-bedroom apartment is over $3,500. The median home sells for over $1 million. This has pushed many long-term residents to the edge of or even into, homelessness.

San Francisco is a mecca for young, affluent tech workers. In some areas of San Francisco the streets are lines with sidewalk restaurants, brewpubs, great shops, all the things that make an urban environment a fun place to be. In other parts of the city the streets are literally lined with homeless people, many pushed out by the lack of housing that people making only double or triple the national median income can afford.

The Tax

Three supervisors have proposed a ballot proposal to approve a 1.5 percent payroll tax on “tech companies” with more than one million dollars in gross revenue. This would raise around $115 million annually for the city, which would go to homelessness programs and affordable housing projects. Also in the proposal as many as 75,000 small businesses would have their business registration fee cut in half.

Thomas Fuller Reports in The New York Times, in “San Francisco Considers Tax on Tech Companies to Pay for Boom’s Downside“:

Eric Mar, a member of the city’s Board of Supervisors, announced the proposal last week for a 1.5 percent payroll tax that would serve as a form of indemnification for what he described as the downside of the technology boom.

Tech companies have been “a tremendous benefit to the city in many ways,” Mr. Mar said. “But I don’t think they’ve been paying their fair share.”

The proposal for what has become known as the tech tax comes as officials struggle to fill growing gaps in the city budget. Money from the tech tax would go toward paying for programs for the homeless and the housing “affordability crisis,” Mr. Mar said.

Opponents say it is hard to define what a “tech company” is. But according to SFGate’s Emily Green:

The measure identifies tech companies by the type of tax code they use under the Internal Revenue Service’s North American Industry Classification System. Companies classify themselves. They may face penalties if a government audit finds they are misidentifying themselves.

Community Groups Back Tax

The community groups backing the tax include:

Causa Justa/Just Cause, “a multiracial, grassroots organization building community leadership to achieve justice for low-income San Francisco and Oakland residents. … [W]e are a force for justice and unity among Black and Brown communities. … We provide tenant rights advocacy and information to tenants through our Housing Committee/Tenants’ Rights Clinic. We build our membership through recruitment in the tenants’ rights clinics and through neighborhood door knocking and outreach. We fight grassroots campaigns to win immigrant rights and housing rights and work toward building a larger movement for social transformation.

San Francisco Rising, which organizes “in African-American, Latino and Asian/Pacific Islander communities in San Francisco. … [T]he members of SFR seek to build a new, community-based political infrastructure and to make lasting change on a broad set of issues impacting their communities.”

Jobs with Justice, which “believes that all workers should have collective bargaining rights, employment security and a decent standard of living within an economy that works for everyone. We bring together labor, community, student, and faith voices at the national and local levels to win improvements in people’s lives and shape the public discourse on workers’ rights and the economy.”

The Coalition on Homelessness “brings together homeless folks, front-line service providers, and their allies to build a San Francisco that everyone can call home. We are working every day to expand access to housing in one of the richest cities in the country, protect the rights of the poorest people on our streets, and to address the root causes of homelessness and poverty.”

Tax-Dodging And Extortion

Many of the giant tech companies use various schemes to dodge paying their taxes. Apple, for example, pretends that an Irish subsidiary owns the “intellectual property” behind the company’s products, and this subsidiary charges high fees, so Apple’s profits are in Ireland. This enables Apple to dodge paying U.S. taxes. Apple also pretends that it is based in a mailbox in Nevada to avoid paying corporate taxes in California. Google, for example, notoriously makes billions of dollars of profits in low-population Bermuda.

On top of tax dodging, tech (and other) companies often extort local tax breaks. Twitter, for example, extorted millions in tax breaks from San Francisco by threatening to leave the city. SFGate explains Twitter’s tax break, in “Companies avoid $34M in city taxes thanks to ‘Twitter tax break’,”

Businesses in San Francisco’s Mid-Market district skirted nearly $34 million in city payroll taxes last year thanks to a controversial incentive program known as the “Twitter tax break” intended to keep tech firms from fleeing for Silicon Valley.

That sum, published in a report released Monday by the San Francisco Controller’s Office, increased by about $30 million from 2013 and is five times greater than the amount of taxes companies avoided in the two previous years combined.

The aforementioned New York Times report explained what Twitter did to get this: “Twitter received the tax breaks after threatening to leave the city, creating resentment among tech companies in other parts of the city that did not get such incentives.”

Opponents are also using extortion to fight the proposed “tech tax,” calling it a “job-killer.” They say the small payroll tax will cause companies to pack up and leave the city so the city has to give in (a.k.a extortion). But the reality is these companies are desperate to bring in tech-skilled employees. So tech companies offer many perks to attract tech-trained employees. Aside from very high pay, employees get free lunches, snacks and beverages. At many companies even dinner is free. They get child care. They get stock options and generous benefit packages. Some even offer backrubs and yoga classes.

One of the biggest perks a tech company can offer is being located in San Francisco itself, instead of having to use their private bus network to bring employees from San Francisco.

Private bus networks? What? The February 2015 post, “Tax Scams, Google Buses Mean Silicon Valley Is #StuckInTraffic” explained:

The traffic in Silicon Valley is absolutely terrible. We the People sit in traffic, with few alternatives. The Caltrain line that runs between San Jose and San Francisco is standing room only during the hours people are trying to get to work. The Bay Area Rapid Transit (BART) rail system doesn’t go where it needs to go, and its parking lots are full where there are stations further north. Light rail is limited. The bus system is a few buses on a few of the main roads.

… But companies like Google, Facebook, Apple and others have built their own private bus lines. These are mostly shiny, white luxury buses that bring employees to work and take them home. Locally, we call them all “Google Buses.” There have even been protests because these buses bring affluent tech employees up to San Francisco neighborhoods, causing rents to soar.

There’s a relationship between those “Google Buses” and the rest of us sitting still, stuck in traffic.

Why can’t we afford to maintain our 1970s-level public transportation system? (Never mind bringing it into the 21st century.) Where did the money go? You’ve heard about companies like Apple using schemes and scams like the “Double-Irish With a Dutch Sandwich” to dodge paying taxes. Remember when an Apple executive said to The New York Times that these tax scams are just fine, because giant multinationals “don’t have an obligation to solve America’s problems.”

Commuters sit in traffic jams because tax-dodging corporations are not helping pay for transportation options. Meanwhile those companies use their tax-dodger money for beautiful, modern private transportation “Google bus” systems for themselves. They extort tax breaks. They externalize problems onto communities and offer little help – because giant multinationals “don’t have an obligation to solve America’s problems.”

Warning Shot

This proposal needs six of the eleven members of the Board of Supervisors to get on the November ballot, which is unlikely. The measure singles out “tech” companies and not others, and only those based in San Francisco. Giant companies like Facebook, Google, Apple and others are not based in San Francisco, but they deliver their high-paid employees to San Francisco’s housing market in their private bus networks.

This modest, local tax is not likely to pass, but should serve as a warning shot to giant companies – whether defined as tech companies or not – that people and communities are more than fed up with their tax dodging and their ducking responsibility for their practices.

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