SF gives preliminary OK to payroll tax break for Twitter

SAN FRANCISCO--By a vote of 8 to 3, the San Francisco Board of Supervisors this afternoon gave preliminary approval to a payroll tax break for Twitter and other companies that relocate to the city's depressed Mid-Market neighborhood. Twitter has suggested it would move to the Mid-Market neighborhood from its current home south of Market if the legislation was passed.

The legislation would cap payroll taxes for any company with a payroll of more than $1 million for seven years. The cap would not increase even if the firms hire more staff and any employee income from stock options would be exempted. Critics of the legislation have characterized it as an unnecessary corporate giveaway and predict that gentrification would drive out low-income residents.

Twitter dominated the debate at the board's weekly meeting, though it would not be the only company to benefit from the tax break. Supervisor Ross Mirkarimi, who voted against the legislation, said "no one" wants Twitter to leave, but he said the city "blinked too soon" in negotiations with the social-media company.

In recent months, Twitter and other tech companies like Zynga and Yelp have threatened to leave San Francisco due to high rents and a payroll tax structure unique in California. San Francisco taxes companies with payrolls of $250,000 or higher the equivalent of 1.5 percent of all employee compensation, including exercised stock options.

Board President David Chiu specifically called out the city's tax rules during his remarks. "Our payroll tax is a headache," he said. "It puts San Francisco at a disadvantage. This is a step forward in the right direction and for getting our economy back on track."

Supervisor Scott Wiener agreed and said that beyond keeping Twitter in the city, the tax legislation finally lets the board act on a long-simmering issue. "We talk a lot about keeping jobs in San Francisco, but it's just an enormous amount of talk," he said. "We need to keep companies like Twitter in San Francisco."

Supervisor David Campos, who voted against the legislation, said he recognized that something had to be done to revitalize the Mid-Market neighborhood, an area of empty storefronts and homeless encampments that sits just south of the city's main shopping district. He cautioned, however, that excluding windfall stock options would keep badly needed revenue out of the city's coffers. "Something has to be done, but there needs to be a larger discussion about the tax implications for the city," he said. "I'm concerned about the implications to other neighborhoods."

Supervisor Jane Kim, an original sponsor of the legislation who also represents the Mid-Market area, brushed aside complaints that businesses like Twitter are not appropriate for the neighborhood. "We're not changing the character of the neighborhood," she said. "It was always meant for large commercial use. We're not trying to attract any business; this is for large business."

Today's vote is the first of two needed to pass the legislation. Final approval could come next week and Mayor Ed Lee has said he will sign the measure.