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Tech Industry

Twitter among SF tech companies that may face new payroll tax

City leaders estimate the tax could generate $120 million annually that would be earmarked to curb homelessness and the housing shortage in SF.

Twitter, Zendesk and a host of other tech companies may face a U-turn in San Francisco's favorable tax policies if a proposal by two city supervisors to reintroduce payroll levies gains traction.

Late Tuesday afternoon, city supervisors Eric Mar and Aaron Peskin introduced a ballot measure that would institute a 1.5 percent tax on the payrolls of the city's tech companies. Revenue from the tax, which Mar estimated could total $120 million a year, would be earmarked to address San Francisco's chronic homelessness and shortage of affordable housing.

Six of the city's 11 supervisors need to approve the measure for it to appear on the ballot in November. The supervisors could vote as early as August.

The proposal represents the increasing discomfort many San Franciscans feel about the influence of tech companies and their money on the city. An influx of relatively well-paid techies has pushed up prices, particularly rents, and made the city one of the most expensive in the country.

Voters could decide whether Twitter and other San Francisco-based tech companies will have to pay payroll taxes.

James Martin/CNET

"The surge in housing demand brought on by the rapid growth of tech sector and its highly paid workforce makes it increasingly difficult for working people to remain in their homes in San Francisco, live near where they work, and contribute to our city," Mar said in an email. "By making tech corporations pay their fair share (in taxes), we can better keep small business running and ensure everyone who calls San Francisco home."

The measure would also lower registration fees for small businesses with gross receipts of $1 million or less, Mar added.

Known as the Homeless and Housing Impact Technology Tax, the proposal comes after San Francisco revised its tax structure four years ago from a payroll tax to a gross receipts tax. Mar and others say that benefits tech companies.

That 2012 revision came a year after the city adopted the controversial "Twitter tax break," which eliminated taxes involving payroll and stock options for six tech companies, including customer service software firm Zendesk, as an incentive to house their headquarters in the city.

The deal saved those companies a combined $34 million in payroll tax in 2014 and has been credited by Mayor Ed Lee and civic leaders with revitalizing parts of the city's rugged Mid-Market and Tenderloin neighborhoods.

Twitter declined to comment. Meanwhile, Zendesk said in a statement Wednesday they share the city's concerns over affordable housing and homelessness, issues that were not created by tech industry and cannot be "exclusively solved" by it.

And, Alex Tourk, a spokesman for SF.Citi, an advocacy group for San Francisco tech companies, criticized the proposal.

"The city spends a quarter of a billion dollars on homelessness," Tourk said. "Extorting more money from an industry who has helped ensure that we have the lowest unemployment rate in the country is ludicrous."

In an another example of friction between the city and the tech industry, short-term rental company Airbnb is suing San Francisco to block changes to a rental law requiring the startup to remove hosts who haven't registered with the city.

More than 75 percent of Airbnb's 7,000-plus hosts in San Francisco are not registered as required and continue to list on the site, according to the city.

Updated June 30 at 12:15 p.m. PT: Adds comments from Zendesk and Airbnb's lawsuit against San Francisco.