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Square CEO Jack Dorsey’s tax fight goes beyond Prop. C

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(Courtesy image)

Even before Square CEO Jack Dorsey publicly sparred with Salesforce CEO Marc Benioff over the homeless tax measure facing voters Tuesday, his company was already embroiled in another tax dispute in San Francisco.

Dorsey, who is also the CEO of Twitter, has publicly discussed his opposition to Proposition C and the impacts it will have on Square, an online payment company.

Less well known is that his company was already trying to pay fewer taxes in San Francisco, according to Square’s filings with the U.S. Securities and Exchange Commission.

Those filings show that Treasurer and Tax Collector José Cisneros audited Square’s tax payments for fiscal years 2014 and 2015 and determined the company failed to pay the full amount owed to The City.

Cisneros found that Square should pay the tax rate for financial services, and not the tax rate for information services, or tech companies, which is lower. The company challenged that decision, the filings show.

The filings said that Cisneros “believes the Company’s primary business activity is financial services rather than information services.”

“We disagree with the Tax Collector’s position,” Square said in the filings.

Ultimately, the company “paid the liability for fiscal years 2014 and 2015 in the first quarter of 2018, as assessed by the Tax Collector.” The filing doesn’t specify the dollar amount.

SEE RELATED: Billionaires Benioff and Dorsey trade barbs over homeless measure — where else? — on Twitter

But Square “intends to vigorously defend its position, which it believes has merit,” indicating it may sue The City, according to the company’s most recent filing with the SEC on Aug. 1.

“Should the Company not prevail, the Company could be obligated to pay additional taxes together with any associated penalties and interest for subsequent years that together, in aggregate, could be material,” the filing reads.

Tax collector spokesperson Amanda Fried told the San Francisco Examiner that tax disputes within the office are confidential and she couldn’t comment on any specific case. She also couldn’t provide documents related to such disputes.

“I am not able to share any communications with a taxpayer due to taxpayer confidentiality laws,” Fried told the Examiner.

“In general, if a business disputes a finding of our office (typically via an audit), they can appeal the finding via a tax collector hearing,” Fried said in an email. “Those are confidential. If the business is still not satisfied, they can file a claim or a lawsuit.”

Dorsey did not return requests for comment made through both Twitter and Square.

Jennifer Friedenbach, the executive director of the Coalition of Homelessness, the homeless advocacy group behind the homeless tax measure, said that “Square has a business model that is designed to avoid paying taxes.”

“Opposing revenue to address homelessness and getting in legal disputes with the city is an extension of that practice,” she said.

This is not the first time Dorsey has challenged San Francisco’s business taxes.

In 2011, as Twitter was threatening to relocate to Brisbane, The City adopted the “Twitter tax break” for the Mid-Market area that allowed Twitter to forgo paying the then-tax on payroll for new workers, which includes compensation from stock option gains, for six years.

The Twitter tax break set the stage for San Francisco to change the way it taxed businesses from a payroll tax to a gross receipts tax, which was more favorable for the tech industry.

In addition to disputing how San Francisco is already taxing Square, Dorsey is among the most prominent tech CEOs to publicly oppose the homeless tax measure, Proposition C, before voters Tuesday. He has contributed $125,000 to the campaign against the measure, which would add an average of .5 percent gross receipts tax to company earnings in excess of $50 million.

On Oct. 19 Dorsey said in a tweet that companies like Salesforce would pay less than Square under Prop. C. “We’re happy to pay our taxes,” Dorsey wrote. “We just want to be treated fairly with respect to our peer companies, many of whom are 2-10x larger than us. Otherwise we don’t know how to practically grow in the city. That’s heartbreaking for us as we love SF and want to continue to help build it.”

Square’s net revenue in the second quarter of the year was $815 million. The publicly-traded company’s stock was valued at $77.76 as of Friday.

Dorsey has also publicly debated Prop. C with Benioff, who is funding the political campaign in favor of Prop. C with his personal money and Salesforce money, to the tune of nearly $8 million.

In an impassioned speech Tuesday at a SPUR luncheon, Benioff called on billionaires and tech companies to practice more charity to address the homeless crisis in San Francisco by supporting Prop. C. The measure would generate $300 million annually and would, among other things, permanently house 4,000 formerly homeless residents.

Benioff chastised tech leaders for caring more about their wealth and shareholders interests than the suffering homeless.

“I fear that we are becoming too much about one thing, our wealth,” Benioff said at the luncheon. “The business of business cannot just be business. The business of business must be beyond profits. It can’t just be about creating value for our shareholders.”

Election Day is Tuesday.

Pedestrians walk by the headquarters of Square at 1455 Market Street on Tuesday, Oct. 23, 2018. (Kevin N. Hume/S.F. Examiner)

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