Business leaders call proposed SF tech tax political, counterproductive

The technology sector Tuesday blasted a proposed tax on tech companies as politically motivated and counterproductive.

The measure, introduced by Supervisor Eric Mar on Tuesday and first reported by the San Francisco Examiner on Monday, would ask voters to impose a 1.5 percent tax on payroll of technology companies, with revenue spent on homeless and housing services.

The tax would generate $120 million annually and not apply to businesses with gross receipts under $1 million.

“I am appalled at the political vindictiveness of this proposed measure,” Alex Tourk, a spokesperson for sf.citi, wrote in an email. “This is a clear effort to continue to divide and vilify rather than engage in civil dialogue on how best to work together to solve serious problems facing our city”.

The sf.citi group was founded by Ron Conway, Mayor Ed Lee’s most prominent backer and tech investor.

But Mar said he wants to hold the tech sector accountable for its purported impacts on San Francisco, pointing to soaring rents and evictions.

“After five years of a rapid tech boom in The City that we are all aware of, it is time San Francisco’s big tech companies are paying their fair share to address the impacts of housing and homelessness in our city,” Mar said.

It would take six votes by Aug. 5 to place on the ballot. It has the support of supervisors Aaron Peskin and David Campos, as well as groups like Jobs with Justice San Francisco.

The proposal also reduces small business registration fees. For example, a business with gross receipts under $1 million but more than $750,000 currently pays between $600 and $700 in business registration fees annually. That would decrease to $350.

City leaders have gone out of their way to woo tech companies to San Francisco, such as with a Twitter tax break in the Mid-Market area in 2011 and reforming The City’s entire tax structure from a tax on payroll to a tax on gross receipts. A tax on gross receipts is more favorable for the labor-intensive tech industry.

But, “we didn’t anticipate the huge growth,” Mar said.

Jim Lazarus, a representative of the Chamber of Commerce, argued the tech industry is being unfairly targeted. “These companies are paying their fair share multiple times over,” Lazarus said.

He noted The City had spent about a year reforming the tax structure to gross receipts and also decided to stop taxing stock options. Mar’s proposal would deem stock option compensation when a company goes public as taxable payroll.

Supervisor Mark Farrell was also critical of the measure. “During a time when it’s increasingly looking like we are heading into a recession, to put a job-killing measure on the ballot is the worst idea I can imagine,” Farrell said.

But Mar dismissed claims the measure would drive tech business out of San Francisco. “They will claim that but the facts show they want to be here in The City,” Mar said

The legislation defines a tech company using the North American Industry Classification System, a federal standard. It applies the tax to 3341 computer and peripheral equipment manufacturing, 5112 software publishers, 5182 data processing, hosting and related services, 51913 internet publishing and broadcasting and web search portals and 5415 computer systems design and related services.