San Francisco's payroll tax might lose stock options

Supervisor Mark Farrell introduced legislation that would amend the film rebate program.

Supervisor Mark Farrell introduced legislation that would amend the film rebate program.

Eliminating a tax on stock options was proposed Tuesday as part of an effort to transform San Francisco into a “global center of technology and innovation.”

A debate about the merits of a tax break on new hires for Twitter has thrust to center stage the fact that The City’s 1.5 percent payroll tax applies to stock options, which is the way most tech startups compensate their employees. When these companies go public, they would be hit with the tax.

As the only location in the U.S. that taxes stock options, Supervisor Mark Farrell said The City needs to eliminate the practice altogether.

“[Tech companies] won’t and simply cannot keep operating here in San Francisco with this tax,” said Farrell, who introduced legislation Tuesday that would exempt stock options from the payroll tax. “We have a chance in San Francisco to be the global center of technology and innovation and the hub of the most promising Internet social media and other technology companies.

“Either we continue what we are doing and watch the exodus of jobs, or we plan for the long-term future of our city.”

It remains unclear how much The City collects from applying the 1.5 percent payroll tax to stock options. As San Francisco faces budget deficits for years to come, a tax exemption on stock options could likely become a political tempest. 

Farrell’s proposal is one of several being discussed by city officials.

Board of Supervisors President David Chiu said he plans to introduce business tax legislation in the coming weeks that “balances our needs for revenue” while offering incentives for tech companies to remain in The City.

jsabatini@sfexaminer.com

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