Jack Dorsey’s payment service company Square would receive a tax refund of more than $7 million from San Francisco under a partial settlement of a lawsuit filed last year against The City.
Square has been in a yearslong dispute with San Francisco over what gross receipts tax rate it must pay, but is apparently close to a resolution under a settlement agreement pending approval by the Board of Supervisors, which is expected to vote on the terms in coming weeks.
The partial settlement includes paying Square a $7.01 million tax refund.
“Once finalized, this agreement would resolve Square’s tax obligations to The City for all prior tax years, and achieve a workable solution on a go-forward basis,” a Square spokesperson said in an emailed statement to the San Francisco Examiner Monday. “We look forward to finalizing this agreement and resolving the matter.”
Square had filed the lawsuit in September 2019, seeking a refund of $1.3 million for the 2014 and 2015 tax years, which they argued was the portion of taxes they overpaid in those years.
The company argued tax collector Jose Cisneros was incorrectly defining its primary business activity as “financial services” rather than “information,” which has a lower tax rate.
Subsequent to the lawsuit, Square filed an appeal with the tax collector in November 2019 seeking a refund of $8.4 million for a portion of the taxes paid in 2016 and 2017.
Leading up to the dispute, the tax collector had audited the company and ruled they owed The City more in taxes. In order to challenge the tax determination, a company has to pay the full amount first.
The terms of the partial settlement are not public, other than the amount and general information. It does not specify why it’s a partial settlement and what are the outstanding issues, but does say it applies to “tax years 2016 through 2018 and registration years ending June 30, 2016 through June 30, 2020.”
In a statement, Cisneros pointed to the company’s recent U.S. Securities and Exchange Commission filing.
“While I can’t comment on the specifics of our proposed settlement with Square, this filing should provide San Francisco taxpayers assurances that I continue to fairly enforce tax rules for all businesses in San Francisco,” Cisneros said in a statement.
Square and The City entered into the settlement agreement on May 4, Square wrote in its most recent filing with the U.S. Securities and Exchange Commission.
In the same filing, Square said that should it lose the lawsuit or should the board reject the settlement, it would cost them up to $66 million in additional taxes, interest and penalties from fiscal year 2016 through March 31, 2020 “over and above the taxes the company has already paid under the information classification.”
Meanwhile, Board of Supervisors President Norman Yee announced last week he planned to introduce a November business tax measure that would adjust the current gross receipts business tax structure in place by making “critical reforms.”
Yee announced with Mayor London Breed in July 2019 a working group to come up with a consensus measure, but with the COVID-19 pandemic there was some uncertainty whether The City would advance with the effort.
But last week Yee made it clear he would. He intends to introduce it next week.