Twitter’s Tax Break Clears One Hurdle

Twitter is well on its way to getting a tax break in San Francisco after threatening to leave the city for the suburbs.

San Francisco’s Board of Supervisors on Tuesday voted 8 to 3 to preliminarily approve a tax break that could allow Twitter to avoid tens of millions of dollars in taxes. A second vote expected next week would make the legislation official.

As I recounted in an article Monday in the Times, Twitter had said it planned to move out of San Francisco, where it is based, because of the high cost of doing business.

In particular, Twitter complained about the city’s payroll tax, which requires companies to pay the equivalent of 1.5 percent of all employee compensation. The tax is based on employee salaries, bonuses and, most importantly to companies like Twitter that are contemplating initial public offerings, gains on stock options. To avoid losing Twitter and the prestige that comes with it, city officials rushed in with an offer: Move into a building on Market Street, in a neighborhood known for its panhandling, and get a tax break. Twitter agreed to the deal, pending the tax break’s approval.

Any company with a payroll greater than $1 million that moves into the “rehabilitation zone” would be eligible. They would pay their current tax for the next six years, no matter how many employees they added during that time or how much money they made from stock options.

“Today’s vote is a vote to keep jobs in San Francisco,” David Chiu, president of the Board of Supervisors, said in a statement. “This policy is a crucial positive step in the ongoing effort to revitalize the Central Market and Tenderloin neighborhoods.”

He continued: “Twitter’s commitment to move to this challenged stretch of Market Street and stay in San Francisco shows that we are not content to simply become a bedroom community for Silicon Valley. The companies that are born here should grow here.”

Fellow San Francisco Internet company Zynga quickly started agitating for a similar tax break after, of course, threatening to leave. However, Zynga, a hot Internet company in its own right as maker of the Farmville online video game, is not located in the rehabilitation zone.

Ross Mirkarimi, a member of the Board of Supervisors, has proposed legislation that would address that problem by creating a two-year tax break for any technology company in the city that has more than 100 employees, but are not yet publicly traded.

Source: http://bits.blogs.nytimes.com/