Paul L. Caron

Friday, March 25, 2011

1.5% Tax on Stock Options May Drive High Tech Firms Out of San Francisco

Following up on my prior posts (links below): New York Times, A Business Tax Charged When Employees Cash in Stock Options Is Scrutinized:

A rare provision in San Francisco’s business tax code that taxes companies when employees cash in their stock options has caused a stir in this hotbed of fledgling tech companies.

Remarkably, few companies even knew about the tax, which has been in effect for seven years. But since city officials offered Twitter a payroll-tax break as an incentive for it to remain in San Francisco (the company is considered likely to go public soon), the stock-option provision has suddenly come under intense scrutiny.

A number of other booming companies, including Zynga, the maker of online games and one of the city’s fastest-growing firms, have threatened to leave the city unless they receive similar payroll-tax exemptions before going public. ...

Because of the dearth of I.P.O.’s inside the city limits in the last decade, the stock-option tax has gone under radar until now. Businesses, city officials and even seasoned tax lawyers are confounded. “Nobody ever talked about this because nobody’s really tested these issues before,” said Thomas H. Steele, a partner in Morrison & Foerster’s San Francisco office, specializing in state and local tax.

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San Francisco has a theory that they should attract businesses so they can tax them out of existence.
When they add or increase a tax or fee, they always look at the small amount of tax they add and say "That isn't very much" and then wonder why some businesses leave. Nobody in City Hall has an adding machine to calculate the entire tax burden.

Posted by: Paul | Mar 26, 2011 8:11:15 AM

Its amazing that such commotion is being made by certain companies over a possible 1.5% tax on the gains from employee stock options, while the same employee/holders of employee stock options throw away 30 times as much by the lack of understanding of how to manage their grants of employee stock options. And that ignorance is facilitated by the companies themselves.

John Olagues

Posted by: John Olagues | Mar 26, 2011 8:09:07 AM