Tax Analysts Blog

New York Times Article Misses the Mark on San Francisco Tax Exemption

Posted on Dec 5, 2012

On the front page of the December 2nd edition of the The New York Times were two articles in a three-part series on tax incentives. The first of the articles by Louise Story, "As Companies Seek Tax Deals, Governments Pay High Price" lays out the familiar scenario where a corporation is given a tax incentive to locate in a particular state, but the state never gets the jobs or economic benefit they anticipated.

While particular attention is paid to Michigan and the tax incentives given to the auto industry, the author also cites a tax exemption in San Francisco that benefitted Twitter. In keeping with the theme of corporate greed, the story alleges that while "San Francisco has been cutting its budget," and "public parks have lost about $12 million in recent years... workers at Twitter will not lack for greenery. The company’s plush new office has a rooftop garden with great views and amenities."

Almost immediately, Randy Shaw, editor of Beyond Chron, an online news source, challenged the connection between the tax exemption to Twitter and a lack of funding for public parks in San Francisco. Shaw writes that "the Mid-Market tax exemption has not cost the city money. This picture of Twitter getting tax abatements while San Francisco’s budget is cut, and securing private greenery at the expense of public parks turns, is false."

So what is the real story? It turns out Shaw is correct. In April 2011, the San Francisco Board of Supervisors approved a six-year payroll tax holiday on new jobs created by Twitter and other companies located in the mid-Market and Tenderloin neighborhoods. At that time, a 1.5 percent tax was imposed on total payroll for work and services performed in the city by businesses with a total payroll greater than $250,000.

Although Twitter signed the lease on a building in the mid-Market neighborhood in April 2011, it did not move there until June 2012. And regardless, because the tax break was applicable only for new jobs created by companies located in applicable neighborhoods and the payroll tax itself is only imposed on payroll for work and services performed in the city, Twitter could not possibly have caused the budgetary problems that have plagued the city's parks for several years.

Interestingly, while many in San Francisco would agree that the city’s public parks are in need of improvements, some residents have questioned how the Recreation and Parks Department has been spending its current budget. At least one article suggests the department needs an operational overhaul, not more money.

Turning back to the payroll tax exemption, the Wall Street Journal reported in August 2012 that payroll tax breaks offered to firms like Twitter "have shown signs of being effective in keeping—and attracting—new up-and-coming companies." Data compiled by the Wall Street Journal indicate that payroll tax forgone due to the exemptions was approximately $4.1 million in 2011, but the city now collects more than $400 million each year from business taxes and fees.

After Twitter agreed to remain in San Francisco, and locate in the mid-Market neighborhood, other start-up companies began to show an interest in locating in the neighborhood as well. But in the end, San Francisco voters passed Proposition E in November 2012, which replaced the payroll tax with a gross receipts tax.

Alleging that Twitter is somehow responsible for the budgetary woes of the San Francisco rec and parks department is simply inaccurate. The payroll tax breaks provided by San Francisco were successful and should stand as a counterpoint in the story for how targeted tax breaks can work. While tax incentives may not represent the best in tax policy, The New York Times owes it to the public to report all of the facts accurately, even those that do not fit neatly into the story’s conclusion.

Read Comments (1)

lucas rachubaFeb 1, 2013

I knew I should have stopped reading when the name of NYTimes was invoked in
line one - attempting to address anything written in that rag demeans a human
being. As the saying goes, don't feed the trolls.

In San Francisco, every 3rd city employee gets paid >$100k - that may have
something to do with the state of its parks.

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