San Francisco has pulled a controversial measure to impose a new tax on startups filing to go public, partly because the first draft of the proposal swept too much of the local economy into its dragnet.
San Francisco supervisors rushed to put a measure on this November’s ballot that they called an “IPO tax” that would have capitalized on the parade of local tech companies like Uber and Pinterest planning to have IPOs this year. But some of the argument crumbled under scrutiny, as supervisors were pressed on whether the measure as written would unintentionally tax all stock-based compensation of all San Francisco-based companies — rather than more narrowly just taxing employers when they have an IPO and their employees exercise their stock options.
That made the “IPO tax” much more than an “IPO tax” — and, in the eyes of its detractors, that marketing was misleading and an attempt to piggyback on the surging antipathy toward tech companies. That’s why this local measure had taken on some national significance, offering a window into how governments are searching for ways to limit the power and riches of tech companies.
Gordon Mar, the lead sponsor of the measure, told Recode in May that he wrote the measure this way because it was “the simplest way to draft it” and crucial to “getting on the fast track.” But he acknowledged that he had introduced errors in that drafting and that he was prepared to pare back the measure significantly.
Now it appears he needs more time to do that. Mar’s office says a similar measure will be introduced for the November 2020 ballot that would also tax stock-based compensation but would be workshopped with local leaders, a group he calls the Shared Prosperity Coalition. Exact details are still to be determined.
“We will be losing some of the near-term revenue in making this move,” an aide to Mar, Edward Wright, told the San Francisco Chronicle. “But alongside the urgency of the IPOs that are happening now, we are focused on the urgency in the overall crisis of our city’s economic inequality.”
Mar’s office had predicted that the proposal could take in a minimum of $50 million a year — and as much as $100 to $200 million in its first two years — for a new “shared prosperity” fund to tackle social problems like affordable housing. And as part of the effort, it had made the retroactive effective date of the measure to be May 7, 2019 — the day before Uber’s IPO.
Mar is expected to introduce his new version of the measure next week. The city is preparing a broad review of business taxes levied against local companies, and Mar wants to sync this new proposal with those other ones.
“IPOs exacerbate these crises, but they did not cause them,” Mar said in a statement. “And by making this proposal part of a longer-term, more comprehensive strategy to address economic inequality, we can more effectively and responsibly tackle the long-term challenges facing our City.”
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