San Francisco Tech Companies Get a Tax Break

A campaign by San Francisco’s start-ups to get a tax break from the city paid off. The Board of Supervisors, fearing a loss of jobs, approved a tax holiday that could save Zynga, Yelp and other Internet companies that are headquartered in the city millions of dollars.

Officials are hoping to preserve San Francisco’s image as a tech center (though, in reality, most of the tech companies are all south of the city in Silicon Valley) and prevent an embarrassing exodus of start-ups. Critics call the plan a payoff to already wealthy companies. The question is over how much San Francisco should share in the windfall from employee stock options. It is a timely issue as investor appetite for initial public offerings heats up and employees of those companies –- some which may achieve multibillion dollar valuations — start cashing out their shares. Under San Francisco’s payroll tax, companies with more than $250,000 in payroll are required to pay the city the equivalent of 1.5 percent of total employee compensation each year. The compensation includes salaries, bonuses, and of particular concern to companies planning an I.P.O, the gains from exercised stock options. San Francisco’s payroll tax is the only one of its kind in the state.