Labor unions have angrily accused big tech companies of not paying their share to plug the city’s ailing finances — and Mayor Daniel Lurie of doing nothing to force their hand.
In reality, the companies in question have paid more than they think they should have, and while the mayor hasn’t gotten involved, it’s not really his place to do so. Now another top city official, Treasurer José Cisneros, has given the unions a fresh magazine of ammo by stealthily putting forward a plan to lower the tax rate for another crop of big companies, including telecommunications giant AT&T. Already steamed by layoffs of city workers, the unions are sure to take it poorly.
It’s a dispute that’s both surface-level boring — how business taxes are assessed is as dry as it gets — and important, cutting to the heart of San Francisco’s effort to make itself more hospitable to commerce. Understood in that light, it’s hard not to side with Cisneros.
The treasurer’s plan to cut taxes for telecommunications companies continues a reform effort begun last year under former Mayor London Breed, who brought together a coalition of small- and big-business leaders, with the acquiescence of labor, to simplify the business tax code. The result was Proposition M, a ballot initiative voters approved in November.
On May 21, the office Cisneros oversees submitted an ordinance to the Board of Supervisors. The tax collector’s move is as bold as it is unexplained. His office said only that it “identified that telecommunications utilities were paying higher rates than other utilities companies” — something that wasn’t a secret when Prop. M was negotiated. The unspoken reason for the shift is that it likely will head off potential litigation of exactly the sort the big tech companies are engaged in.
The tax cut also is a Reaganesque bet on trickle-down economics. By lowering the tax rates on big companies and forgoing near-term tax revenues, that theory suggests, the city will retain those companies and their employees — and collect more taxes in the long run.
Given how liberal, anti-big-business San Francisco literally has driven out major corporations, both long-established and fledgling — see: Stripe, Schwab, McKesson, Chevron, Bank of America, and the list goes on — it very likely is the right approach and absolutely is worth a try.
In fact, it’s possible to discern from this arcane and decidedly behind-the-scenes development yet another example of the city’s priorities in the era of a mayor who likes to repeat that “San Francisco is open for business.” From supporting the opening of more chain stores (on Van Ness Avenue and, the horror, Fillmore Street) to raising philanthropic dollars for downtown revitalization (in the form of the San Francisco Downtown Development Corp., whose remit remains murky) and cutting red tape for small business (Lurie’s Permit SF initiative), that message is becoming clearer and clearer. It is that we have the makings of a blatantly pro-business approach in City Hall, the likes of which we haven’t seen since the early days of Willie Brown.
Which brings us back to whether Airbnb, Lyft, Uber, GM, Microsoft, and others are paying their “fair share” and if now is the right time for a tax break for AT&T.
This history of taxing businesses in San Francisco is long and complicated. The city once relied primarily on a payroll tax that, while straightforward, was a disincentive for companies to stay in town. (Why punish companies because they employ people in San Francisco?) A shift to taxing overall company sales, with multiple categories for businesses, not only didn’t fix the problem, it provoked a torrent of lawsuits, with companies arguing that their taxes weren’t being computed correctly.
Because the only way to sue the city is to pay first and litigate second, that’s just what a handful of large companies have done. Airbnb, Lyft, Uber, General Motors (which owns the robotaxi maker Cruise), and Microsoft alone are suing the city for more than $550 million combined. And these suits are hardly unique. In October, IBM sued the city for overpayments during the tax years 2019 to 2022. In May, the Board of Supervisors approved a settlement to pay IBM $2.7 million plus interest.
In another attempt to head off business-tax headaches, Prop. M instituted a commonsense reform, the Advance Written Determinations program, which allows companies to bring potential disputes to the tax collector before filing. The idea is that such discussions could prevent lawsuits before they happen.
By the way, the city has a curious way of accounting for the real possibility that it may need to settle the other lawsuits too — and that it may face new ones. According to the annual “revenue letter” released Tuesday by the Controller’s Office, the city estimates its litigation liability from such suits to be $415 million, up $150 million from the previous year. It noted that the city “continues to receive new claims.” At the same time, the Controller’s Office decreased the size of its reserve for such losses by 25% “to manage litigation-related revenue volatility across fiscal years.”
This tax-accounting-and-legal word salad translates to funneling more into the city’s general fund now, a move that pleases organized labor, whose members are paid with this money. It doesn’t change the size of the potential legal hit, just how it’s accounted for.
At the end of the day, this is still San Francisco. Policymakers make strange and opaque decisions to mollify various loud voices. But simplifying the tax code and encouraging businesses to operate here constitutes progress.
That’s a win any day of the week.
Kevin Truong contributed reporting to this column.