San Francisco Reaches Out to Startups with New Tax Break

By Beecher Tuttle May 25, 2011

San Francisco-based startup companies that are hoping to become the next big IPO have received a gift from the city that could potentially save them millions of dollars down the road.

In an effort to prevent the job losses that would result from a mass exodus of technology companies from the city, the San Francisco Board of Supervisors on Tuesday approved a tax break that will be particularly appealing to burgeoning young startups, according to the New York Times.

Under San Francisco's previous tax plan, companies that exceeded $250,000 in annual payroll had to hand over 1.5 percent of that amount to the city. This payroll tax takes into account salary, bonuses and money generated from the sale of stock options, which can be a handsome sum if a company hits it big with an initial public offering.

Tuesday's ordinance will modify this plan by capping the tax bill on gains generated from stock options at $750,000, or what they paid last year, according to the Times. The new law, which passed by a vote of eight to three, could make the city a more attractive destination for tomorrow's startups. The ordinance should also help San Francisco hang on to its current stable of young technology firms like Zynga and Yelp. The tax break will stay in effect until at least 2017.

The decision to help out some of the city's youngest firms comes only a few weeks after local officials granted a major tax break to one of its highest profile companies, Twitter.

The micro-blogging site had been threatening to move out of San Francisco if it wasn't granted some form of relief from the aforementioned payroll tax. The break, which caps payroll taxes for companies that are based in the city's newly created "rehabilitation zone," was approved by the Board of Supervisors in late April. Twitter has recently leased office space in the area.

In related news, CNN reported on Tuesday that Twitter has finalized its acquisition of social networking application maker TweetDeck. The deal is said to be in the neighborhood of $40 million.

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Beecher Tuttle is a TechZone360 contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.

Edited by Jennifer Russell

TechZone360 Contributor

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