Twitter’s initial public offering has been a boon for investors, but a tax deal agreement the company negotiated with San Francisco may end up costing the city millions of dollars in the future.
Twitter recently forged a unique agreement with San Francisco, whereby the company would keep its headquarters in the city in exchange for lucrative payroll tax breaks. Currently, San Francisco is the only city in California that collects payroll taxes, according to the San Francisco Gate. An analysis conducted by certified public accountant Jim McHale – in collaboration with the Chronicle – revealed that San Francisco stands to lose roughly $34 million in revenue from stock grants alone that may be exercised and sold after the company’s IPO.
Currently, the rising stock indicates that this scenario may become a reality, an ABC News report found.
“About 82 million shares of Twitter have exchanged hands already,” the news source noted. “To put that in perspective, Twitter only sold 70 million shares in its IPO. One way to think about it, every share issued in Twitter’s IPO has been traded more than once, and the session isn’t half over yet.”
Additionally, the city noted that that payroll tax law agreement struck with Twitter may cost them about $22 million over a six-year period without the IPO – or $56 million overall – leaving many analysts to wonder how revenue streams will be affected over the next several years.
Despite the potential losses, the San Francisco claims that it would have forfeited more revenue in the long run if the company had decided to relocate its headquarters to Palo Alto, Calif. Although the city stands to gain from keeping the company in its cross hairs, not all are on board with the deal.
“As technology companies like Twitter and Facebook seek to turn ideas into profits by going public and selling stock, they are also exploiting taxpayer subsidies for executive pay to avoid paying any taxes on billions of dollars of earnings,” Think Progress columnist Alan Pyke wrote.
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