Twitter's IPO Will Cost San Francisco More than $55m In Lost Taxes
Twitter’s shareholders will be worth at least $11 billion when the company completes its IPO next week. At a per share price of between $17 to $20 $TWTR is priced on the low side at a substantial discount — a far different strategy to that of Google and Facebook IPOs, which were priced high. Priced to move fast doesn’t seem attractive long term.
San Francisco Chronicle reports that Twitter’s sweet tax deal with the city of San Francisco, in which it agreed to “gentrify” mid-Market street — one of the poorest city neighborhoods — will likely result in about $55m in tax savings. This is more than double the $22m estimate.
James Temple reports:
An analysis by The Chronicle and accounting firm James J. McHale, CPA of San Francisco found that if all employees unload their shares at the midpoint of the offering price range, the lost revenue to the city could add up to $34 million.
That's on top of the $22 million that the Board of Supervisors' budget analyst said would be lost in payroll taxes over the life of the six-year deal.
Twitter is supposed to be actively involved in community projects, local education, hiring local people, and donating computer equipment, etc, to uphold it’s part of the agreement. So far, it has completed 18 out of 25 commitments this year. It also claimed it donated $60,000 in “sponsored Tweets.”
In adhering to the community benefit agreement, Twitter has, among other things, donated $75,000 to nonprofit groups in the Central Market and Tenderloin neighborhoods, provided 26 tutors to the Tenderloin Tech Lab, and contributed more than 33 hours to the Bar Association's eviction and homeless programs.
However, the community commitments have a value that is a tiny fraction of the $55m, or more, that Twitter gains. That money collected as taxes, would have been used by the city to help some of its poorest residents, which are Twitter’s neighbors in the Tenderloin district.
Twitter’s popularity is at a zenith but will it survive longer than its 6-year tax break and make the deal a long term positive outcome? Hot San Francisco tech companies such as Zynga are cutting jobs (and payroll taxes) just a couple of years following their IPO.
It’ll take many years for the city to recoup $55m in lost revenues from Twitter and the many other companies receiving the same tax breaks. . Mayor Ed Lee could lose badly in re-elections if his Twitter tax deal flops.
Om Malik, founder of GigaOm and a resident of San Francisco, writes:
We have a Mayor (Ed Lee) on whose watch we are seeing the biggest boom in technology. And yet, the civic services in the city are falling behind. The roads are shambles. Traffic jams are on an increase. There isn’t any clarity on how city’s expansion is going to impact traffic, living conditions and diversity in the city. Our mayor is busy kowtowing to his technology masters, but has no plans.
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Mid-Market Street images: