Silicon Valley wants to tax big tech just like Seattle did

  • TECH
  • Friday, 25 May 2018


Seattle levied an annual tax of about US$50mil (RM199.02mil) on big companies last week to help solve the city's homeless problem. 

The tax was watered down from the original proposal but it was controversial and pitted the city against its most powerful corporate resident, Inc. Now the action moves to Silicon Valley and the Bay Area. 

San Francisco, Mountain View, Cupertino and East Palo Alto are all considering similar taxes on large local employers (read: tech companies) to offset growing inequality and overcrowding they blame on the industry that turned them into boomtowns. 

The optics don't favour Big Tech. Seattle’s tax measure passed the city council unanimously. In the Democratic enclaves of Northern California, meanwhile, office-holders say the corporate tax cuts enacted last year by a Republican-controlled Congress make cash-flush technology companies an appealing target. Alphabet Inc’s tax bill alone dropped by almost US$1bil (RM3.98bil) in the first quarter thanks to the tax law championed by President Trump. 

“Google has billions of dollars in cash floating around,” says Lenny Siegel, the mayor of Mountain View, where Google is headquartered. “They made billions off the tax bill. They can afford to spend a little more here.” 

Technology companies have long manoeuvred to kill local taxes, deploying a mix of public posturing and backroom wrangling. They’ve also made neighbourly gestures: Google funds a public electric shuttle service in Mountain View; Amazon gives away free bananas. 

For cities looking for more largesse from their hometown giants, there's always the threat that tech companies will expand elsewhere. The companies fear that one tax increase will lead to another and, before they know it, they’ll find themselves underwriting the People’s Republic of San Francisco. 

Mountain View – a city of 76,260 that swells to more than 100,000 during the workday – is a tech-industry town if there ever was one. Alphabet, Intuit Inc and LinkedIn are among the city's biggest employers, and self-driving cars are a common sight. During rush hour, highways slow, clogged with thousands of tech industry workers migrating to their jobs. The city’s own head tax proposal could cost major local employers between US$250 (RM995) and US$300 (RM1,195) a head and is expected to face a city council vote next month. 

Siegel, who co-authored the measure, says he hopes to generate US$10mil (RM39.81mil) in revenue a year from the tax to make it easier to get around town. One option under consideration: a new elevated automatic rail line bridging the city's transportation hub with another part of town. “If we build that, Google would be a primary beneficiary,” he says. “It’s not like we’re taxing them to pay for something that has nothing to do with them.” 

The mayor says the city was considering a tax based on employee headcount rather than revenue because it’s simpler. “If somebody in France clicks on a Google ad and Google gets money,” Siegel says, “where does Google report that sale? Probably in the Cayman Islands.” 

A spokeswoman for Alphabet, Google's parent company, didn't respond to a request for comment. Siegel says Google has about 24,000 employees in Mountain View, so the proposed tax could cost the company as much as US$5.8mil (RM23.10mil) a year-a tiny fraction of Alphabet’s almost US$103bil (RM410.23bil) in cash. 

Apple Inc's hometown of Cupertino is considering a similar tax to improve housing and transportation, according to Vice Mayor Rod Sinks. While many of the details are still being hammered out, a measure could go on the ballot as early as this November, he said. The city is also asking companies to partner with it directly. “My residents are fed up and they want solutions and obviously we need funding in order to bring about those solutions,” Sinks said. 

Palo Alto's city council voted 7-1 to send a tax measure to voters in November. The city is considering raising levies on hotel rooms and on real estate transactions. The taxes could affect tech businesses buying new offices and visitors doing business with them. The city isn't considering a direct business tax after failing to pass one almost a decade ago. 

East Palo Alto, the city's poorer neighbour, is putting its own tax before voters in November but hasn’t decided what form it will take. The area is close to Facebook Inc's headquarters and has suffered an acute housing affordability crisis. 

San Francisco – where the hoodie quotient has soared since the tech set began migrating north from Silicon Valley almost a decade ago – is home to Twitter Inc, Inc, Airbnb Inc and Uber Technologies Inc. Google has an office along the water, and Facebook has also agreed to lease space. 

A local coalition of non-profits is spearheading an effort to tax the city's corporate giants to help house the city's poor. The proposed tax would charge companies 0.5% on earnings of more than US$50mil (RM199.12mil), according to Nick Kimura, a spokesman for the Coalition on Homelessness. Anything less than that wouldn’t be taxed. 

“Living outside is untenable for any human,” Kimura says. “It's only fair in our minds that every San Franciscan, at least, be afforded the opportunity to live with a roof over their head.” 

In 2016, residents narrowly rejected a tax increase on hotel rooms to fund arts and homeless services. The tax received 63.7% of the vote, but required a two-thirds margin. Last year, the California State Supreme Court ruled that future citizen-sponsored ballot initiatives would require a simple majority. That's made supporters optimistic about the new proposal. 

The Coalition on Homelessness hopes to generate US$300mil (RM1.19bil) annually from the tax. The group is collecting signatures now to try to get it on the ballot in San Francisco for the mayoral election in November. “The recent Trump tax breaks have really positively affected large corporations,” Kimura says. “I think it's just trying to have people contribute what we think is fair – there’s a lot of excess in our society.” 

Similar sentiments informed the architects of Seattle’s tax. But it was divisive and marked the city’s first serious break with the local tech industry. Initially, Seattle proposed a tax of US$500 (RM1,991) per employee to help pay for affordable housing construction and homeless services. In what many saw as direct retaliation, Amazon halted plans for a new office tower; ultimately the tax was cut to US$275 (RM1,095) per employee for a total of about US$50mil (RM199.12mil). Amazon has since said it will proceed with the building, though the company remains “very apprehensive” about its future in the city. 

Even so, the bad blood lingers. Michael Schutzler, who runs the Washington Technology Industry Association, says tech is the “perfect pinata for progressives”. He blames Seattle for letting the homeless problem fester and says the tax will discourage hiring. Cities cannot simply tax away their problems, he says. 

“Seattle is a canary in a coal mine so to speak. Anti-capitalism, anti-growth, anti-anything – progressives can't stand the fact that there’s been so much progress.” — Bloomberg

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