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San Francisco mulls 'IPO tax' to share tech riches

MarketWatch logo MarketWatch 5/13/2019 Nour Malas
A screen displays the company logo for Uber Technologies Inc. on the day of it's IPO at the New York Stock Exchange (NYSE) in New York, U.S., May 10, 2019.© REUTERS/Brendan McDermid A screen displays the company logo for Uber Technologies Inc. on the day of it's IPO at the New York Stock Exchange (NYSE) in New York, U.S., May 10, 2019.

SAN FRANCISCO--City leaders here are proposing to more than triple a tax on stock compensation in a bid to use revenue from a wave of public offerings by tech companies to address concerns about growing wealth disparity.

The so-called IPO tax would raise the levy on corporations for stock-based compensation to 1.5% from the current rate of 0.38%. That would restore the rate to its level in 2011 when the city, pulling out of recession, cut it as part of a change in its tax structure intended to keep companies from leaving.

Tech companies often compensate employees in part with equity. Such shares can become particularly lucrative in an IPO.

The tax increase would apply to all IPOs after the proposal was introduced this week, including Uber Technologies Inc. which is set to start trading Friday. An Uber spokesman declined to comment.

City Supervisor Gordon Mar of the San Francisco Board of Supervisors, the measure's lead sponsor, estimated the tax would generate between $100 million and $200 million over its first two years. He wants the city to spend the money on housing, transportation and health programs to help low- and moderate-income workers afford an increasingly expensive region.

"San Francisco in 2019 is in a radically different place as a city than we were just a decade ago," Mr. Mar said in an interview. "I think there is broad support to reset our relationship with the tech sector."

Mr. Mar announced the proposal Thursday outside San Francisco City Hall with two colleagues on the 11-member Board of Supervisors who also spoke in favor of the proposal. The board is likely to vote on the tax in the coming weeks. Mayor London Breed hasn't taken a position.

If it passes, it would then need the approval of voters in November.

The San Francisco Chamber of Commerce said the tax hike would drive companies out of the city when they go public. "The term IPO tax is entirely misleading," the business organization said in a statement. "It's a head fake to voters while the Board of Supervisors seeks to tax the broader business community."

The Silicon Valley Leadership Group, whose members include such tech giants as Facebook Inc., Apple Inc. and Alphabet Inc.'s Google, also said it opposes the measure.

Other taxes on tech companies are in the works. Next week, Supervisor Aaron Peskin plans to propose a measure to tax the revenue of ride-sharing companies such as Uber and Lyft Inc. It would raise about $30 million annually for transit and infrastructure improvements to ease congestion, said Mr. Peskin's chief of staff, Sunny Angulo.

The Uber spokesman and a Lyft spokesman declined to comment on the plan.

Silicon Valley has recently come under scrutiny as California, and particularly the San Francisco Bay Area, grapples with a housing crisis many argue has been driven in part by a surge in employment and income in the tech sector.

Housing prices in San Francisco, already one of the country's least affordable markets, may rise between 0.5% and 1.9% in 2019 as wealth from new IPOs like Uber, Lyft, and Pinterest Inc. floods the city, according to an analysis by San Francisco's chief economist, Ted Egan.

John Harris, a 60-year-old city maintenance worker who spoke during Thursday's announcement, said he sleeps in the back of his Chevrolet Suburban truck because he can't afford housing on his $30,000 annual salary. "I really don't want to leave the city, but I may have to," Mr. Brown said.

Last November, voters approved a tax on large corporations to raise money to assist the city's homeless population.

Write to Nour Malas at nour.malas@wsj.com and Jim Carlton at jim.carlton@wsj.com

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