How the New City of San Francisco Stock Option Tax Legislation Affects You

How the New City of San Francisco Stock Option Tax Legislation Affects You

On Friday, June 3, 2011, Mayor Ed Lee addressed San Francisco’s current policy on taxing gains on stock options by signing into legislation an ordinance granting a partial tax exclusion on stock options for private companies in San Francisco. San Francisco is the only jurisdiction in the state to impose a payroll tax on stock options. The rate is currently 1.5% of the spread on exercise. Under the new tax break, the tax for public companies is capped at $750,000 or what the company’s 2010 tax was, whichever is greater. By capping taxes paid on the stock options, the legislation addresses what would be a sizable spike in startups’ tax bills upon going public.

The exclusion is set to expire after six years, in December 2017, but the chief sponsor of the bill, Supervisor Ross Mirkarimi, viewed it as an interim step in overhauling the payroll tax system, which is blamed for stifling job growth by taxing companies for hiring new workers.[1] Mirkarimi hinted at future changes to come, and Mayor Lee stated that the six-year moratorium would allow the city to figure out a more permanent solution to the payroll tax challenge to place on next year’s ballot.[2]

The city further formed a technology advisory council that represents around thirty different companies and advises the city on issues with technology companies.[3] While the ordinance will probably benefit less than a dozen companies[4], Zynga committed to keeping its home base in San Francisco, signing a long-term lease for a 270,000 square foot office in the southern part of Mission Bay.[5] Although these tax breaks benefit powerhouses such as Twitter, Yelp, and Zynga, a review of companies that have gone public found that they paid between $39,000 to $685,000 in taxes on stock-based compensation, all less than the new $750,000 threshold.[6]


[1] Coté, Mayor Ed Lee to Sign Stock Option Exemption Today.

[2] Adam Lashinsky, Mayor Edwin Lee on San Fran’s Pension Problem and Keeping Twitter in Town, June 3, 2011, available at http://finance.fortune.cnn.com/2011/06/03/mayor-edwin-lee-on-san-frans-pension-problem-and-keeping-twitter-in-town/.

[3] Lashinsky, Mayor Edwin Lee on San Fran’s Pension Problem and Keeping Twitter in Town.

[4] Joshua Sabatini, San Francisco Supervisors Approve 6-Year Break on Stock-Option Taxes, May 17, 2011, available at http://www.sfexaminer.com/local/2011/05/san-francisco-supervisors-approve-6-year-break-stock-option-taxes.

[5] Lashinsky, Mayor Edwin Lee on San Fran’s Pension Problem and Keeping Twitter in Town.

[6] Kopytoff, San Francisco Tech Companies Get a Tax Break.

Disclaimer: This blog and website are public sources of general information concerning our firm and its lawyers, as well as the information presented. They are intended, but not promised or guaranteed, to be correct, complete, and up-to-date as of the date posted. This blog and website are not intended to be, and are not, sources of legal opinion or advice. The materials, information, and communications on this blog and website do not apply to any particular person, entity, or situation, and do not apply to you or to your specific situation. You will need to consult with an attorney and/or other appropriate professional about your specific situation. Thank you.
Roger Royse
rroyse@rroyselaw.com

Roger Royse, the founder of the Royse Law Firm, works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries. Roger regularly advises on complex tax structuring, high stakes business negotiations and large international financial transactions. Practicing business and tax law since 1984, Roger’s background includes work with prominent San Francisco Bay area law firms, as well as Milbank, Tweed, Hadley and McCloy in New York City.
Read My Full Bio | Contact Me

X