Everyone seems to be having such a good time with Twitter's big public offering. There are liveblogs! Shares are soaring! They went up from $26 to $35, then to $40, and $50! Even better, you can tell your friends about your new stock via the very platform you just invested in! So forgive me for raining all over this immensely RT-able jollity by reminding everyone that Twitter's IPO is essentially helping the company dodge tens of millions of dollars in taxes.
Twitter famously struck a deal with the city of San Francisco to keep its headquarters downtown in exchange for some payroll tax breaks (SF is the only city in California that collects a payroll tax). It was a controversial move then, and will be even more so now. That's because as the company's valuation balloons with its successful launch, it will highlight the amount of cash that the city government isn't getting its hands on, due to that generous tax bargain.
An analysis by the accounting firm John C McHale and The San Francisco Chronicle 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." So far, this looks to be exactly what's happening.
ABC News reports that "About 82 million shares of Twitter have exchanged hands already. 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." That's a lot—and a good indication that most people are cashing in.
Furthermore, San Francisco's budget analyst predicted that the initial deal would cost the city $22 million over six years without the IPO. So now, Twitter will soon have dodged approximately $56 million worth of payroll taxes, primarily by threatening to leave the city until the government gave them special treatment.
Twitter's supporters argue that the city would have lost millions more in revenue if the company had packed up and headed for, say, Palo Alto. There are, of course, other tangible benefits to staying within the city limits—aren't connectivity, closeness, and networking Silicon Valley buzzwords, after all? Regardless, the finding draws attention to the tension between major tech companies, which, like Twitter, are practically considered agents of the public good (see: every popular narrative of the Arab Spring ever) and their actual attitudes towards civic duty.
Because San Francisco isn't the only government that's getting screwed—the federal government, and you, the taxpayer, are too. According to a report from Citizen Tax Justice, Twitter is exploiting subsidies to dodge taxes on executive pay. In parsing the report, CAP's Alan Pyke explains how the loophole works.
"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," Pyke writes. "A dozen tech firms have stashed enough stock option tax credits to eliminate their entire income tax liability on the next $11.4 billion they earn ... That will mean the government misses out on $4 billion in tax revenue."
Twitter has stashed an estimated $107 million shored up this way, all of which cannot be taxed as earnings. Facebook is by far the more egregious offender—it kept $6.2 billion out of federal coffers. But Twitter's maneuvering will still cost the federal government millions of dollars in revenue.
Then there's the all-too typical corporate semi-skullduggery lurking behind the scenes, wherein executives appeared to have blurred the legal lines by leaking information about projected earnings—in a totally sort of legal way, of course—to privileged investors. In other words, Twitter, like every profit-seeking corporation ever, may be holding out on the little guy.
To be clear, all of this is entirely legal, and is exactly what we'd expect big business to do: minimize tax burdens and maximize profit potential. But it's a powerful reminder that these companies that create platforms we associate with do-gooding, positivity, even revolutionary change are companies who are ultimately looking to placate a board of investors and generate wealth for its executives.
Finally, Twitter is blamed for fueling what activists are calling an "eviction crisis" in San Francisco. Taken with all of the above, it's easier to see why, as the SF Bay Guardian reports, "a coalition of senior advocates, students, tenant organizers and union members" decided to protest outside Twitter HQ today—while the rest of the world focuses on newly minted millionaires and the swirl of tweets about that sweet IPO action.