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Taxing Jobs in Cali? What does Siri think About Google Tax?


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6/10/2018
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Taxing Jobs in Cali?  What does Siri think About “Google Taxes” and “Apple Taxes”?

Mountain View, CA is home to Google and Cupertino, CA is home to Apple.  Both city counsels are considering a “head” tax on the mega-businesses that call their cities home.  This domino effect follows last week’s passage of a tax by Amazon’s hometown of Seattle that would charge $275 per employee for businesses that make at least $20 million a year there.

Mountain View (home of Google) plans to put a “head tax” on the ballot for consideration on June 26th that is expected to raise $10 million.  Mountain View Mayor Kenny Siegel believes such a tax is justified because of the strain Google puts on the city’s public transportation infrastructure, roads, and public services.  The “head tax” movement has gone “viral” throughout Silicon Valley.  Take San Francisco for instance, the home of Twitter, which is ranked 5th-worst in the world for traffic congestion (3rd-worst in the U.S.).  Tech-giants are blamed for these traffic problems in their respective home cities.  Ironically, what would be a seeming benefit of having a tech-giant call your city home is also being identified as another reason an additional tax is warranted.  Higher housing costs.  Lower affordable housing.  “Out-migration” of longtime residents.   High-rates of homelessness in California (25% of national average and estimated at 114,000 individuals) are also blamed on the lack of affordable housing.  https://www.nytimes.com/2017/12/21/us/california-today-states-homeless-population-drives-national-increase.html  Proponents of corporate social responsibility might consider some creative alternatives rather than simply casting blame and calling for burdensome taxes.  There are only about a half a million (500,000) homeless people in the United States.  Surely, Google, Apple, Amazon, Yahoo & Starbucks could team up and quickly identify the homeless populations nationwide and eliminate homelessness in short order by throwing some money at the problem and simultaneously creating a network of support & intervention services like job training, mental health services, substance abuse, etc. that would be administered with technological sophistication and deep dive analytics.  Should we let the tech-giants take a crack at succeeding where the government has failed?  Perhaps, a “challenge” and “tax incentives” for solving a social problems independently might be met with a “rising to it” attitude where the reaction to increased taxation without any firm commitment on the use of funds has spurred tech-giants to “oppose it.”

In East Palo Alto, which borders Facebook’s Menlo Park campus, there is a shortage of affordable housing and terrible traffic congestion.  While the “gut” reaction of residents is to blame Facebook and tax them, one wonders what the town would look like if Facebook relocated and this worries people.  Silicon Valley towns have been relying upon public sentiment being behind the proposed tax measures, but residents appear to be conflicted on where they stand.

Lenny Siegel, Mountain View’s mayor, made some controversial and anti-business comments in championing a Mountain View “head tax” aimed at Google.  He said, “Google has billions of dollars in cash floating around,” and, “[t]hey made billions off the tax bill. They can afford to spend a little more here.”  Siegel plans to use the funds to build a rail line that would primarily benefit Google employees, but conflates the perceived tax benefit received by Google under the Tax Cuts & Jobs Act (ostensibly reducing their federal tax burden by about $1bn) with an opportunity to “recapture” this tax savings through higher local taxes.  This “tax opportunism” is an unfortunate byproduct of the current political climate in which “profits are bad” and companies are penalized for success and for creating jobs.  But, how do the citizens of Mountain View feel about this?  Siegel commissioned a study by Fairbank, Maslin, Maullin, Metz & Associates, which found that about 67 percent of local residents support the concept of a transportation tax, but that support falls to 61 percent after opposing arguments are heard -- well below the two-thirds threshold needed for passage.

It would seem that stakeholders on all sides of the issue need a refresher course on basic economics and good old fashioned common sense.  Taxing companies an additional tax “per head” for each worker under their roof is bound to decrease hiring and employee pay and cause companies to spread out their workforces to avoid the tax, with any short-term benefit to the city’s revenues being swallowed up by the colossal potential decreased spending and the elephant in the room – the risk of loss of their biggest corporate citizen and largest taxpayer, or at least a scaling back of their local presence.  This strategy is akin to killing the goose that lays the golden eggs. 

And, perhaps, the way we work needs to change too, in light of the complaints by these California cities of the deleterious effects from large tech-giants who have small armies of workers trekking from home-to-office en masse twice each and every workday.  Recent research studies on remote workers have called into question the rationale for having all of a company’s employees meet daily at a central office for eight (8) hours before commuting home.  The default “central office” employment arrangement clogs roadways, harms employee health, artificially drives up real estate values (and property taxes in certain communities) and has a plethora of other deleterious effects.  For most workers, working remotely is now feasible with modern communication and monitoring tools.  Far from just being feasible, recent research studies indicate that work-from-home (“WFH”) arrangements may well be preferable for the employer, for the employee, and for society itself.

Reputable peer-reviewed studies have shown that working from home increases productivity by an average of 13%, increases job satisfaction, reduces employee attrition by 50%, and saves an average of $2,000 of costs per employee.  These results are from a 2010-2011 study by Nicholas Bloom of Stanford University that evaluated 16,000 employees of the Nasdaq-listed Chinese firm CTrip.  https://people.stanford.edu/nbloom/sites/default/files/wfh.pdf

The reason this study was so groundbreaking was that the Singapore-based Company made half of its employees work from home for 2-years, providing a good control group as an anchor from which to evaluate the experimental group’s results.  Clearly, a lot has changed since 2010 and the productivity gains, decrease in traffic congestion, lowered employee costs, decrease in employee turnover, etc., all bear further investigation.  Companies like Yahoo, IBM and Aetna have bought into the WFH movement in a big way.

So what is the backlash from Silicon Valley?  Amazon, Starbacks & Vulcan have already spent $350,000 mounting a “No Tax on Jobs” campaign to place a ballot initiative to repeal Seattle’s “head tax” in November.  Part of Amazon’s argument why the tax is unfair is that despite any increased costs the city shoulders due to the presence of its employees are more than offset by corporate social responsibility efforts.  Amazon gives back to local communities in a big way and supports local causes.  They have a particularly serious commitment to fighting homelessness.  Amazon has committed more than $40 million to FareStart (non-profit offering job training for the homeless) and Mary’s Place (non-profit offering emergency shelter for homeless families).

Apple is also under fire in Cupertino with another threatened “head tax.”  A survey of 400 voters by Cupertino’s City Counsel found that 71% of voters were in favor of the “head tax!”  Cupertino’s town manager, David Brandt, who holds a J.D. and has legal chops in land use and planning, defended taxing Apple, but recently handed over the baton, announcing his retirement this coming July to head a non-profit in Oregon.

In East Palo Alto, Facebook’s neighboring city, also surrounded by Apple and Google, the cost of a 1-bedroom apartment rose 89% between 2011-2015, and many people who call the city home have been forced out as affordable housing options have dwindled.  Despite the high pay of tech-giant employees, local residents still earn relatively modest wages on average, and many are suffering from a dearth of options.  Silicon Valley is experiencing both gentrification and a net outflux and decrease of residents.  A 2017 Silicon Valley Index study found an increase in income inequality with nearly 10% of the local population in poverty, low home ownership, an influx of immigrants and unskilled labor to support local services companies, and overall out-migration of every-day citizens who called these cities home for decades before the tech-giants came to town. https://www.paloaltoonline.com/news/2017/02/17/report-more-people-leaving-valley-than-coming-in

Tech-giants are not deterred and are not leaving sunny California in droves, but some appear to be doubling down on their Silicon Valley locales.  Facebook recently signed a lease of 1 million feet of office space in Sunnyvale, the biggest rental deal in the Bay Area.  Cities like San Jose, Sunnyvale and Redwood City already have a “head tax” on businesses, but so far tech-giants haven’t made an exodus from their longtime homes.

Silicon Valley may face a tsunami of new corporate “head taxes” in “job-rich” cities like Palo Alto (adjacent to Facebook, home of SAP), Santa Clara (home of Intel), Mountain View (home of Google), Sunnyvale (home of Lockheed, Apple & Yahoo), San Francisco (home of Twitter, Salesforce, AirBnB, & Uber) and Menlo Park (home of Facebook).

http://money.cnn.com/2018/06/05/news/economy/google-apple-head-tax/index.html

https://www.mercurynews.com/2018/05/29/apple-google-headcount-taxes-three-silicon-valley-cities-just-the-start/

https://www.bizjournals.com/sanjose/news/2018/05/22/cupertino-head-tax-proposal-apple-mnt-view-goog.html

https://www.sfchronicle.com/business/article/Apple-could-get-hit-with-employer-tax-in-its-12927462.php

https://www.smartcitiesdive.com/news/silicon-valley-bay-seattle-footsteps-head-tax-possibility/524336/

https://www.paloaltoonline.com/news/2016/05/04/palo-alto-eyes-business-tax-to-fight-traffic-congestion

https://www.forbes.com/sites/larryalton/2017/03/07/are-remote-workers-more-productive-than-in-office-workers/#275d1f2e31f6

https://www.forbes.com/sites/andrealoubier/2017/07/20/benefits-of-telecommuting-for-the-future-of-work/#13a0007016c6

https://www.workflexibility.org/take-five-stanford-economist-nicholas-bloom-business-case-telecommuting/

https://youtu.be/2m4A1aSgN80

https://www.workflexibility.org/5-benefits-of-telecommuting-for-employers-and-employees/

https://www.reddit.com/r/SeattleWA/comments/8hzib3/zillow_slams_head_tax_and_may_grow_outside_of/

http://kdhnews.com/business/amazon-starbucks-pledge-money-to-repeal-seattle-head-tax/article_482bf40c-9776-580b-afb5-8297d45873e2.html

https://www.eastbaytimes.com/2018/06/04/71-percent-of-voters-support-apple-employee-tax-survey-shows/

https://www.usnews.com/news/us/articles/2017-12-06/us-homeless-count-rises-pushed-by-crisis-on-the-west-coast

https://people.stanford.edu/nbloom/sites/default/files/wfh.pdf

https://www.theguardian.com/technology/2016/jul/20/facebook-headquarters-expansion-menlo-park-california-housing

https://www.theguardian.com/technology/2016/jul/20/facebook-headquarters-expansion-menlo-park-california-housing

https://www.paloaltoonline.com/news/2017/02/17/report-more-people-leaving-valley-than-coming-in

 



Category: Tax Law


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