San Francisco developers like Mid-Market tax breaks too 

click to enlarge Mayor Ed Lee, left, seen touring the Twitter building at 10th and Market streets, said a tax break was essential to revitalizing the mid-Market area. - S.F. EXAMINER FILE PHOTO
  • S.F. Examiner File Photo
  • Mayor Ed Lee, left, seen touring the Twitter building at 10th and Market streets, said a tax break was essential to revitalizing the mid-Market area.

In an unexpected move, developers in San Francisco’s mid-Market Street neighborhood are applying for a tax break put in place for Twitter and other tech companies.

In 2011, the Board of Supervisors eliminated the payroll tax for new employees hired by companies in the area. Mayor Ed Lee and other supporters called the move necessary to keep Twitter from leaving town and to foster the emergence of a tech economy in the long-depressed neighborhood.

But for the 2012 tax year, five of the 15 tax break applications that The City received came from developers. And three separate applications were filed for the very same address, 263 Golden Gate Ave., on behalf of Landmark Construction, Dolmen Property Group and Urban West. The two other applications were filed for 973 Market St. on behalf of Build Group and Pacific Structures Inc.

According to the legislation, applicants must own or lease a property within the area and their payroll expense must be “attributable to that fixed location.” Records on file with the Assessor-Recorder’s Office indicate that none of these developers own the two properties in question. The owner of 263 Golden Gate Ave. is listed as NG Family Trust and the owner of 973 Market St. is listed as Performing Arts LLC.

The number and nature of these companies’ new employees is unclear, since the Office of Economic and Workforce Development redacted the data required in the applications after arguing that it is not public. Meanwhile, the Tax Collector’s Office only reveals the total tax break awarded, not the respective breaks each company received.

No one could be reached for comment at either address.

The property at 263 Golden Gate Ave. is a narrow two-story building with the words “Landmark/Dolmen” taped on the front door. The office is next to a construction site described on Dolmen’s website as a six-story, 88-unit “market-rate student housing” project with first-floor commercial space. An employee who answered the office’s intercom said  none of the officials named on the three applications was in the office. The employee declined to make anyone else available for comment.

The 973 Market St. site, a historic building dating back to 1909, was boarded up and surrounded by scaffolding that suggested ongoing work, but no one was visible. Build Group Chief Financial Officer Jason Berry, who filed both applications, did not return requests for comment.

Companies seeking these tax breaks must apply to The City by Nov. 1 of the year in question. If their payrolls exceed $1 million a year, they also must negotiate a community benefit agreement with the City Administrator’s Office by Jan. 31 to become eligible for the tax break. The applicants for 263 Golden Gate Ave. were evidently not required to create a community benefit agreement.

Office of Economic and Workforce Development Director Todd Rufo determines whether applicants are eligible for the tax breaks. Rufo has signed off on the applications for 263 Golden Gate Ave., documents indicate, but those for 973 Market St. remain under review. Rufo said his office verifies the information in a company’s applications, which is provided under penalty of perjury.

Asked if Lee supports using the tax break for construction work, spokeswoman Christine Falvey said, “The legislation doesn’t exclude particular industries, but the mayor expects all applications to be thoroughly reviewed and appropriately approved with strict oversight.”

Supervisor John Avalos, who opposed the mid-Market tax break, called it “pretty dubious” if the perk is being used for temporary construction jobs in the area.

“I am sure there is a loophole they could exploit, but I don’t think that was the intent of the legislation,” Avalos said. He said developers “should be eager to pay for the public services we offer them.”

What the tax break will cost Twitter

To obtain a tax break on its new employees, Twitter must agree to a community benefit agreement that would require it to do such things as spend at least $200,000 this year at local businesses and offer at least $60,000 in grants to area nonprofits.

The draft 10-page document included “12 key features” of what Twitter agreed to do for the surrounding community in exchange for a break on its taxes of an unknown amount.

Twitter agreed to appoint a community liaison and donate at least $50,000 worth of computers and other tech equipment to schools and nonprofit groups. Twitter also would offer another $60,000 in “promoted tweets” to nonprofits, create a searchable public real estate database for affordable-housing vacancies, buy its employees tickets to local cultural events and document its compliance with these terms on a public website.

The agreement is being reviewed by the 11-member citizen advisory committee for the tax break zone. By Jan. 31, it must be approved by the City Administrator’s Office.

Facing threats that Twitter would leave San Francisco to avoid paying The City’s 1.5 percent levy on employee payrolls — which includes stock compensation when a company goes public — the Board of Supervisors approved a tax break on new hires in the mid-Market Street area.

For companies with payrolls in excess of $1 million a year to receive the tax break, they have to create such community benefit agreements — documents largely seen as an effort to placate progressive members of the Board of Supervisors who are ideologically opposed to such tax breaks.

Twitter, which is applying for the payroll tax break for the 2012 tax year, is currently working with city officials on the agreement. Seven other tax break applicants evidently also boast payrolls in excess of $1 million.

In 2011, the first year the tax break was made available, three companies, including Zendesk, obtained a combined break of $41,000, according to the tax collector’s annual report. For the 2012 tax year, there are 15 applicants and the total value is not known.

Mayoral spokeswoman Christine Falvey praised the tax break for helping to encourage economic activity in the area.

“The purpose of the tax exclusion is to attract businesses, economic activity and to activate whole stretches of the central Market area, and we’ve seen a lot of success because of the legislation,” Falvey said. “Nine tech companies and a venture capital firm now account for nearly 1 million square feet of space, and eight new small businesses have opened in the past year, with more to come.”

Falvey also noted that there are 3,300 residential units under construction in the area.

“There is a lot more work to do, but we’ve seen some great progress over the last year,” she said.

Who is looking for a 2012 Mid-Market tax break?

Company Location Resident since
21 Tech 1390 Market St. October 2009
Arlene Chaves 1 Hallidie Plaza August 1998
Build Group 973 Market St. Unknown
Dolmen Property Group 263 Golden Gate Ave. June 2007
Farmer Brown/Black Rabbit Hospitality 25 Mason St. 2006
The Industry Group, LLC 272 McAllister St. February 2008
Landmark Construction 263 Golden Gate Ave. June 2007
Microsoft 410 Townsend St. April 2012
One Kings Lane 1355 Market St. March 2012
Pacific Structures, Inc. 973 Market St. November 2012
Pearl’s Deluxe Burgers 1001 Market St. September 2010
Urban West 263 Golden Gate Ave. June 2007
Twitter 1355 Market St. April 2011
Zendesk 989 Market St. April 2011
Zoosk 989 Market St. April 2012

Source: Office of Economic and Workforce Development

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