Zendesk first to take advantage of San Francisco's payroll tax break 

click to enlarge Zendesk (www.zendesk.com) - ZENDESK (WWW.ZENDESK.COM)
  • Zendesk (www.zendesk.com)
  • Zendesk (www.zendesk.com)

Four months after The City enacted a tax exclusion to encourage revitalization of the struggling Mid-Market neighborhood, the first tech company to benefit from the ordinance has moved into its new digs.

Mayor Ed Lee announced Tuesday that Zendesk, which specializes in web-based help desk services, has settled into 989 Market St., near Sixth Street.

In April, the Board of Supervisors approved the Central Market and Tenderloin Area Payroll Tax Exclusion, which exempts companies operating in certain parts of the city's Mid-Market and Tenderloin neighborhoods from paying payroll taxes on new employees.

The tax exemption was an effort by The City to staunch the attrition of tech companies and the talented workers they attract from migrating down the Peninsula to tax-free locations.

Zendesk spokesman Jeff Wiss said that when the company realized it was growing too big for its office that it never considered leaving San Francisco.

Originally founded in Denmark by CEO Mikkel Svane, Zendesk moved to San Francisco in late 2009 and until recently operated with approximately 80 employees out of 410 Townsend St.

Wiss said that Mikkel "feels like San Francisco was so good to the company. We are able to attract talent, etcetera, so when we needed to expand space, San Francisco was our No. 1 choice."

Zendesk, which has added about 20 employees since it signed its current lease, plans to add an additional 50 employees by year's end, Wiss said.

In a statement released Tuesday, Lee congratulated Zendesk for relocating from South of Market to Central Market.

"We launched our Central Market revitalization effort with the goal of restoring Central Market as a center for arts, retail and innovative industries," Lee said.

The Mid-Market neighborhood stretches roughly between Fifth Street and Van Ness Avenue along Market Street. The area has struggled with blight, and the tax exemption aims to fill commercial vacancies.

The exclusion area defined by the exemption includes 3.3 million square feet contained within 73 office buildings, 1.3 million square feet of which was vacant as of April 2011.

The current payroll tax assesses a 1.5 percent tax on total payroll for work and services performed in San Francisco by businesses with a total payroll greater than $250,000.

Thanks to the exemption, other growing companies are expected to migrate to the area soon, including tech giant Twitter.

Three days after the Board of Supervisors approved the exemption in April, Twitter announced that it had signed a lease to move its headquarters into Market Square, formerly known as Furniture Mart, at 1355 Market St. sometime in mid-2012.

The social networking company had been in negotiations with the city for months and had threatened to leave San Francisco unless the controversial tax break was approved.

The microblogging company had approximately 350 employees when it announced in April that it had signed its new lease, but the company anticipates it will grow exponentially in coming years.

The exemption, which is available for a period of eight years, stipulates that businesses with payrolls in excess of $1 million must negotiate a community benefits agreement with the city in order to claim the payroll expense tax exclusion.

According to the mayor's office, because Twitter has not yet moved into 1355 Market St., it has not yet begun developing such an agreement. Zendesk is expected to begin working on an agreement soon, as the company just filed for the exemption Tuesday.

Lee also announced the launch of a website to coordinate revitalization efforts for the neighborhood. The website, www.centralmarketpartnership.org, will serve as a place for community members to provide The City with feedback about economic development efforts as well as information about neighborhood news and events and about programs and resources in the area.

Although the neighborhood is still undergoing a transformation, Zendesk's Wiss said that so far the company has had nothing but positive experiences in its new home.

"There was always a certain level of concern with the reputation of the neighborhood, but our experience has been incredibly positive," he said.

The company is committed to staying in San Francisco, Zendesk's Svane said.

"We are very enthusiastic about the vision the city has for making Central Market a better place to work and that we get to be a part of that," he said.

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