Silicon Valley to put a Head Tax on Large Businesses?
Wed, 11 Jul 2018 || By Priscila Asoka

A new tax based on per-employee headcount on businesses like Google and Amazon is being taken into consideration by their Silicon Valley origin cities. In May 2018, Seattle first imposed a so-called ‘head tax’ of $275 per employee for large businesses. Companies with more than $20 million in annual revenue will be the subject of this new law, designed to raise millions and help solve the city’s specific problems.[1] Like most other policies, there are plenty of both backlashes and support from the people towards this head tax practice. 

Now Silicon Valley follows suit as Mountain View, East Palo Alto, Cupertino, and San Francisco ponder over a head tax for big tech companies to solve the cities’ problems that are supposedly created by the companies. If the councils agree to this policy, it will become ballot measures for residents to vote on. But the tax proposal comes with multiple reasons and threats, making it quite controversial. What are the government’s intentions behind this head tax, for instance? And what are the companies’ point of view? This article wishes to look into some key questions about the case.

Q1. What is the catalyst for this ‘head tax’ and the purpose of it?

Cities that are home to big tech companies face inequality and overcrowding problems, and they blamed the companies for it. Despite the argument that more available jobs are better, the situation quickly turned into ‘perils of prosperity,’ where there are too many jobs for available housing and transportation to be adequate.  The companies’ thriving rise may be a danger to local businesses and the community. That is why they are considering a head tax on large local employers – or, to be more precise, tech companies.

The reason is understandable. Amazon’s growth in Seattle has brought in a large number of high-skilled workers since 2000. Google brings thousands of employees into Mountain View, where two to three thousand employees reside there.[2] The same thing goes for other big tech businesses like Microsoft, LinkedIn, and Apple. The effect of giant tech companies on over-crowdedness is reflected in America’s most congested cities, as San Francisco and Seattle now place second and sixth, respectively. Housing prices have skyrocketed due to the imbalance of houses built and workers employed. The head tax is imposed to help pay for better transportation and affordable housing in most cases.

Q2. Who are the target businesses and how are the responses so far?

Seattle estimates 585 business as targets of the tax, but they set Amazon as their main target. Mountain View Mayor Lenny Siegel openly claimed that the extra tax bill would not burden Google since the company has high profits[3] and has been a good corporation with its generous donations.[4] Looking at how Cupertino, Palo Alto, and San Francisco are interested in the head tax, that means companies rooted there will become possible targets as well – namely Apple, Facebook, and Uber.

It is no secret that technology companies have always tried to dodge local taxes while ‘compensating’ it with donations or constructions as a social responsibility. Although not many companies have released a statement, Seattle’s largest tech and private employer, Amazon, showed heavy opposition towards the tax idea by pausing all of their construction plans in downtown Seattle.[5] Top Amazon executive Andrew Jassy even claimed that the head tax proposal is “super dangerous for cities to implement” and warned that companies will not even want to start, move to, or grow in a city that penalizes them for hiring full-time employees.[6] Keep in mind that tax rates do affect a business’ location decision, according to a Mountain View city council survey.[7] The same survey also shows that 54% of these companies oppose the idea of a head tax policy and 62% said it would impact their business negatively if larger employers moved to another city.

Q3. What are the possible impacts of this head tax policy?

Head taxes have turned into a small trend. Sunnyvale has implemented tax business based on their employee number count since decades ago, but apparently more cities will follow suit. Earlier this year, the European Union proposed a new tax on tech giants too. The economy is now tipped over by the digital revolution, where one click can even generate profits that most countries do not tax, according to the EU’s tax official Pierre Moscovici, and how “this legal loophole is no longer acceptable.”[8] On the other side, the local government’s aim to raise tax revenues will logically shoot for gentrified areas: big companies, including tech corporates and maybe soon even around universities and medical centers, because who else could flush such amount of needed funding?[9]

Turning to economic giants like big tech companies do make sense, but more things should be taken into account. Companies who have made donations as social responsibility might not be as generous as they were before the head tax policy. And if the government’s reason to tax businesses per-employee is because of tight revenues, then a decrease in employment becomes a plausible consideration.[10]

So far, Seattle and Cupertino have put the head tax plan on hold for the time being, leaving only Mountain View to opt for the November ballot on the issue. However, the possibility of Silicon Valley imposing this head tax is not getting out of sight any time soon. Both the local government and tech companies are encouraged to learn a thing or two: councils to do a better analysis before initiating head tax policies, and tech companies to understand the importance of maintaining good local relationships before resisting new tax ideas. 

Editors: Atin Prabandari, MA, & Nabeel Khawarizmy Muna, S.IP

Picture: Stevepb (Pixabay)

 


[1] Weise, K. (2018). Behind Seattle’s Amazon Tax: Seething Tensions, Livid Neighbors, and Rising Rents. [online] Bloomberg. Available at: https://www.bloomberg.com/news/articles/2018-05-15/behind-seattle-s-amazon-tax-seething-tensions-livid-neighbors-and-rising-rents [Accessed 21 June 2018]

[2] Hiltzik, M. (2018). Mountain View’s proposed ‘Google tax’ reminds us that big employers bring not just jobs, but problems. Available at http://www.latimes.com/business/hiltzik/la-fi-google-tax-20180510-story.html [Accessed 21 June 2018].

[3] Newcomer, E. (2018). Silicon Valley Wants to Tax Big Tech Just Like Seattle Did. [online]. Bloomberg. Available at https://www.bloomberg.com/news/articles/2018-05-23/silicon-valley-wants-to-tax-big-tech-just-like- seattle-did [Accessed 21 June 2018]

[4] Sahadi, J. (2018). Will these California cities impose a ‘Google tax’ or an ‘Apple tax’? [online] CNN Money. Available at http://money.cnn.com/2018/06/05/news/economy/google-apple-head-tax/index.html [Accessed 21 June 2018]

[5] Dudley, B. (2018). Amazon shows risk of Seattle City Hall head tax. [online] The Seattle Times. Available at https://www.seattletimes.com/opinion/amazon-pauses-seattle-construction-pending-city-hall-head-tax-vote/ [Accessed 21 June 2018]

[6] Hiltzik, M.

[7] Sahadi, J.

[8] Birnbaum, M. (2018). E.U. proposes tax on tech giants such as Facebook and Google that could raise $6.2 billion. [online] The Washington Post. Available at https://www.washingtonpost.com/world/eu-proposes-62-billion- tax-on-tech-giants-such-as-facebook-and-google/2018/03/21/d692fdfc-2cb7-11e8-8dc9-3b51e028b845_story.html?noredirect=on&utm_term=.dc0f4aa5edf8 [Accessed 22 June 2018]

[9] Hiltzik, M.

[10] Sahadi, J.