Articles misses that this is in response to SF's gross receipts tax. Payment processing is an ultra low margin business, no way they can compete while paying ~1% of revenues to the city.
People don't talk about this very much. But it seems extremely unfair that Stripe/Square pay way more tax than Saleforce in terms of ratio to their revenues. (I don't recall the numbers. Anyone?)
Jack Dorsey tried to raise this point multiple times. But people just kept screaming that he didn't care about homeless :S
JFC, it's not because of a lack of money that SF has a problem with homeless people, and it's not that more money would make the problem magically go away.
People are leaving sv and housing prices are the reason. It's going to lead to brain drain. Why bother with that congested hell hole when you can live anywhere else and cut your cost of living by 50 percent. Your average founder is 30 and they are not into partying. Sv is for 20 year olds
Fwiw, housing prices (rents) have barely budged in much of the Bay Area for the past 4 years. If the exodus hasn't already happened, I doubt it will.
I wouldn't believe that a CEO of a company that has raised $40 million is leaving because his wife needs a roommate to make rent. His wife should probably live with him if she needs to save money.
In my experience, the serial startup execs mostly don't live in the city. In the 90s, I knew several who also had an apartment near the office, but that's much less common now that the sort of place they'd want is going for $8K/mo.
> And homeless are everywhere.
Maybe a $3k per month "small single apartment" contributes to "homeless are everywhere."
Of course, there are a lot more homeless people in SF than the very conspicuously unwell people I mentioned. There are also probably larger scale effects that together contribute to high rents, high income inequality, drug abuse, lack of medical care, etc. But there’s a lot more to say than that SF’s homeless problem is because rent is too high.
I can certainly imagine a 'homeless pipeline' where the children of the parents who get priced out of housing end up doing drugs on the street, but I also know about bussing the homeless and homeless moving to SF because they don't want to deal with a serious winter.
According to Wikipedia: As of 2014, the city is believed to have approximately 7,000 homeless residents. As of 2015, approximately 71% of the city's homeless had housing in the city before becoming homeless, while the remaining 29% came from outside of San Francisco
But I wonder why homeless people don't move to another city. If I'd be in their situation (living in a city where I can not afford to rent a house and live a normal life) I'd go to another city where with a regular job I can afford a normal life and just build my life there.
Sorry if it's a stupid question.
Because there are few cities in the country that are as accommodating to the homeless as SF. And I'm not talking about weather, I'm talking about services, aid, lack of police harassment, etc.
If you're homeless it's certainly the best place in the country to live.
Poverty and homelessness are near all-time lows in the US right now, comparable to Canada. You wouldn't know that by looking at the streets of San Francisco (or Los Angeles for that matter).
At a national level homelessness has declined dramatically since 2000. While San Francisco's problem has only kept getting worse. The US as a whole isn't seeing the homelessness problems that San Francisco is.
While San Francisco was doing nothing, the US implemented the Housing First program under the Bush Administration. That policy was continued and amplified by the Obama Administration, to extraordinary results: homelessness declined through the great recession, rather than skyrocketing as would have been predicted (especially coming out of a housing bust).
Unsheltered homelessness is down 20% since 2007. Total homelessness is down by 15% since 2007.
https://www.hud.gov/sites/dfiles/Main/images/hudno.18-147.jp...
2010 > Obama builds on Bush success to help the homeless
https://www.csmonitor.com/Commentary/the-monitors-view/2010/...
2013 > The federal Department of Housing and Urban Development reported that the number of the chronically homeless declined by 30% between 2005 and 2007. You might have expected the numbers to spike again when the financial crisis hit but no. Since 2007, the number of chronic homeless has dropped another 19%.
https://www.cnn.com/2013/04/29/opinion/frum-less-homelessnes...
2008 > On a cold January morning in 2001, Mel Martinez, who was then the new secretary of housing and urban development, was headed to his office in his limo when he saw some homeless people huddled on the vents of the steam tunnels that heat federal buildings. "Somebody ought to do something for them," Martinez said he told himself. "And it dawned on me at that moment that it was me." So began the Bush administration's radical, liberal — and successful — national campaign against chronic homelessness.
https://www.mcclatchydc.com/news/politics-government/article...
2013 > The Astonishing Decline of Homelessness in America
https://www.theatlantic.com/business/archive/2013/08/the-ast...
Along the i5 from Seattle to San Diego the encampments have been growing. There are a few places where it goes away but mostly because of individual city efforts to do something. Source - been driving the route very actively last 5 years.
Texas still just buys their homeless bus tickets to California. When I ask homeless people in LA where they are from, Texas is the #1 response. The LA Times just ran an article this week about people who to come LA seeking stardom and are homeless within a few weeks because they didn't bring enough money to pay rent because they thought they'd be a rich megastar within a few days.
It's truly fucked up for LA and SF to get blamed for having a homeless problem when most of the homeless in CA aren't even locals.
What you're portraying is a myth.
However, when people talk about homelessness being such a big problem in SF, I think a lot of what they are talking about is the subset of homeless people who are "violently mentally ill". That's something that I saw a lot more of in SF than in cities in the Mid West. By "violently mentally ill" I mean things like:
- Yelling at pedestrians that they are the incarnation of Satan and were going to use their demonic powers to strike them down.
- Using racial slurs for minorities that walked past.
- Purposely invading people's personal space.
I don't know why this would be a greater problem, or a more visible problem, with the homeless in SF compared to other places. Maybe in the Mid West it is difficult for people who are too mentally ill to survive the winter. Maybe other cities use anti-vagrancy laws to round them up.
Coordination at the federal level could even out geographical imbalances in services and also prevent all services from having to be delivered in the few places where it’s most expensive to do so. Doing all the free housing in the most expensive market is crazy.
[1] https://www.sfgate.com/business/article/SF-Citi-video-plugs-...
Jack has been vocal about wanting to pay tax by revenue (or whatever way) to the city. The point that he objects is that Square pays tax more than Saleforce, when Saleforce's revenue is way way more than Square's.
This is an example of US political debate.
Everyone immediately accuses the person of being evil (i.e. not wanting to pay tax and of hating homeless). But nobody actually answers why it makes sense for Square to pay more tax than Saleforce.
Square has the one office in SF, so essentially all of its gross proceeds arise from that office and are subject to the tax.
Salesforce has offices everywhere and a substantial amount of its revenues come from the work of employees outside of San Francisco. This revenue should not be subject to the SF gross revenues tax (and it would be illegal for SF to tax such income).
The question boils down to this: is the disparity in taxes reasonable given the SF-based gross proceeds generated by Square and Salesforce?
EDIT: corrected username
https://sftreasurer.org/business/taxes-fees/gross-receipts-t...
This is just....staggeringly stupid. It just penalizes low margin businesses, for no reason. How can anyone possibly think this is a good idea?
You might want to ask sf.citi, the SF tech industry lobbying group who came up with it in 2012. Here's a video of Jack Dorsey campaigning for the gross receipts tax as CEO of Square.[1]
The argument then, of course, was that we shouldn't tax early stage pre-revenue tech companies based on their payroll because it increases their burn rate. Better to wait until they generate revenue and tax that. Help support the growth of new companies so they can bring in more tax revenue in the long run. Or so the argument went.
Now that they're making money and it's time to pay up, of course, they've changed their tune. Suddenly they've discovered that the system they lobbied for and got is "unfair" and they still shouldn't pay taxes.
[1] https://www.sfgate.com/business/article/SF-Citi-video-plugs-...
It would be great next time if you can mention the whole reason around. unfairness.
Here's the tweet: https://twitter.com/jack/status/1053312151136362496
Do you think that's fair?
abalone's comment that "they've changed their tune. ... and they still shouldn't pay taxes" could simply be hyperbolic, depending on how charitable people are in their interpretation (e.g. "shouldn't pay [the full amount of] taxes").
I think the main thrust of abalone's comment stands: the CEO of Square pushed for a tax that many think is absurd (e.g. darawk), and now that Square has grown and the tax is unfavorable for them, Square wants to change the tax that it seems to have lobbied for (and presumably thought was fair back then) -- that makes Square seem opportunistic [and not having the community's best interest in mind when the CEO lobbied for the tax]. At least, I think that is abalone's implication.
Jack wanted companies to pay more tax to the city. He helped lobby it.
But this part where Saleforce pays less tax than Square is absurd. So, he's against it.
I don't really see any problem with this line of thinking.
To give the exact number, Square pays 20m, and Saleforce pays 10m. But Saleforce is 2-10x bigger than Square. No matter how you cut it. It's not fair.
I want people to pay more income tax as well (to fund other initiatives). But would I want to pay tax MORE than anybody else? Probably not. Does that make me a hypocrite? Hell no.
It just feels like people are being obtuse at this point :S
Uh, no. Jack has specifically and consistently lobbied against paying taxes (see: previous link). In 2011 he threatened to threatened to move Twitter to neighboring Brisbane unless he got the now infamous mid market tax break.[1] Exactly what Stripe just did. He greatly exaggerates the impact of a hypothetical $10M extra towards fighting homelessness on a $26B company with $3B in revenues.
The best response to this “fairness” line was from Marc Benioff himself, who said to Jack, ok, tell us how much you or Square or Twitter has given towards addressing homelessness in any other form. Crickets from Jack. He really doesn’t like paying taxes or giving.
[1] https://www.sfexaminer.com/news/square-ceo-jack-dorseys-tax-...
Even Benioff merely said ~$10m was nothing to Square. He implied it didn't matter that it wasn't fair because the amount was so little. Like Wut?
Because Square doesn't help homeless much (I don't really know how much compared to Saleforce and other companies), so we make a law for a smaller company to pay tax more than a bigger company? We can simply disregard fairness? Really?
Also, Jack explicitly said that he has no problem paying taxes to the city; he wants to pay tax fairly when considering peer companies. We just gonna need to agree to disagree on whether jack is willing to pay tax.
Maybe -- just maybe -- people understand your point but are bringing up something else that they think is relevant.
> Yet you still doesn't give a straight answer how it is fair that Saleforce pays less tax than Square. I don't blame you. Nobody has answered that question.
I don't think people are saying that the tax situation is fair. Rather, I believe the claim is that Square's CEO is likely not exclusively focused on the unfairness of the situation when he is complaining about the tax situation, but complains about tax in general. I think abalone wouldn't be giving Jack grief (or at least much less), if Jack did not lobby for that tax earlier.
To spell this out further with an extreme example, imagine a recent college grad who's super smart and has the attention of the world. He says "It's crazy that recent college grads are saddled with student loans. Instead, we should soak the rich and heavily tax everyone making $1 million or more." People agree, and the tax is instituted. A few years pass, and after his college debt is forgiven, this recent college grad is doing really well and finds himself making $2 million a year. At this point, he says "It's crazy that higher income workers pay such a high percentage of their income relative to others -- everyone should pay the same percentage." To which people respond "but then we can't forgive student debt with the reduced tax revenue," and yet the recent college grad persists. Do you see the problem with the behavior of the recent college grad?
It might be that the grad sincerely held his conflicting positions when he proclaimed them, but it's also possible that he was always advocating for what was advantageous to himself. Given the short time period (and that the grad makes no offer of accepting his college debt back), people generally guess that he using a sense of fairness to advance his own interests.
Again, I'm not very familiar with the situation, but it seems that the current tax is not a good one, and the CEO of a payments company could have foreseen that it would not be good for his company once his sales got rolling. Why didn't Jack advocate for some other tax scheme earlier, such as one that is based on net income?
Most businesses aim for net income. Most startups don't even try, even if they've raised hundreds of millions of dollars and occupy fancy offices. (It's also very easy for IP-based businesses to shift where income is generated.)
And that's the basic reasoning behind SF's gross proceeds tax. It's a uniquely SV tax that only works because so many unicorns built their house of cards out of claiming revenue for things no other business would claim as revenue.
Why would you want to tax a startup that isn't making any money? The whole point of government taxation is to generate revenue from profitable business activity occurring there. Taxing businesses that aren't even making money is ridiculous.
And sure, you can shift where profits are generated. But you can also just not be in SF. Which is exactly what's happening.
Yes, it would be great if we could have some kind of Generally Accepted Accounting Practices that would specify what counts as net income and what doesn't.
I don’t think anybody thinks that either the gross receipts tax (with different rates depending on industry) or the payroll tax (which included stock exercise in payroll) were good ideas. They are inferior alternatives to property taxes (which are capped and distorted by Proposition 13) and income taxes (which RTC 17041.5 prohibits local governments from raising).
“Alex Tourk, spokesman for sf.citi, a tech business group, said San Francisco needs to consider changes to its business taxes. The city is currently reviewing the tax system, which brings in a total of $1 billion annually. But those taxes could climb higher under the revised system.
“Unfortunately, Stripe choosing to leave town is not an anomaly,” he said. “The membership of sf.citi would prefer a more holistic strategy per the mayor’s suggestion that we work together as a collective business community to fix the gross receipts tax once and for all and establish a fair and equitable tax system that we can all rely on.”
Chris Thornberg, founder of Beacon Economics, said businesses leaving San Francisco has more to do with real estate costs and high wages than taxes.
“Taxes don’t have a lot of impact on business decisions. It’s something that has been exaggerated for years,” Thornberg said. Stripe is staying in the Bay Area, so its departure isn’t a blow to the region, he said.”
Said nobody involved with any big business. Amazon in New York, Apple’s avoidance of repatriating cash, etc. Taxes have a massive impact on business decisions all of the time.
This kind of ignorant thinking is what destroyed the yacht manufacturing industry in the US. “Oh, what difference can a small tax make? Whoops, doesn’t matter because I’m a politician and I’m immune to consequences.”
But they do business where they need/want to do business, regardless of the tax situation. Complaining about taxes is just an attempt at leverage to get tax rebates/concessions/exemptions/etc or to structure the final holding company in a way that artificially shields profits so the executives can pay themselves larger salaries and bonuses.
Source: I was a former tax/legal advisor for a number of multinational companies. Out of a few hundred tax structurings, I can count on one hand the number of times that tax rate differentials affected material operational decisions.
Payment processing rates in USA are ___
Can somebody help me double check something? I don’t know the answers to those questions
I feel like I read WeChat processes payments at 0.1% while Stripe/PayPal are still around 2%
To use square as an example, card present is 2.6% whereas card not present is 3.5%.
While often the same bank performs, or is a partial owner involved in, both processing and issuing, the percentages you quote are largely disjoint.
> I'm reading that Visa typically charges 2.3% to merchants ...
The Discount Rate[0] a Merchant pays varies significantly based on the line-of-business, charge-backs, processing contract, and a bunch of other things.
> ... at least on average 1% of each transaction goes to cardholder bonuses ...
Again, issuer costs have no bearing on Merchant fees nor the profitability of processors.
0 - https://www.creditcards.com/credit-card-news/glossary/term-d...
If this is true, then where does the cash back come from if not as a cut of the merchant fees?
> If this is true, then where does the cash back come from if not as a cut of the merchant fees?
Interest rates + membership fees charged by issuers to Card Holders.
Some of this is paid for by people carrying balances. The bet is that cash back will attract enough people to get and use the card that, in aggregate, interest will make up for cash back.
If it's the full amount of a purchase, not only is that insane, but it really feels like double dipping, as the seller would have to pay the tax on their receipts as well.
Stripe charges %2.9 + $0.30 per transaction.
That is not an "ultra low margin" by any means in the CC processing domain. Actually, that is a massive markup when compared to other ISO's and VAR's.
Depending on the Merchant's processor and their volume, significance, and sophistication, their Discount Rate[0] is often well less than the %2.9 Stripe demands. The fact that Stripe also tacks on another $0.30 USD on top of the top-end Discount Rate for their transaction fee is insane (see here[1] and here[2] for some context and these don't even account for fee negotiations).
And to suggest "no way can they compete while paying ..." is to ignore Stripe has a valuation at/near $35,000,000,000 USD[3].
0 - https://www.creditcards.com/credit-card-news/glossary/term-d...
1 - https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-in...
2 - https://www.mastercard.us/content/dam/mccom/en-us/documents/...
3 - https://techcrunch.com/2019/09/19/stripe-is-raising-another-...
Given that Stripe is already not a major player for those very large companies, 1% of revenues on merchants that have high average transaction sizes means they might as well not show up to the negotiating table, as their break even point will be more expensive than other's best offer.
That's revenue, not margin.
Stripe's fee is $3.20 (2.9% plus $0.30).
The question is how much of that is gross revenue? Many take the position that the portion that Stripe pays to Visa/MC is not gross revenue to Stripe because it was never their revenue; they were just collecting money the merchant would have owed to Visa/MC. If so, then Stripe's gross revenue is only the $1 they have left after paying Visa/MC on the merchant's behalf.
But others take the position that the entire $3.20 is gross revenue to Stripe, and that the amount they pay to Visa/MC is a COSS of that revenue.
If Stripe pays Visa/MC less for that $100 transaction than the merchant would if Stripe weren't involved, than it's clear that the $3.20 is gross revenue to stripe and the Visa/MC fee is a COSS. But if Stripe would owe Visa/MC the same as the merchant would, then arguably the Visa/MC was never revenue to them in the first place. It comes down to the terms of the contract--is Stripe merely forwarding on the merchant's Visa/MC fee or is it assuming that liability on behalf of the merchant?
When it was growing, Stripe took the position that the entire $3.20 was gross revenue, because it made them look good. (See also, Groupon, Uber.) Now that they're a very big company though, it makes them look too good for tax purposes, even if the financial reality is very different. But having chosen their accounting method, they're stuck with it.
The item specifically relevant to Stripe is that it's categorized as a Financial Services rather than Information company. Financial Services companies have to allocate gross receipts based 50% on their payroll location and 50% based on their sales location. So while their portion of sales in San Francisco is negligible, most of their payroll is there.
This is an expected outcome given that. What this means is more cars on streets as South San Francisco has pretty bad infra and driving/taking shuttles is the only way to get to the new Stripe office.
Stripe has a valuation of $35,000,000,000 USD[0].
The real question I have is how anyone thinks Stripe is "barely breaking even."
0 - https://www.forbes.com/sites/donnafuscaldo/2019/09/19/stripe...