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Supervisors advance discussion of stock-option payroll tax exclusion but continue items for amendment and study
Summary
The subcommittee heard competing proposals to exclude pre‑IPO stock compensation from payroll taxes for a limited period and to cap post‑IPO tax liability; the Comptroller's Office estimated a broad pre‑IPO exclusion would cost under $1 million annually and recommended capping rather than a full exemption. Substantive amendments (including extending the exclusion period to six years, broadening eligibility beyond tech, and adding reporting requirements) were adopted for further consideration and items were continued to the call of the chair.
The Budget and Finance Subcommittee took up two related ordinances proposing payroll tax relief tied to stock‑based compensation. Supervisors discussed competing and complementary approaches: one bill sought a time‑limited exclusion for pre‑IPO stock compensation to reduce a large, one‑time payroll tax spike when employees exercise options after an IPO; another focused on post‑IPO treatment for more mature companies.
Ted Egan of the Comptroller’s Office summarized the office’s analysis. He said the City lacks precise tax records for stock-option taxation but, using a model and treasurer-supplied data on 14 companies that went public, estimated an average annual payroll-tax liability attributable to stock options of about $140,000 per company (range ~$40k–$685k). Under the broad exclusion originally proposed, the Comptroller estimated the fiscal cost could be less than $1 million per year on average; Egan recommended focusing the exclusion on pre‑IPO grants and considering a cap (for example $750,000 annually) instead of a full exemption to protect the City budget while reducing incentives for companies to leave.
Supervisors debated the appropriate scope and duration. President David Chiu and Supervisor Ross Merkremi proposed amendments to extend the exclusion window to six years, remove firm-size or sector limitations so the exemption could apply to any private company that goes public or is acquired, and add annual reporting and a 6‑year review. Public commenters and community groups suggested adding local hiring commitments and area‑standard wage language as conditions attached to any tax relief.
Because the proposed changes were substantive, the Committee agreed to have the amended legislation sit for one week; the items were continued to the call of the chair for further refinement and additional analysis.
