The headline is a bit misleading because I don’t think there are any banks in a similar situation to Square: a bank that receives most of their revenue from transaction processing fees and whose employees are almost all in San Francisco (San Francisco apparently apportions company revenue according to where the employees are).
Note: In California, local governments use relatively unfair gross receipts taxes instead of more efficient taxes because Proposition 13 (1978) forbids fair property taxes, and RTC 17041.5 (1963) forbids local income taxes (https://leginfo.legislature.ca.gov/faces/codes_displaySectio...). So we tax gross receipts of large companies, with 7 different rate schedules based on different industries in order to sort of approximate income.
Tech bro and his pockets smashing up his society while the world burns.
The blanket excuse is always "We are a tech company". No, you are a company who brought more tech to the field but still very much in the same field.
Then change the rules. Breaking them and pretending you are better is not the way. This is the most common excuse when people break the law.
There are hundreds of examples where you'd feel less than grateful if someone "disrupted" the sector by breaking the law and I'm sure you can think of a few. Off the top of my head, law enforcement agencies are "disrupting" the justice system by bypassing due process and warrants, just to optimize and make things better of course. Just because it suits you once in a while doesn't make it acceptable.
"Applied for a banking license". That application was rejected. Square doesn't have a banking license. Square asked to become a bank and the government said, "No."
Square should either be a bank and be taxed like a bank, or it should be a not-bank and taxed like a not-bank. If I were to make $50,000 this year and the government puts me in the $500,000 tax bracket I'd be a little miffed too.
IMHO this is dishonest reporting.
That's just as logical as if I were to build a value-added service on top of AWS, or if I bought things on Alibaba and then sold them in America.
Opinion (don't read on if you are looking for hard facts):
The way I look at it, AMEX designed a closed loop payment system to easily ensure payments between customers and merchants.
Square and Stripe seem to be trying to accomplish the same goal, but in the 21st century.
Strictly calling Square a tech company, would be like calling 20th century AMEX a paper processing company--or maybe I am misinterpreting the founder's point.
But then as now, the actual IT rapidly becomes the boring part of the operation and the real business becomes, well the business. That of finding clients and tailoring your services to them.
2) A new gross receipts tax which disproportionately impacts Square and Stripe . It's more than a matter of "low margins" in this business, it's the very core of how revenue works for Square/Stripe. Those companies take their 2.9% + $0.30 per transaction (https://stripe.com/pricing) and call that revenue. Most of that flows _immediately_ back to Visa/MC/Amex/Discover and the card issuing banks.
Treating all of that that as revenue for taxation purposes puts Stripe/Square in a very challenging position. A more "fair" approach would be to tax the portion of their fees that they kept before any other expenses.
As Yonran points out, this whole relatively unfair situation is one of many many unfair symptoms of CA tax law. As a young person who doesn't own property but earns a relatively high income in California, I am a provider of massive and permanent subsidies to people lucky enough to have bought property before Prop 13 was passed in 1978. The real issue here is Prop 13.
Libertarians love to argue that people vote to give themselves subsidies. Mostly I hate this argument, because of course people vote to give themselves services from governments they want. What I find abhorrent is that a group of Californians receive different treatment from the government based solely on when they bought their property. It's time to end prop 13. This article is just one tiny example of where bad policy has bad results.
Disclosure: former Stripe employee
This simplifies things quite a bit, but the distinctions underneath don't super matter.
You can tell by the use of footnotes in plaintext
0.5% of 2.9% is incredibly small; if Stripe/Square raised prices to 2.91% it would more than cover the tax (somebody check my math).
I personally hope that happens. I never want to live/work in SF ever again, so the more tech jobs that leave, the more options I have that aren't SF. These companies are in a city and state that do not deserve their golden geese. The entire time I lived there I was constantly asked myself why I was paying such high taxes to a state that consistently works against my self interest.
I know so many people that live in SF/Bay Area saving up to move away ASAP.
If there were regulations in the way that would have prevented them from doing so, we should probably self-reflect a bit and have a sense of shame.
It is kind of a given that a newcomer to an industry won't be compliant with everything and will need time to build up to full regulatory compliance.
The idea then is for the regulator to work out a compliance roadmap which the regulated commits to, and is audited for compliance with occasionally.
Think of it as a learning experience for small businesses.
We would have to do a much better job at keeping track of people's association through corporation's however, as it would lead to an unintended incentive to just dissolve a company when the regulatory compliance costs heat up, reform a new one, and reset the level of regulatory expectation.
To revert them I'd hope there'd be a compelling case as to why the catalyst that brought the regs into existence no longer applies or will not reappear in the future.
I'm not sure that it's an easy process.
This is the world in which we currently live.
Startups would presumably be as successful as everyone else at dumping and getting away with it, meaning at least a few years of growth.
Nice strawman, but that's not anything I said.
> You make it sound like all regulation is bad.
No... I made it sound like regulation is bad when it negatively affects a good solution from coming into existence. Stripe does not dump toxic chemicals. Rather, it increases access to credit cards and money transfers to people who were being underserved by big banks. Had you ever had to take CC payments in person before square? They made it much easier.
So a publicly traded company with 25B in market cap and member of Russell 1000 index is a 'small company'?
This is called regulatory capture, and is not something to be defended.
More like “every company ever” wants to minimize their taxes.
The side effect of this is that clear rules create the way to circumvent them.
When irreconcilable the courts are how this has to be resolved, and I believe what I wrote is a factor in that argument as municipal governments regulations reactionary based on a the sentiments of a very small number of people.
When you increase taxes, you drive away people that pay those taxes.
Sv isn't the end all be all of tech.
How exactly do taxes and regulations enable these companies? Most of these companies outright ignore regulations and incorporate in Delaware to get around some of the ridiculous taxes.
Taxes and regulations only serve the rich and will keep out smaller companies that don't have the resources to compete or attorneys to get around regulations.
Left-leaning people usually dislike big corporations, yet ironically support everything that keeps them in power.
I don't think it is remotely reasonable to claim that your company is <business type A> when the bulk of its income comes from <business type B>.
That would be like companies like apple claiming to be retail companies, amazon being a warehouse company, etc. Hell many companies might be able to claim that they are janitorial businesses.
And that's exactly why this isn't as cut and dry as it seems. Fintech is definitely more tech than fin. They are just taking the big tech models, and applying them to finance. They are tech companies that happen to sell financial products. Taxing that differently than a tech company that happens to sell database products makes little sense.
You’re missing the point I was trying to make: square is arguing that they aren’t a financial services company because the majority of their employees are engineers, not accounting or sales type folk.
The equivalent would be amazon to say the majority of their employees are warehouse workers so therefore they are a warehouse company.
That’s the nonsense. What matters is how a company makes its money: Facebook and google are advertising companies, Apple is a consumer product company, amazon is a retail company, etc.