Over the past two months, City Hall has been buzzing over the relatively high-profile debate about whether payroll tax incentives should be used to encourage Twitter, along with other businesses, to relocate to the blighted Mid-Market and Tenderloin neighborhoods. I was a proud co-sponsor of this legislation.

What the Twitter debate uncovered, however, was the fact that San Francisco is the only major city in the United States that taxes stock options – a practice that is now threatening our vibrant technology community. Today, San Francisco requires employers to pay a 1.5 percent payroll tax on the full value of restricted stock grants, and the full spread of stock options between the fair market value and strike price.

So what’s the big deal?

Here’s the problem: Stock options and other forms of stock-based compensation have become a staple of how technology and other companies recruit and retain employees. When you consider that many of San Francisco’s most successful young technology companies, such as Twitter and Zynga, have estimated that once public their annual tax bill in San Francisco relating to stock options alone would reach $50 million, the severity of the problem comes into focus.

In early April, along with Mayor Lee and a number of my colleagues, I met with leaders in our local technology industry about this issue, and their message was loud and clear: although they are committed to staying in San Francisco, growing their companies locally, and continuing to hire San Franciscans, they cannot afford to stay in San Francisco if it remains the only city in the United States to tax their stock options. They will simply move away.

Facebook once looked at moving to San Francisco but stayed away because of our perceived anti-business climate. Imagine what could have been. Now, high-profile technology companies such as Twitter, Zynga and Yelp are growing like crazy, and the next Google or Facebook is already in our midst. This is the future of our local economy.

I believe it is our responsibility at City Hall to create a competitive and sustainable economic environment. If we want to continue to attract young technology companies to San Francisco, and the jobs they create for our residents and ancillary taxes they contribute into our economy, we cannot ignore this problem any longer.

Therefore, on April 19, I introduced legislation to specifically exempt stock options and other forms of stock-based compensation from our payroll tax. I have worked in the technology area for years – while our current payroll tax structure is a major problem, it can be solved relatively easily and in short order.

I ran for supervisor to focus on long-term solutions – to create a vision for the future of our city. Right now, we have a unique opportunity to grow into the capital of innovation for the entire technology industry, but first we have to level the playing field. It is the future of San Francisco.

Supervisor Farrell represents District 2 and can be reached at 415-554-7752 or [email protected].