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Square sues San Francisco for tax refund; says was misclassified as FS business

Square sues San Francisco for tax refund; says was misclassified as FS business

Square is suing San Francisco for a $1.27 million tax refund, arguing that the city incorrectly classified the payments company's business as "financial services" rather than "information".

In a lawsuit filed in San Francisco Superior Court last week, SF headquartered Square seeks the refund on tax it paid in 2014 and 2015.

The suit, dug up by the San Francisco Examiner, says the city "incorrectly classified Square's primary business activities for purposes of the SF Tax Code as "financial services" rather than "information".

Co-founded by Twitter's Jack Dorsey in 2009, Square began life as a mPOS outfit helping small business accept card payments through their mobile phone. It has since branched out, creating a "cohesive commerce ecosystem", says the suit.

While payments may still be the company's bread and butter, it claims that "the vast majority" of its operating expenses between 2014 and 2015 are for designing, engineering and producing software and related hardware.

Square was taxed as a "financial services" business, with a rate ranging from 0.4% to .56% rather than as an "information" business with a rate of 0.125% to 0.475%.

The suit also says the City's tax as applied to Square is "unconstitutional" and that Square has been "improperly taxed" on receipts collected and retained by third parties - interchange fees taken by payment processors and acquiring and issuing banks.

In a statement to the Examiner, a Square spokesperson says: "We have and will continue to pay our fair share, but when we’re treated differently than other companies and taxed on money we never actually receive, this is not fair or consistent."

A spokesperson for City Attorney Dennis Herrera tells the Examiner: "We’ll review the lawsuit once we’ve been served with it. We believe Square was properly taxed and this lawsuit is unnecessary."

Dorsey's other company, Twitter, receives a hefty tax break, estimated to be worth tens of millions of dollars, from the City of San Francisco.

Last year the controversial entrepreneur also tried to scupper a ballot measure to tax companies' earnings in excess of $50 million to pay for homeless services in the city. He gave $125,000 to the campaign against the measure but failed to prevent it receiving strong voter backing.

Comments: (2)

A Finextra member
A Finextra member 12 September, 2019, 09:52Be the first to give this comment the thumbs up 0 likes

Sounds totally implausible that a payments business is not in Financial Services.

I doubt that the lawyers fees that Square will have to pay are going to be worth it.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 12 September, 2019, 12:011 like 1 like

Well tried SQUARE. Payments is Financial Services. Totally agree with @AFinextraMember.