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Businesses The Almighty Buck Technology

Square Wants To Be a Bank But Doesn't Want To Be Taxed Like One (wsj.com) 111

Posted by BeauHD from the modern-banks dept.
An anonymous reader quotes a report from The Wall Street Journal: Square has lent $5 billion to small businesses and consumers and applied for a banking license. It operates a nationwide mobile money-transfer business that serves 15 million Americans. But Square says it isn't a financial company. The San Francisco-based payments processor filed a lawsuit last week against its home city to recover $1.3 million in taxes, plus interest and attorneys' fees. Square argued that San Francisco was wrong to classify it as a financial company for tax purposes because it is a technology company that should be subject to a lower tax rate. The refund Square is seeking from San Francisco relates to excess taxes it believes it paid for 2014 and 2015, years when Square was a much smaller company. Square disclosed in its most recent securities filing that it may have to pay San Francisco additional taxes for subsequent years if it was unable to convince the city it was a tech company.

The company said in its complaint that its San Francisco operations more closely resemble a technology company than a financial-services firm. The company has roughly 2,200 employees in San Francisco. Square also said in its lawsuit that San Francisco overstates Square's gross receipts because it includes money that the company doesn't get to keep. Square takes a 2.75% cut of most credit-card payments to its small-business customers. More than half of what Square derives from those transactions must be paid out to banks and credit-card networks, the company said. San Francisco's treasurer and tax collector, Jose Cisneros, said that his office's audit of Square was "thorough and fair" and that he stands by its findings. Mr. Cisneros is also a defendant in the case.
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Square Wants To Be a Bank But Doesn't Want To Be Taxed Like One More

Square Wants To Be a Bank But Doesn't Want To Be Taxed Like One

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  • easy solution (Score:5, Insightful)

    by mwfischer ( 1919758 ) on Tuesday September 17, 2019 @09:02AM (#59202764) Journal

    tax technology companies at the same rate

    • Re:easy solution (Score:5, Interesting)

      by PolygamousRanchKid ( 1290638 ) on Tuesday September 17, 2019 @09:18AM (#59202844)

      tax technology companies at the same rate

      Well the joke is right there in the summary:

      Square has lent $5 billion to small businesses and consumers and applied for a banking license . . . But Square says it isn't a financial company.

      Well, I guess if they are not a financial company, the wouldn't need a banking license, no . . . ?

      • Re:easy solution (Score:5, Insightful)

        by cayenne8 ( 626475 ) on Tuesday September 17, 2019 @09:34AM (#59202898) Homepage Journal
        How about if they were a smart company, they'd move the fuck out of San Francisco in a big hurry and to a more tax friendly town....or even state.

        • Re:easy solution (Score:5, Informative)

          by phalse phace ( 454635 ) on Tuesday September 17, 2019 @10:39AM (#59203186)

          How about if they were a smart company, they'd move the fuck out of San Francisco in a big hurry and to a more tax friendly town....or even state.

          From the article

          Last year, Square Chief Executive Jack Dorsey opposed a local ballot measure, Proposition C, that would have increased taxes on Square and other businesses to raise money to fight homelessness in San Francisco. Salesforce.com Inc. CEO Marc Benioff rebuked Mr. Dorsey for his position and questioned how much Mr. Dorsey had given back to the city.

          Square “would be taxed at a significantly larger total contribution than much larger companies like Salesforce,” Mr. Dorsey wrote on Twitter last October, saying the measure was unfair to Square and fintech startups.

          San Francisco voters approved Proposition C last November. A month later, Square announced plans to open a large new office across the Bay Bridge in Oakland.

        • No business in CA ever again. (Not allowed to use government services, like infrastructure.) Or pay up, no matter where you reside.

          Your choice, ya fuckin leech!

          I'm kidding. Leeches can't not leech. You'll try to buy the government. Hell, murder a few people, like good old Rockefeller! Gotta break eggs to steal^Wmake profit, right?

      • tax technology companies at the same rate

        Well the joke is right there in the summary:

        Square has lent $5 billion to small businesses and consumers and applied for a banking license . . . But Square says it isn't a financial company.

        Well, I guess if they are not a financial company, the wouldn't need a banking license, no . . . ?

        If your main product is money, you are a financial company. I would have thought that was obvious (unless you want to weasel out of taxes I guess). In the same way banks use and develop a ton of tech but that doesn't make them tech companies.

        • Re: (Score:2)

          by Z00L00K ( 682162 )

          Simple solution is to tax all the same.

          But fighting the tax authorities is a futile effort, they have stamina and resources to bring to court that anyone else could dream of, so fighting them is going to be a nightmare.

        • In the same way banks use and develop a ton of tech

          If banks really developed and kept up on tech like they should, Square would have never existed. But that doesn't make Square a technology company.

          • Banks develop technology all the time. But it's not consumer ready. They fundamentally have the wrong culture to develop SUCCESSFUL consumer tech.

          • Uh, my bank owns its own tech subsidiary that makes the CC machines, and the one that does the processing. Saves me money, and gets me better service.

            Square is for people who have shitty credit because they over-leveraged their business so bad that they can't get a real merchant account. And people who are just so bad at shopping around that they can't find a better processor.

            • Square is also for people who do such low volume by CC, that it actually costs more in monthly fees to have a merchant account (me included).

              • That's odd, I don't even have to pay monthly fees.

                Are you really sure it isn't because you suck at shopping for business services?

                • If by that, you mean I won't deal with companies that funnel you through sales people and don't offer transparent pricing on their web site, then yes.

                  • No, and if you think those are the choices, it underlines what I was saying about shopping for the service.

                    Maybe you wave your hands and just believe, "they're all the same, except the appers!" But you're paying extra. A lot extra.

                    • You've really presented no evidence to the contrary. I know what's out there. I'm not seeing anything significantly less.

        • AirbnB isn't a hotelier, it's a technology platform. It should be exempt from taxes and regulations.

          Lyft and Uber don't have to treat their taxi drivers like employees, they're technology companies.

          Fuck it, even WeWork is claiming to be a technology company, not a coworking space.

          They're all bullshit claims for the purposes of avoiding taxes, ignoring regulation and fleecing investors. If you get paid primarily for X, you're an X company. Apple and Microsoft are tech companies.

          • IMO there isn't even such a legit thing as a "technology company." Just count them as they really are, part of whatever industry their product would otherwise be in.

            If you make accounting software, you're a financial company. If you make airplane control software, you're an aerospace company.

            Easy, simple, clear.

            Apple would be a consumer electronics company, and Microsoft would be that too, but primarily a business services/consulting company.

            • I mean, someone making accounting software isn't a financial company any more than ledger printers in the past were. Some companies produce new inventions. Think Bell Labs. But when most people say "technology" they think "software". esp. when they are talking about scalability of tech companies. And a lot of companies do sell software.

              The question is, what better explains their business model? Uber doesn't sell software, they sell taxis. Game companies sell games. But Oracle sells software that peo

              • A ledger company is clearly a business supply company using the system I suggested.

                And why do you think people think of "technology" as "software?" That's just a totally random grab at the air with no apparent foundation.

                And very few companies sell software, especially among these so-called "technology companies." Ones that do sell software don't normally describe themselves is broad terms like being a "technology company." They're actually more likely to be a professional services company, like IBM, who se

      • Well the joke is right there in the summary:

        Well keep reading further down, then:

        The refund Square is seeking from San Francisco relates to excess taxes it believes it paid for 2014 and 2015, years when Square was a much smaller company.

        And keep in mind that square filed their request for a banking license in 2018, after having abandoned their 2017 attempt [reuters.com].

        Well, I guess if they are not a financial company, the wouldn't need a banking license, no . . . ?

        The weren't a financial company back in 2014 and 2015 so they seek to get reimbursement for some taxes back then, but are one now-ish so they think they need a banking license no in 2017-2018.
        Two d

        • It's incumbent on Square to keep its taxes low. Its attorneys will fight the classification. They should've done this before, but it's still possible to receive a refund should a judge decide in their favor.

          Conversely, if Square meets the SF test of being a financial company, then they should pay SF government's litigation expenses.

          My third party observation says: it's going to be a tough battle for them, but sometimes legal departments are persuasive and it looks good to the investors to attempt to cut new

      • Re: (Score:2)

        by tsstahl ( 812393 )

        Reminds of an old saw about legal arguments over a broken borrowed kettle. "Your honor, my client could not have possibly broken the kettle because, one, he never received the kettle, and two, the kettle was already broken when he got it."

      • If it looks like a duck and quacks like a duck...

    • Re: (Score:2)

      by ranton ( 36917 )

      Or stop allowing "technology company" to be a designation. Nearly every large company is a "technology company." It is a meaningless term.

      If you provide software for other financial companies to use, you are a software services firm. If you develop software to provide financial services yourself, you are a financial services firm. And providing financial services to advisors or other financial services firms is still providing financial services, so you cannot claim you're a software services firm just beca

  • Yes, continue to let corporations and government players break the rules while the lowly peasantry is held to even the most petty law. Rome is crumbling

  • They say they are a financial company, for licensing, and want to not be a financial company, for taxes. That's cute. But they're just following government's lead.

    In the original ACA (Obamacare) case, the government was asked what part of the Constitution gives the federal government* the right to force people to purchase healthcare plans.

    Feds: It's a tax of $695 per person - and a tax credit if you buy an approved healthcare plan. We have the power to pass a tax.

    States: Okay, taxes have to be initiated b

    • I'll never understand America's seeming disgust at the prospect of decent healthcare for all.

      • Because it's forced awful healthcare on the majority at a higher price than the decent healthcare they had before..

        • Re: (Score:2)

          by jbengt ( 874751 )
          You are stating facts not in evidence.

        • Because it's forced awful healthcare on the majority at a higher price than the decent healthcare they had before..

          It's the exact same doctors, nurses, hospitals and machines. It's just how it's paid for. The question is do you want one payer getting a good price and you putting a little bit in or do you wants lots of payers getting reamed and you pay most of it? Hmmmm, tough choice. Really what it is, is America is very 'fuck you, I got mine' and you just can't stand the idea that you might be supporting someone else and ignore that they are also supporting you and it works better for everyone.

          UK spends approx 4000 p

          • Not all Americans that should say, lots and lots are very sensible and reasonable but most of them don't have the power to make the changes and those that do have the power benefit immensely from the system in place at the expense of everyone else, hence, it doesn't change.

          • Re: (Score:2)

            by Shotgun ( 30919 )

            It's the exact same doctors, nurses, hospitals and machines. It's just how it's paid for. The question is do you want one payer getting a good price and you putting a little bit in or do you wants lots of payers getting reamed and you pay most of it?

            There are exactly four ways to spend money. Ordered by efficiency they are:

            1) I spend my money on me. I will try to balance quality against cost to maximize my benefit. (Ex. Buying a new tool for myself off of Amazon.)
            2) I spend my money on someone else. Cost will be much more important to me than quality, so I will let quality slide to save money. (Ex. Buying a retirement gift for a coworker.)
            3) I spend someone else's money on myself. Quality is paramount, and I will struggle to get as much as I can.

            • You show as much understanding of Americans as you do economics. By every statistic available, Americans are the most generous people in the world. Really, what it is, is America is very realistic. They realize that handing healthcare decisions over to faceless bureaucrats fixes nothing other than the empire expansion dreams of bureaucrats. We prefer to make decisions for ourselves. If you want a nanny state to mother you to the grave, then move to one. The world is full of them.

              there are already bureaucrats making medical decisions, it's just they work for the medical coverage companies instead of the government.

            • You do realise the NHS is just another insurance system. The only real difference it has massive spending power and relatively tiny premiums because everyone is in it. You can go private if you want/can afford it.

              You had a kid? How much did that cost you? How ever had a serious disease or illness? Whats the cost of that? How many people go bankrupt or are left to die because they don't have the right policy or can't afford the copay? What happens if you get something not covered by your policy?

              Trying to

      • Re: (Score:2)

        by Shotgun ( 30919 )

        You don't understand, because you think the ACA or health insurance is about healthcare. It's not. It is about who will pay for healthcare.

    • What The Fuck, exactly, does the ACA have to do with Square? One is a for-profit corporation. The other is a government program. Those are two very different things.
      • Nothing. Nothing at all. Especially when Obamneycare was thought up by The Heritage Foundation whose own document explicitly stated people should be forced to buy health insurance [americablog.com].

        Which raises the question: how can a supposedly conservative organization push an agenda to increase the size of government and make it more intrusive in people's lives? Not to mention forcing people to give up their money.

        • Re: (Score:2)

          by Q-Hack! ( 37846 )

          Which raises the question: how can a supposedly conservative organization push an agenda to increase the size of government and make it more intrusive in people's lives? Not to mention forcing people to give up their money.

          When you realize that both sides play the cronyism game... It's all about the money.

      • Red herring comment. The post is clearly an example of a situation where the government also holds a double standard to get things done in a technically "illegal" way.

        Just because he lingered on and spoke at a length greater than necessary to get the point across is irrelevant.

        So to help you out since you cannot figure it out for yourself apparently, is that because the government likes to have its cake and eat it too, then Square believes they should be able to have its cake and eat it too as well.

        Sure tw

        • Re: (Score:2)

          by DogDude ( 805747 )
          Thanks. You made that as clear as mud. It's all still nonsense, as far as I'm concerned. A company trying to cheat on their taxes is a company trying to cheat on their taxes.

      • Re: (Score:2)

        by tepples ( 727027 )

        ACA and Square's classification are both taxation disputes for a court to decide.

      • One is a for-profit corporation. The other is a government program. Those are two very different things.

        hint: To the Fascists those are the same thing.

    • They say they are a financial company, for licensing, and want to not be a financial company, for taxes.

      Looks rather like they say "we're not a financial company, but we want to be one. But since we're not one, we shouldn't have to have paid taxes like one till they approve the license that lets us be one"....

  • They identify as a bank (Score:5, Insightful)

    by drinkypoo ( 153816 ) <drink@hyperlogos.org> on Tuesday September 17, 2019 @09:14AM (#59202820) Homepage Journal

    Square presented themselves to me as a bank and made no bones about it. They offered me online payment processing and banking services. There is absolutely no logical or legal grounds for them to claim that they are anything other than a financial institution.

    I thought square was the less crappy alternative to PayPal, but now i see they are equivalent. Both are full of shit.

    • Re: (Score:2)

      by kalpol ( 714519 )

      It's not costing them much to sue and may gain them some results, so why not. It likely won't work.

      • Re: (Score:2)

        by Cederic ( 9623 )

        It could be very nasty for them if they win.

        If they're not a financial institution then they're in breach of a myriad of federal laws.

    • Re: (Score:2)

      by _merlin ( 160982 )

      Also, what do they think employees of financial services companies do? Most of it's technology. If they win this, all the proprietary trading, brokerage and investment companies will be able to argue that they're technology companies.

      • Re: (Score:2)

        by Cederic ( 9623 )

        Exactly. All banks are technology companies, their entire business is data protection, transmission and management.

        It just happens to be highly valuable data.

    • Comment removed based on user account deletion

    • Re: (Score:2)

      by thomst ( 1640045 )

      drinkypoo summarized:

      I thought square was the less crappy alternative to PayPal, but now i see they are equivalent. Both are full of shit.

      Did you catch the fact that Square's CEO (and principle shareholder) is Jack Dorsey - you know, the guy who also founded and remains in charge of Twitter?

      That Square would be just as full of shit as Twitter is was always a foregone conclusion ...

  • Comment removed based on user account deletion

    • Re: (Score:2)

      by Shotgun ( 30919 )

      A politician was asked about simplifying the tax code. His response: "Why would we give up that much power?"

      The US tax code is 6,000 pages for a reason.

  • They want to avoid taxes like all the other banks.

    • They want to avoid taxes like everybody else.

      Fixed that for you.

      • I actually want my roads to be fine, my family saved when my house burns, and my parcs to be cared for, thank you very much.

        Without feeding a criminal (aka profit), in case you wanted to say that.

        The only thing I have a problem with, is both having no choice if I want to support murderers (for-profit / offensive warfare) and thieves (bank bailouts, tax exemptions etc).
        But that is what you get, when you let those very criminals run for office and spread lies; ruining your govenment and democracy.

        • So, tell me, do you not take your deductions? Do you kick in some additional money when pay (you can do that, you know)? Or do you pay as little as possible, same as everybody else?

  • As if normal banks didn't use computers. Square is funny.

    • As if normal banks didn't use computers. Square is funny.

      They are missing a trick. They should ask people to give them money then they can claim to be a charity. Better yet, a church.

      • All churches get to make up literally out of thin air, is deities. Useless.
        Banks get to make up *money*. Which is like a deity, but with real power.
        Like the power to buy yourself a government with media ads, err, news, and a few lobbyist puppets, err, polticians.

        • All churches get to make up literally out of thin air, is deities. Useless. Banks get to make up *money*. Which is like a deity, but with real power. Like the power to buy yourself a government with media ads, err, news, and a few lobbyist puppets, err, polticians.

          Get yourself a megachurch and you can make more money than you could ever know what to do with, apart from pay tax on it of course, you don't have to put in to the systems that benefit you if you have the right sky buddy.

  • Banks have better customer service, and you can actually talk to someone...

    • Two days for a money transfer? Which is just a single TLS-encrypted packet in any sane world.

      Charging me money... for charging money! (E.g. processing fees, for sending me a letter I specifically said I do not want, about charging me processing fees.)

      Not even able to withdraw anything not divisible by 10 EUR, unless I travel halfway around the city?

      Congratulations! You're dealing with a bank!

    • And you can close your account at a bank. I have yet to discover how to delete all the data the Square compiles solely because of the times I've used a debit card at something like a food truck or small business. Square is the single reason why I've started to go back to carrying cash.

  • . . . in whatever delusional world these companies operate in. Sort of like how We Co. insists it's a technology company instead of an office leasing company (something that capital markets apparently have finally realized as We Co.'s IPO valuation drops through the floor).

  • Disruption (Score:3)

    by Sir_Eptishous ( 873977 ) on Tuesday September 17, 2019 @10:02AM (#59203002)
    Another example of the "disruption" view of silly valley whereby an "app" is used to funnel resources away from the public at large into the accounts of those who already are at the top of the economic spectrum.
    • How is this funneling resources away from the public at large when it's the city that wants to impose additional taxes on Square based on the type of business that they are classified as? The mere fact that the city has different tax rates for these different types of businesses should tell you that it's their own laws that are completely fucked up, because they're already funneling all kinds of money away from the public at large by giving certain companies a lower tax rate. Where's your indignation for th

  • Goldman Sachs is writing a lawsuit to declare it a tech company as we speak.

    As is any other of those greedy thieves.

    "I'm a tech company! I take your $8, make up $92 out of thin air, lend $100 to a sucker, and demand $8 a year, or even month, for that 'hard work', and give you 0.5% ... of your $8... per year! That requires a lot of sneaky tech...niques! Ain't I an inventive thief?!"

  • Can we try the reverse argument of this? I'm not a corporation but I want to be taxed like one. Yay, no more taxes!

  • Square also said in its lawsuit that San Francisco overstates Square's gross receipts because it includes money that the company doesn't get to keep. Square takes a 2.75% cut of most credit-card payments to its small-business customers.

    Gross receipts ARE what you received before you deduct any expenses.

    Do their lawyers really think this bullshit will fool any judge? Or is it just pandering to the fuckwit libertarian audience of Brogrammer Valley?

  • Every new on-line based start-up competing in or with traditional industries wants the customers, benefits and profits, without any of those nasty bothersome legal obligations and regulations.
    Square is in the financial business, AirBnB is in the hotel business, Uber is in the taxi business, etc. etc. etc. All need and depend on being able to access at least a few of the services government provides, and all are (in theory) for-profit businesses. There is no reason not to apply the same regulations and obl

  • Final Fantasy won't remake itself.

  • ... but the characters were different.

    It was Uber. "We are not a taxi company, we're a tech company."

  • Do they get to keep banning guns and gun accessories from their platform if they're a bank?

    How about donations to Wikileaks?

  • Comment removed based on user account deletion
  • and shift my earnings overseas into a Dutch Sandwich and avoid taxes.
  • Serious question: when system security breaches of one kind or another are rampant, happening more or less daily, how can anyone trust electronic fund transfers at the consumer level anymore? Hell, I'm not even totally convinced that bank-to-bank transfers are secure, but what choice do I have there?

  • All companies use technology. Google and Facebook are advertising companies. Microsoft is a software company. Intel and AMD are manufacturing companies. Apple is a hardware, software and services company. Amazon is a retailer and cloud services firm.
    Clearly, if you want a functional description of Square, it is a financial services company. The root of this obfuscation is the stock market which created "Tech Sector" as a category which is frankly as stupid, in 2019 as referring to "digital xxxx" products

  • If the applied for a banking license then they currently are not a bank in the legal sense of the word...which really is the only sense that matters.

    There are actual regulations as to what a bank is. Although I would like to believe that the taxing authorities used the correct classification process, I suspect that the taxing authorities may have been a little overzealous when it comes to revenue collection.

  • Yet another technology firm now tries to tell us they are not what they clearly do.
    They take in money. They hold money. They lend money. They offer financial services. But they aren't a bank. A company has transmogrified right before our eyes. It's a Festivus miracle!

    This can all be solved in one fell swoop:
    City of San Fran: "Not a problem sir. Just sign here surrendering your financial licenses and we'll cut a check."
    *Crickets*
  • I'm not sure about the laws, but what about breaking your business up so that you have one main company that performs bank like duties and is the only portion taxed so. Then you have another company that you do business with that makes and services your Tech aspect and is taxed so.

    Granted you will still be taxed as a bank on part of your overall business.
  • . . . recall that the Blackstone Group transitioned to a publicly traded corporation on the NYSE, but didn't want to be taxed like one. Instead they hired some congressional critters, and some shysters who backdated legal articles supporting their move to sell "units" instead of shares of stock, and therefore they were allowed to continue paying capital gains tax, not the higher corporate tax rate!

    Some University of Pennsylvania academic shyster professor classified their move "as brilliant" --- no dou

  • Hmmm... They take in and process payments (Score:3)

    by bferrell ( 253291 ) on Tuesday September 17, 2019 @05:00PM (#59205432) Homepage Journal

    That sounds exactly like what Paypal does and it has a name. It's an ACH (automated clearing house).

    A number of years back a Paypal supervisor who was jerking me around over a refund, made the mistake of telling me that they were an ACH in the process of telling me they were exempt from banking regulations. Bad mistake. WIthin an hour I knew exactly what regulations they WEREN'T exempt from and which they were in violation of. Refund processed in less that 12 hours from there.

    Story aside, I think I see a pattern here... We do it with computers so wer'e not a ( transport/financial/medical ) company, we're a tech company.

    I seem to recall, there was a supreme court ruling around patents (my recall is a wee touch foggy about how long ago) that said "do it with a computer" doesn't make it unique. Obviously, I'm not a lawyer, but I'd think that principal would hold across the board. Some corporate lawyer is gonna get body parts handed to them.

    And with THAT said, in the healthcare industry, there has long been the commentary that pay for procedure is bad vs paid for outcome, because they just pump the procedures to get paid. Sounds a little like lawyers running up dubious legal theories doesn't it. They get paid either way.

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