The  tech industry is not known for shying away from legal battles, but it also understands that sometimes it's better to let someone else do the fighting for you. That's exactly what's happening right now in  San Francisco.

This week the city introduced a ballot measure that would levy a 1.5 percent payroll tax on its largest tech companies. The so-called "tech tax" would apply an estimated $120 million annually toward affordable housing and services for the homeless.

"This is one way--not a silver bullet--but one way that helps a city like ours address the impasse of the tech boom and a growing housing crisis," said San Francisco city supervisor Eric Mar, one of the proposed measure's three co-sponsors.

Following the announcement of the proposal, the industry has largely remained mum. It's not hard to see why. While tech companies dislike paying taxes--just look at Apple, which keeps much of its money offshore to avoid taxes, or Twitter, which once threatened to leave San Francisco unless it received a special tax break--none of them wants to be labeled as an opponent of anything that would provide help for the homeless and those with low incomes.

Among San Francisco's top tech employers, Twitter, Adobe, Hired, Yelp, Medium, and Salesforce all said they had no comment when asked by Inc. about the proposed measure. Others including Google, Uber, Square, Lyft, and Airbnb--which is currently embroiled in a separate fight with the city--did not provide a response.

But while the companies are keeping quiet, collectively and through the mouths of their supporters and trade groups, they are putting up a fight to stop the proposed tax dead in its tracks.

"The barriers to building housing that's affordable for people at all levels of income is not the money that's available. ... It's the costs associated with building and the difficulty in building anything in the Bay Area, particularly in San Francisco," said Micah Weinberg, president of the Bay Area Council Economic Institute, which counts Adobe, Airbnb, Google, Lyft, and many others in tech among its members. The tax is "another good example of tech scapegoating."

Skyrocketing housing costs

The "Homelessness and Housing Impact Technology Tax," as the ballot measure is formally called, would apply to tech companies whose San Francisco operations generate more than $1 million in annual gross receipts. The tax would apply to companies who fall under the categories of computer and peripheral equipment manufacturing; software publishers; data processing, hosting and related services; internet publishing and broadcasting and web search portals; and computer systems design and related services. It's a broad range that, according to your interpretation of the measure's wording, would include even very early-stage startups so long as they've received more than $1 million in funding over the course of a single tax year.

The tax is a step toward ensuring that tech companies play their part as responsible community members to help address the city's biggest problems, said Kung Feng, an organizer with Jobs With Justice, one of the groups behind the proposed measure. San Francisco "is a place that has such amazing culture that tech workers have also contributed to," Feng said. "And that's the city that we're working to preserve."

The city by the bay has long had a housing crisis, which has largely been the result of poor planning and local opposition to new housing projects. But the tech industry's boom in recent years has played a major role in exacerbating the problem. With companies like Twitter, Uber, and Airbnb drawing in transplants from around the globe since the 2012 implementation of the so-called Twitter Tax Break, the cost of housing in the city has shot up. The temporary tax break attracted fast-growing tech companies to San Francisco's Mid-Market and Tenderloin neighborhoods by offering them an exemption from the city's 1.5 percent payroll tax in exchange for community work. 

The median home price in San Francisco has skyrocketed more than 64 percent to $1.13 million in June 2016 from $687,000 in June 2012, according to  Zillow. Rent prices have followed suit, increasing nearly 31 percent to $4,790 for a two-bedroom apartment this past May from $3,661 in May 2012, according to Rent Jungle.

The booming cost of living in San Francisco appears to finally be driving out even those within tech. Silicon Valley as a whole lost more residents to other parts of the U.S. than it gained in 2014, the first time that's happened since 2011, according to a report by the Silicon Valley Competitiveness and Innovation Project.

"Some companies recognize that there's a general responsibility to mitigate the cost that you're creating in the community, and other companies don't have that attitude. So we're going to see how that shakes down," said Deepa Varma, executive director of the San Francisco Tenants Union. "It's not a punishment. It's just paying your share."

Where the battle goes from here

Among the few companies that have addressed the matter are Zendesk and CloudFlare, which have 593 and 175 employees in the city, respectively. Both companies say it's important to address the city's housing problem but neither have expressed support for the proposal.

"At Zendesk, we share the community's concern over affordable housing and addressing the needs of the homeless in San Francisco," Zendesk said in a statement. "At the moment we believe it is premature for us to react specifically to Supervisor Mar's proposal without having an opportunity to understand the full details, but we will obviously be considering its potential implications for our business."

"CloudFlare is proud to call San Francisco our home; we carefully chose this city over others as our headquarters to give our employees an innovative, diverse community to work and live," the tech company said. "Supervisor Mar's proposal highlights an important issue, but it is too early to weigh in until we know its full impact on businesses and the greater tech industry."

Fortunately for those in tech, the proposed measure faces a steep climb before it can be implemented. In order to be put to voters, the tech tax will need the support of at least six out of the 11 city supervisors, and aside from its three co-sponsors, no other supervisor has yet given his or her support. Three supervisors--Mark Farrell, London Breed and Norman Yee--have already come out in opposition, as has the office of Mayor Ed Lee.

"This is a job-killing measure that takes jobs away from everyday San Franciscans," said Lee spokeswoman Deirdre Hussey in a statement. "Taxing jobs, instead of revenue, will drive unemployment."

Should the tech tax somehow make it past the board of supervisors, a task that must be completed before an August deadline, it will then require at least two-thirds plus one support of San Franciscans on Election Day. That's essentially the same amount of support that was needed to pass the original Twitter Tax Break four years ago.

"It would be a significant battle," said Farrell. "But I can't imagine more than two-thirds of voters in San Francisco thinking that our city government should be introducing measures that will cost local jobs and spitefully target one industry."

So far the battle has entailed more words than action, with the tax's supporters trading charged public comments with representatives of the tech companies such as Weinberg's Bay Area Council Economic Institute and the San Francisco Citizens Initiative for Technology and Innovation, which represents Salesforce, Google, Pinterest, Twilio, and others. You can expect the tech industry to remain quiet as the ballot measure is debated by the city supervisors. But should the measure somehow make its way on the ballot, the gloves will come off. Over the past year alone, the tech industry has shown the world its newfound lobbying and legal chops, and it likely won't be afraid to once again step into the ring in San Francisco if it has to.

Apple, with the support of the entire tech industry behind it, successfully swayed public opinion in March in its legal battle against the Department of Justice. Ultimately the agency withdrew a motion that would have required Apple to unlock an iPhone that belonged to the San Bernardino shooter. In May, Uber and Lyft unsuccessfully attempted to  prevent a city ordinance in Austin requiring them to do more extensive driver background checks, but not before they combined to pay nearly $9 million in campaigning efforts. Airbnb spent nearly that much on its own a year ago  successfully fighting another proposition here in San Francisco that would have placed limits on its unit rentals.

Still, the proponents of the tech tax say they know what they're up against and are bracing for whatever the Silicon Valley giants may have in store.

"We're between a rock and a hard place," said Grace Martinez, community organizer for the Alliance for Californians for Community Empower, one of the groups behind the proposal. "If we don't fight ... then what options do we have? It's already happening--people are being pushed out."

Published on: Jul 1, 2016