Jack Dorsey's Square, the payment company that reported a total net revenue of $3.3 billion in 2018, is suing the city of San Francisco and its tax collector for a $1.27 million tax refund, the company confirmed Tuesday.
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Square's lawsuit centers on a portion of the gross receipts tax paid by the company in 2014 and 2015. The company listed several reasons why it thinks it's being taxed unfairly and accused the city of violating the commerce and due process clauses of the Constitution.
"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 Square spokesperson told FOXBusiness. "We've done everything we can over several years now to work with the city in pursuit of a resolution. Unfortunately, litigation is our only remaining option, which we hope will open up better lines of communication so we can resolve this in the best interests of Square and San Francisco."
The suit comes after San Francisco's tax collector audited Square and said in June 2017 that the company owed tax and interest for 2014 and 2015. Since then, the company and the city have gone back and forth about the tax classification underlying the audit's results.
"The audit in question was both thorough and fair, and I stand by the findings of this office," city tax collector Jose Cisneros said in a statement. "We look forward to the opportunity to respond in court."
Square maintains it should be taxed as an information company and not a financial services company, which would mean lower rates. Square cited reasons for its argument including its expenditure on designing and engineering software and hardware products and its investment in talent and research and development.
In addition, the company charges merchants a 2.75% fee for payment processing but maintains it only sees about 1% of that fee after distributing a portion to banks and card networks. Therefore, Square says it should not be taxed on money that doesn't end up in the company's hands.
Square employs roughly 2,200 people in the San Francisco area, according to the lawsuit. Dorsey co-founded the company in 2009 to help small businesses process card payments.
Dorsey is also the CEO of Twitter, and his personal account on the platform he co-founded was hacked in August.