Washington State Debates Taxing Software Creation

zzyzx writes: "An article in the Seattle PI discusses the existing tax on software creation in Seattle. The law was clarified recently to allow the taxing of the software that was created in Seattle, even if the manufacture of the discs occurred elsewhere. Some Washington state lawmakers are working to overturn these changes. The issue at the heart of the matter: Should an intellectual activity such as programming be taxed in the same way as manufacturing is?"

Comments

How do they set the tax rate?

[8127972]

Do they use a Vulcan Mind meld?

Right now they get a tax break

[drodver]

Research and Development time is tax deductable.

Re:Right now they get a tax break

[Magnusite]

Well, I could be wrong, but a co-worker at a previous job told me that the tax break for R&D was eliminated back in the early seventies. He had both an MSEE and MBA, so I tend to believe him.

Re:Right now they get a tax break

[Sludge]

Yes, and you have a slashdot account. Waiter, reality check, please.

Re:Right now they get a tax break

[drodver]

Every month I fill out a form that allows my company to get a tax break on the time I spent on R&D that month.

Re:Right now they get a tax break

[/dev/trash]

Well, I could be wrong, but a co-worker at a previous job told me that the tax break for R&D was eliminated back in the early seventies. He had both an MSEE and MBA, so I tend to believe him.

Well he was wrong. Back in 99 we were asked to lis any and all R&D stuff we did so we could send it down to corp. to add it into the 'break'

No wonder

[WndrBr3d]

We could expect this from a state who's:

a) So close to Canada
b) Doesnt Impose State Taxes on Working Students
c) Helped the Spead of Communism (In the form of Starbucks
.. and finally ..
d) Their only Claim to Fame, other than Coffie, is Nirvana.

Re:No wonder

[Asgard]

e) Is having a serious budget underrun, around 1.6 BILLION dollars, and surely wants to get some of that MS money..

Re:No wonder

[LamboX]

So close to Canada ... hmmm. Perhaps you have never been here. We aren't dumb and arrogant enough to "attempt" to control things that are not our business to control (ie. the Internet, Microsoft, etc.). That would be another country. It always amazes me that we are friendly and helpful to our neighbours to what the rest of the world would call a fault, and yet there is always some bone head attempting to say that we are to blame for their woes.

Re:No wonder

[global_diffusion]

Don't forget it's the most beautiful state in the nation. And it's far enough away from everything else that we can pretend we're not in the same country as fools like you.

Re:No wonder

[LamboX]

Then perhaps you can get your own lumber, power, and water. Let alone fish.

Re:No wonder

[LamboX]

While your examples seem weak to me, because they are all things that we agreed to allow our gov't to handle on behalf of us and your interesting perspective on my personality feels irrelevant to me. I do agree in principal that my wording is a bit harsh. So to that end I apologize to you and all other Canadians/Americans alike if I insulted your sensibilities.

I am perhaps alone in my quest for Canadian pride. The endless stream of American jokes at our expense is getting to me. Especially when we so often seem to be helping them with their problems and shortages due to mismanagement by their gov't.

I realize that our gov't is FAR from utopian, but most of the places where I disagree with their policies is in regards to how often we bend over for US business interests with absolutely no concern for our own.

Again I appologize for upsetting you and/or anyone else.

Re:No wonder

[gangien]

well we have Microsoft too.
Plus Nintendo of America.. goo enough for me :)

is software akin to solid state machinery?

[cisco_rob]

You would tax the manufacture of a whole machine, but not separately tax the solid state boards that did the "thinking" for that machine.. how is software different?

Re:is software akin to solid state machinery?

[Deagol]

No, it doesn't. Unlike income tax, which is (distortedly) proportional to your earnings, sales tax is a flat rate.

So, the $6.50 in tax for a $100 trip to buy clothes hurts the mother of 3 earning $5.75/hr a lot more than the well-off geek earning $35/hr.

Now do you understand? Sales tax only makes sense for bloated local governments, and not the people who are taxed.

Why get taxed twice (or more) on everything you purchase? Ever look at a utility bill? Consumers are routinely screwed by taxes for utilities.

Re:is software akin to solid state machinery?

[ScoLgo]

Or, why not try this...

1. Repeal Federal Income Tax.
2. Institute Federal Sales Tax (say.. 10% - or pick a 'better' number if you like).
3. State sales taxes and income taxes stay in place.
4. No tax on necessities (e.g., food).
5. Tax exemptions for low-income folk.
6. No tax on goods for resale (currently true).

Benefits:

1. I keep the money I make until I decide to spend it on something. Whether I'm an individual, an organization, a corporation, etc. has no bearing. If I spend, I pay tax - period.

2. All this purchasing across state lines to avoid taxes becomes moot. Believe me when I tell you that I do it as much as possible. If I buy a book, a DVD player, a CD, a computer system, whatever, I try to buy out of state to avoid the tax, (I also batch-buy smaller items like books and CD's to cut the freight costs :).

3. The government collects all those dollars that they are whining about missing out on because of internet sales.

4. The IRS can be re-structured to become a collector of sales tax for the fed. No more need for complicated, convoluted tax forms.

Drawbacks:

1. Puts a bunch of accountants, tax lawyers, etc. out of business. (Or at least makes them re-structure their businesses.)

2. ???

Re:is software akin to solid state machinery?

[medcalf]

The only tax that makes sense is income tax. Even sales tax doesn't make sense, let alone all these weird specialized taxes.

OK, you obviously have not thought through taxation very well, if you make this statement. So let's walk through it a bit.

A government (theoretically, anyway) provides services to its citizens. Universally, these include infrastructure development, provision for the common defense, a criminal justice system and so on. Some countries provide more, and some countries have failed, and essentially the government is an armed gang of extortionists. Other than the latter, though, governments generally exist to provide services to their citizens. To do that, a government must have access to resources (people, property, material, etc). To get those resources in a basically free-market system, such as is prevalent in the developed world, requires money, because money is the medium of exchange and because we don't like the government to show up unpredictably with guns to take things from us that the government needs.

This need to raise funds for the government can be met with:

• tarriffs and the like - essentially, money paid to the government to bring goods into the country
• export duties - money paid to the government to be able to send goods out of the country
• sales or value-added taxes - payments to the governnment to sell something or provide a service, based on the market value of the product or service
• user fees - payment for use of a government service, such as admission to a park
• property taxes - payments to the government for services provided for the property (such as keeping foreign armies from seizing the property), based on the value of the property
• income taxes - payments to the government for services that allow you to earn a living, based on the amount you earn (and typically relatively higher if you earn more)

The amount of funds raised depends upon which taxes are imposed, and how much money is behind each source of funds. So let's look at the government's incentive with each tax, the relative amount of funds behind it, and the impact on the society of collecting funds in a certain way.

• tarriffs - The government's motivation is to increase exports and tarriffs, in order to generate more funds. But there is a balance, because excessive tarriffs result in less exports, and thus less funds. As a result, the government will normally keep such a tax low. The increase in exports generates jobs in the economy, and the impact of excessively raising taxes is directly felt by the government in lower revenues. There is no impact on individual liberty, because an individual can avoid the tax by not exporting goods.
• import duties - The government's motivation is to restrict imports (to protect domestic jobs) and to raise tarriffs in order to maximise funds. However, this again is a balanced tax, because excessive import duties make it difficult to bring in necessary goods, and thus cost jobs as well as consumer spending power. There is no impact on individual liberty, because a person can avoid the tax by not importing goods. It is my understanding that the funds raised by current US tarriffs and import duties is sufficient to run a government similar to the one initially created for the US, but sized for the current US. That is, these funds couldn't support an expeditionary army or a welfare state, but could support a defensive army, police force, treasury, Congress, etc.
• sales taxes - The government's motivation is to set the tax as high as possible, to raise maximum revenue. However, people would buy less, causing loss of employment and loss of revenue at the same time. As a result, sales taxes tend to be low. There is no impact on individual liberties, because the tax can be mitigated by buying used goods, less goods or making it yourself (you can grow your own food, build your own house if you have wood or stone on your property, etc).
• user fees - The government's motivation is to set these fees as high as possible, to raise the most funds. However, setting the fees too high will result in people not using optional government services, and thus will decrease revenue. The built-in feedback keeps this tax low. There is no impact on individual liberties because an individual can refuse to use the service, and thus avoid the tax. This is not a big revenue generator, but can be used to pay for government services of real use, like parks, maps, weather data and the like.
• property taxes - The motivation is to set the tax as high as possible to maximize funds. However, doing that causes people to not own property, which reduces the revenue stream. Thus the tax tends to be reasonable. In addition, the US originally made real property ownership a requirement in order to vote, thus providing an offsetting incentive and allowing the property tax to be higher than it otherwise would be. There is a small impact to individual liberties, since the government has to know what property you own and what its value is. However, they don't have to know what you do with or on the property, so the impact is fairly low. This is the main funding method for many states still today.
• income taxes - The government's motivation is to set the tax rate as high as possible without sparking a revolution, in order to maximize funds. Since there is no feedback loop (you have to work to eat, after all), these taxes tend to be very high - particularly so since the higher income earners are disproportionately taxed. (Putting 50% of the taxes on 3% of the voters is not likely to get you kicked out of office.) Further, the government needs to know how much you earn, which is an invasion of your privacy. On top of that, they have to look through your bank account records to prevent cheating, regulate the use and transfer of your money to prevent tax avoidance, and many, many other tyrannies. It is for this reason that direct taxes, except based on head count, were prohibited in the US Constitution: to prevent the govenment from invading every aspect of your life.

In the end, it is the income tax that allows the government to control your life. It is the income tax that makes possible a government of barely-restricted size and power. It is the income tax that allows the government to bribe the majority with money coerced from the minority. It is the income tax which spawns most of the tyranny that the US government practices (admittedly, still less than most places in the world). It is the income tax which sterilizes citizenship by removing the ability of citizens to control their government's behavior by changing their own behavior. It is the income tax which poisons public debate by allowing people to obtain benefits without costs, and thus makes the incentive for an individual to go along with a government program - lest their own government teat be attacked by the beneficiaries of another program - unless they are in the unheard minority who have to fund whatever the latest government program might be. It is the income tax which is LEAST useful and sensible to a free people.

One further point, on bonds: the government can raise money in the short term by taking on debt. This is not a valid long-term means of financing the government, however, because that debt eventually has to be paid back, with interest, thus reducing future funding abilities.

-jeff

Re:is software akin to solid state machinery?

[Boiled Frog]

Why should the geek pay more than the mother? They most likely consume about the same quantity of public goods?

Continuing this logic, why pay taxes at all. Just pay user fees. Drive down the road, pay tolls. Take the bus, pay bus fare. Pay market costs for water and sewage. Pay your firefighters and police directly. The more you use it the more you pay.

Re:is software akin to solid state machinery?

[ScoLgo]

Bzzzzt, try again.

That's a poor analogy. What you're describing is a return. Which results in the tax being refunded along with the purchase price.
Now, if you were to say A sells to B and B sells to C, then you might have a case, but only if each party is a business. Most people perform private sales without bothering with sales taxes. Probably not strictly legal, (per the IRS), but that's reality. Think E-bay or garage sales, for instance.

Re:is software akin to solid state machinery?

[letxa2000]

The only tax that makes sense is income tax. Even sales tax doesn't make sense, let alone all these weird specialized taxes.

Income tax doesn't make sense, and it is counterproductive. A long post in this thread pointed out the problems and "benefits" of each type of tax very well.

The income tax:

1. Reduces privacy (government needs to know how much you make).
2. Punishes success (the more you earn, the more you pay).
3. Punishes honest people and benefits crooks (honest tax payers get the shaft, tax evaders don't pay).
4. Doesn't tax illegal income (drug dealers don't pay income tax on their drug money).
5. Encourages evasion (there is financial incentive to not report all your income).

On the other hand, a sales-tax only (no income tax) has the following aspects:

1. Increases privacy (no government agency needs to care how much you make).
2. Is success-neutral (making money doesn't punish you).
3. Taxes honest and dishonest people the same (drug dealers still have to spend most of their money at legitiment businesses).
4. Doesn't encourage income tax evasion (there's nothing to evade).
5. Encourages national savings (people will tend to save more of their income if it's not being taxed, which provides more capital to banks to lend money to encourage business borrowing to encourage growth.).

What DOESN'T make sense is any combination of income and sales tax. Income tax screws you for every dollar you earn and sales tax screws you for every dollar you spend. Screwing you both ways is something normally reserved only for pr0n.

I'm for reducing and simplifying taxes. This could best be done with a sales tax. But even if we just simplify INCOME taxes, they need to be exclusive. Having both an income and a sales tax is logically and morally wrong.

PS--I also think property tax is wrong. It eventually means everything belongs to the government and they are just renting it to you. That's bogus. If you buy it, it's yours (or should be). But I won't get into that rant right now.

Re:is software akin to solid state machinery?

[MsWillow]

The makers of the boards *are* taxed, just like those who make the cases, power supplies, and little rubber feet. Each company pays taxes. Why should a software company be different?

Years ago, while working at Sun Electric, we were hit with a patent infringement suit. A competitor's unit displayed a cylinder's firing event, as did ours. They used a circuit to determine when to start sampling the waveform; we sampled continuously, and determined when to start in software. The ruling went against us - the judge decreed that anything that can be done in software can be done in hardware, therefore our software approach violated their patent. While I personally think the judge was unable to determine the difference between his anal orifice and a hole in the ground, I suppose that same line of reasoning could be applied here.

Re:is software akin to solid state machinery?

[minerva_ks]

Unlike income tax, which is (distortedly) proportional to your earnings, sales tax is a flat rate.

Though the example given is correct ($6.50 in tax hurts someone with a lower income more than one with a higher income), what is being described is a regressive tax, not a flat one.

To clarify: The current personal income tax is progressive because the proportion that one is taxed increases as income increases. Sales tax is regressive because the proportion of ones income that is taxed decreases as income increases. This is because a poorer person spends a larger percentage of income on items that are taxed, such as clothing and food (that is not classified as a 'staple' good), than a wealthier person. A flat tax would be one in which everyone paid the same percentage (not amount) of their income in tax.

Sales tax makes sense for governments that do not have the resources necessary to enforce an income tax. It's also easier to increase a sales tax by half a percent than it is an income tax when it comes to voters, as it's harder to estimate the real effect of a sales tax on an individual.

Re:is software akin to solid state machinery?

[Epimetheus6]

So, what you're saying is w/o income tax, what is given to me, is mine, not just partially mine. Similar deal for estate taxes, correct? The government taking cash away from my heirs falls into the "they're taking what's not theirs" category, correct?

But assume that income tax and estate tax are ended. What happens when everyone minimizes their tax-paying? More to the point, what happens when you decide to pay as little money as possible so that you can give as much as possible to your heirs? And they do likewise? It seems as though you lose some kind of... fluidity in the market (pardon my weak wording here).

I guess there's two questions here, is there a problem with having money escape from the system? And is there a solution other than income/estate taxes that more effectively prevents any such problem?

-j

Re:is software akin to solid state machinery?

[Oggust]

OK, I'm from what you could call the worst-case country when it comes to taxation, Sweden. We have the highest taxes in the world, pretty much, and I'll elaborate on your points a bit.

First of all, you forgot one kind of taxation, excise taxes, ie taxes on specific things that the government doesn't like. (Alcohol, tobacco, pollution, gambling etc) These sound like a good idea, and they are, to a point. The practice of having a market of pollution quotas is well proven to work. The problem is that when these taxes get too high, and if there's a way around these taxes, that will become a problem. For example, sweden has very high taxes on hard liqour -> A lot of moonshine in circulation -> people die from drinking methanol every now and then. (And a lot of people end up in jail for running the illegal alcohol factories.)

(Oh yeah, and estate tax. It seems like a good idea ("It they're going to take my money, the best time for it when I'm dead!"), but it too can become a problem for example when children inherit a house that's worth a lot and have to sell it immediatly to pay for the taxes on the estate.)

Property taxes get problematic as they grow high, as around here a lot of (for example) old folks who own their own house have to move because they can't pay the taxes on it anymore with their pensions, because the area got more popular and the house increased in value because of that.

A too high sales tax (we have 25% except for books(6%) and food(12%)) creates a large shadow economy with bartering and/or their own currencies which is never good. Actually, in sweden, if you're a painter and your neighbor is a carpenter, and he builds oyu a shed and in return you paint his house, you're supposed to report that to the government so they can tax you. This is rarely done. :)

Income taxes. You're right about these. I pay about 51% in income tax and I'm certainly not rich. The problem here is largely the sama as with the high sales tax, it becomes very profitable to try to avoid it by "swapping favors" or getting paid in goods you make and stuff like that.

Too high tariffs and duties make your nation's industries weak. Just you watch your steel indutry the coming years... :)

Use fees. If it can be financed that way, the government should butt out and let industry deal with it.

In short, TANSTAAFL, and there's no such thing as a good tax. The least bad one I think are excise taxes on pollution, because it's reasonably moral, reasonably enforceable, and has the potential to bring in quite a lot of money, done right.

/August, sick of it all.

Re:is software akin to solid state machinery?

[snol]

Something's backwards here. I don't have much to say abou the other four types you mention, but your comparison of sales and income taxes smells funny to me. First, you say, under sales taxes

There is no impact on individual liberties, because the tax can be mitigated by buying used goods, less goods or making it yourself (you can grow your own food, build your own house if you have wood or stone on your property, etc).

Then under income tax you say

there is no feedback loop (you have to work to eat, after all)

As far as I'm aware the government doesn't tax your work directly; it taxes, in a word, income. Removing yourself from the money economy as you suggest under the sales tax is just as effective a measure for avoiding income tax. Furthermore, why should sales taxes have any greater effect on the amount people buy than income taxes have on the amount people work? Everyone involved in the money economy has to pay for certain necessities; if a person decides to buy more (because sales taxes are low) it is necessary for them also to be making more. If they decide to spend less money (because sales taxes are high) then it makes no sense for them to work hard to make extra money if it's merely going to be stolen away by the income tax anyway. Can you clarify what makes sales tax have more of an effect on the economy than income tax? Why do you assume that people are more free to moderate what they spend than they are free to moderate what they make?

As for the privacy issue, I dislike filling out a return as much as anyone, but this is primarily a question of implementation. If sales tax required you to keep records of everything you bought throughout the year, add it up, itemize it, and pay 7%, your privacy would be much more violated than it is under the current income tax implementation. Conversely we could have an income tax implementation which simply withholds a percentage of what you make just as anonymously as sales tax; I wouldn't be such a fan because I think a flat tax is rough on the poor, but it could be done that way. In any case, unless you can clarify quite a few issues, I think your post was a heap of shameless spin. Please disillusion me.

Re:is software akin to solid state machinery?

[kabloie]

"There is no impact on individual liberties, because the tax can be mitigated by buying used goods"

Ever buy a used car? In the US(CA), the DMV wants a sales tax bite every time a vehicle changes hands. Doesn't matter if you had it for 3 months or 30 years. VIN numbers make it all possible. I assume this is the same in other auto-authoritarian states (IL, MA, etc...) maybe all 50.

Wonder when all that started. It is the only case of sales tax on used goods I can think of.

Re:is software akin to solid state machinery?

[deepvoid]

Since the government is the entity responsible for manufacturing the money, and the people are the consumers of that money, then why does the government need the money back? Sounds rather inefficient to me.

Taxation is used to govern the rate at which an economy expands and contracts. Too much taxation and the economy contracts, too little and it expands. Rapid expansion creates inflation, while depression lies in the opposite direction. The government does not NEED the tax money, any more than cows NEED hamburgers.

Controlling the money supply is the better way to throttle the economy and has been shown over the last few decades. As a matter of fact, the ultra low interest rates are due to compensation for the ultra high tax rates. If we eliminated tax rates all together, and adjusted the cost of money to a more realistic value, the economy would be a great deal more stable since the primary instability in any ecomomy is fluctuations in taxation.

If you count all of the various direct and indirect taxes you pay in this country, (user fees, windfall taxes, etc) you will find Americans pay a much larger proportion of their income than the pundits will admit.

90% of the time spent in Congressional debate has been related to one tax or another, all on the taxpayers dime. Establishment of a budgetary system proportional to the economy and binding on congress, state, and local gonverments is the best way to go in my veiw.

If the amount of money they receive is directly proportional to economic health and stability of their region, the politians will be more motivated to selecting sound laws and policies as opposed to the parasitic ones they foist on us now.

Re:is software akin to solid state machinery?

[bnenning]

Check out the Fair Tax. In addition to the benefits you've listed, it would abolish Social Security payroll taxes (a hidden and regressive tax), and pave the way for a repeal of the 16th Amendment.

Puts a bunch of accountants, tax lawyers, etc. out of business. (Or at least makes them re-structure their businesses.)

This is a Good Thing. The vast resources that we spend on compliance with the current convoluted tax system will be redirected toward economically productive activities. Some people will have to make changes, like candlemakers did after the advent of the light bulb.

Re:is software akin to solid state machinery?

[bnenning]

In the end, it is the income tax that allows the government to control your life. It is the income tax that makes possible a government of barely-restricted size and power. It is the income tax that allows the government to bribe the majority with money coerced from the minority. It is the income tax which spawns most of the tyranny that the US government practices (admittedly, still less than most places in the world). It is the income tax which sterilizes citizenship by removing the ability of citizens to control their government's behavior by changing their own behavior. It is the income tax which poisons public debate by allowing people to obtain benefits without costs, and thus makes the incentive for an individual to go along with a government program - lest their own government teat be attacked by the beneficiaries of another program - unless they are in the unheard minority who have to fund whatever the latest government program might be. It is the income tax which is LEAST useful and sensible to a free people.

Excellent points. I agree entirely, just quoting this so it's more visible for those with comment length limits.

Re:is software akin to solid state machinery?

[bperkins]

* income taxes - The government's motivation is to set the tax rate as high as possible without sparking a revolution, in order to maximize funds.

This assumes you can't vote against them, which of course you can. In Sweden, it used to be (and may still be) that you couldn't run on a platform of _lowering_ income tax.

Since there is no feedback loop (you have to work to eat, after all), these taxes tend to be very high - particularly so since the higher income earners are disproportionately taxed.

This is your thesis, which you have yet to prove.

(Putting 50% of the taxes on 3% of the voters is not likely to get you kicked out of office.)

In some sort of grand scheme of things, I suppose this isn't just, but not many people will argue that a higher tax rate for the rich is truly unjust. All taxes are potentailly unjust, there is a long and proud history of unjust taxes. Some might consider sales taxes to be some of the most unjust (they tend to tax necessities).

You often use the arument that making taxes too high reduces revenue; certainly this is the view of many people as far as income tax is concerned. You make a very weak case for why this principle does not apply to income taxes, though it applies to tarriffs, import duties, sales taxes, user fees and property taxes. In fact, you make no case at all.
Additionally, high income taxes foster an underground economy, which makes any sort of taxation difficult.

Further, the government needs to know how much you earn, which is an invasion of your privacy. On top of that, they have to look through your bank account records to prevent cheating, regulate the use and transfer of your money to prevent tax avoidance, and many, many other tyrannies. It is for this reason that direct taxes, except based on head count, were prohibited in the US Constitution: to prevent the govenment from invading every aspect of your life.

This is a fine argument, and is too complex to get into here. You could make the same argument about any other of the taxes. All taxes require some sort of government interference. Businesses would have themselves immune to government prying, but many of your taxes require some snooping (sales taxes e.g.). It isn't clear to me exactly why this is entirely different.

You go on to make lots of plattitudes to imply that income taxes are evil, but it sounds mostly like retoric and hot air.

E.G.:

It is the income tax which poisons public debate by allowing people to obtain benefits without costs, and thus makes the incentive for an individual to go along with a government program - lest their own government teat be attacked by the beneficiaries of another program - unless they are in the unheard minority who have to fund whatever the latest government program might be.

How is this different from anything the government does? In the days before income taxes Tammany Hall used a similar system that kept a political machine going for the greater part of a century. By doling out tripe for the masses, they kept themselves in power. No income tax, but an example of government corruption that has few rivals.

Re:is software akin to solid state machinery?

[flacco]

Or, why not try this...

How about this: Massive inheritance taxes.

We often hear that the US is (in theory) a meritocracy: be smart, work hard, and you too can be wealthy. In practice the US is essentially a dynastic plutocracy.

Massive inheritance taxes would not only fund the treasury in a way consistent with our ideology of "merit", it would reduce the gap between rich and poor, and reduce resentment between classes. It's hard to fault a rich guy who has worked honestly to create his wealth; it's easy to dislike a guy who inherited his wealth.

Re:is software akin to solid state machinery?

[snol]

I think you read something different than what I wrote.

Re:is software akin to solid state machinery?

[Weasel Boy]

"(Putting 50% of the taxes on 3% of the voters is not likely to get you kicked out of office.)"

Two objections:
1. Yes, it will. Our tax system favors the rich so much, it's appalling.
2. What's so unreasonable about it? That same 3% of the people own 80% of the wealth.

Re:is software akin to solid state machinery?

[Tachys]

How about this: Massive inheritance taxes.

Yeah I can't think of a better time to pay my taxes then after I am dead :)

Re:is software akin to solid state machinery?

[schmaltz]

The current personal income tax is progressive because the proportion that one is taxed increases as income increases.

You can't compare percentages with today's "reformed" tax code, you just can't. Loopholes, deductions, write-offs, and the like make it possible (if not simple) for the upper-income earners to often pay much lower tax than the tax tables specify.

The point could be made that the net result of today's tax system has a regressive shape, or at least not inclined upwardly. Most of the wealthy people I know -who tell me anyways- end up paying sometimes less than I do, a middle-income wage earner. Deductions, shelters, loopholes, personal-service corporations, company-"owned" vehicals and properties.

I don't know where to find one, but probably there exists a chart showing what each income strata pays in taxes, percentage and total amount. It's my guess that middle income earners pay the most in both columns, after deductions and all that other stuff.

Perhaps with the national sales tax concept, there could be exemptions for the working poor. Certainly that'd be little different than the many exemptions that favor upper income earners and corporations today, but at least it'd make it easy on the millions of minimum wage earners. And, that'd benefit business, because with fewer of their dollars going to Uncle Sam, there'd be more for them to spend on goods/services, thus increasing business income.

Re:is software akin to solid state machinery?

[ChadN]

I pay sales tax on used CD's or books at a store, unless I am mistaken (and I may be; perhaps I never payed attention).

Re:is software akin to solid state machinery?

[Anonymous Coward]

Good article, but you missed a couple of other options (and I disagree with your ideology, but it's still a good summary).

The first one is profits from State-owned companies. The Australian telephone monopoly is partly State-owned, and provides a fair amount of revenue for the Oz government. Of course, like every other shareholder, the government must accept that sometimes companies lose money.

The second one is profits from justice - traffic tickets are an obvious example. Note that RICO-type property siezures make it tempting to ahhh put a finger on the scales of justice.

The third one is death duties, inheritance taxes and the like, although I guess they are a specialised sort of sales tax.

Re:is software akin to solid state machinery?

[sconeu]

property taxes - The motivation is to set the tax as high as possible to maximize funds. However, doing that causes people to not own property, which reduces the revenue stream. Thus the tax tends to be reasonable.

Unfortunately, this turns out not to be the case. In CA, we had to pass Prop 13 because the government didn't impose reasonable taxes. In fact, people were being taxed out of their houses -- they could afford the mortgage, but because 1) the house had appreciated due to inflation, and 2) the tax rate was unreasonable, they couldn't afford the property tax.

Re:is software akin to solid state machinery?

[lukel]

In the end, it is the income tax that allows the government to control your life....

I always thought it was the people who voted for governments that gave them the power to control things.

Re:is software akin to solid state machinery?

[Electrum]

The ruling went against us - the judge decreed that anything that can be done in software can be done in hardware, therefore our software approach violated their patent.

While I don't know enough about patents or the rest of your case to have an opinion, it sounds like the judge was right on that statement. You can do anything in software that is done in hardware. Modern CPU's do in fact contain "software". Modern hardware is often designed using software resembling programming languages, such as VHDL. So where do you draw the line?

As to the taxing of software companies, I agree, they should be taxed. But taxes should be made on the final product, at the time of sale. If you buy a copy of Windows at the store, then you pay sales tax. They should likewise be taxed on software licensed through OEM agreements or other arrangements. We shouldn't be inventing new taxes, but instead fixing our current tax laws.

Re:is software akin to solid state machinery?

[Bronster]

you can grow your own food, build your own house if you have wood or stone on your property, etc

Well hello Mr property owning snob. What about all the poor disenfranchised people who don't have their own property. Pity about them really.

And I was enjoying your post up until this point, but that's very much an assumption - that doesn't apply to a lot of people...

Re:is software akin to solid state machinery?

[minerva_ks]

The various loopholes and deductions that can be found sometimes significantly reduce taxes-paid. since the wealthy pay more taxes, they have more of an incentive to find such reductions where they can. In extreme cases, this can make the current U.S. tax system non-progressive, but I doubt that it can make it regressive--the middle class still pays a larger percentage of income in taxes than does the lower class.

The problem with a national sales tax, even with exemptions, is that it creates a distortion in the market. The tax increases prices seen by the consumer, messing up the market equilibrium. The increased real price decreases the quantity purchased by consumers, harming businesses and actually decreasing income. The effect of a sales tax is a dead-weight loss in the economy, a market imperfection that hurts both consumers and producers.

Re:is software akin to solid state machinery?

[medcalf]

Well hello Mr property owning snob. What about all the poor disenfranchised people who don't have their own property. Pity about them really.

I'm laughing from the 1/4 acre on which my house sits. The point is that the tax is theoretically avoidable, in that if you really don't want to pay it, you have alternatives. They may not be practical for, say, me or you, but certainly my parents could grow enough food on their property to support themselves, if not well.

So how much do they charge...

[MarkusH]

For 'Hello World'?

Re:So how much do they charge...

[BarefootClown]

...one million dollars
</Pinky>

non profit

[Kizzle]

Does this apply to non profit stuff like open source?

Re:non profit

[garcia]

aren't there tax exemptions for non-profits in other lines of business? Why would it apply here?

Re:non profit

[412-613-8636]

Of course it applies to open source and free software! As a matter of fact they tax you about 90% of all profit made, so for free software that'll be a whole $0...

Re:non profit

[brer_rabbit]

open source doesn't mean non profit. Some lucky OSS programmers get paid for their work.

Re:non profit

[FatRatBastard]

I think you've got the wrong end of the stick. It looks like Seattle are trying to levy something that smells awfully like a property type tax, in which case they'll tax you on their percieved value of the software, not on revenue you generate from selling it.

Re:non profit

[Alan Shutko]

The article is clear that this is just part of their business taxes, which is a tax on a business's gross receipts. It's clear that it doesn't apply to non-businesses or "perceived value" and clear that it does apply to revenue.

Re:non profit

[FreeUser]

I think you've got the wrong end of the stick. It looks like Seattle are trying to levy something that smells awfully like a property type tax, in which case they'll tax you on their percieved value of the software, not on revenue you generate from selling it.

Fine. So anyone with a grain of intelligence moves out of Washington State, and a once progressive area becomes a technological and economic backwater.

Come to think of it, with M$ located there, and Boeing already bailing out, they're already well on their way. *duck*

Re:non profit

[schon]

The city's business and occupation tax is 0.215 percent of gross receipts, minus credit for money spent on research and development

That sounds more like it only hits you when you sell the software.. which means that Open Source is in the clear..

That last bit (minus credit for R&D) is interesting tho.. if you give it away, can you deduct the R&D credit from your regular taxes? From the way the quote is worded , it sounds unlikely, but can anyone with more info (maybe someone who's seen the draft) comment on how the law is worded?

Re:non profit

[WinterSolstice]

I do not think that means what you think it means...

Non-profit does not have to mean "volunteer", it simply means that a business or company that is non-profit may not obtain profit in any given year. Therefore the net income must == 0. If the company makes more than it spends, it needs to give it away.

Some companies ( I work for what used to be one ) do this by sending all of their "customers" rebate checks. USAA, for example. Other companies invest the money back into their employees, or into communities. I'm sure still others simply mismanage so that net income = 0, by simple accounting tricks.

Therefore, just because a person works for the Red Cross ( a major US non-profit ), it doesn't mean that they have to work at another job to make ends meet. The Red Cross can pay them to do their job.

-WS

Re:non profit

[einer]

I'll give you three guesses as to where I'm not moving to if this gets passed.

Re:non profit

[Decimal]

I think you've got the wrong end of the stick. It looks like Seattle are trying to levy something that smells awfully like a property type tax, in which case they'll tax you on their percieved value of the software, not on revenue you generate from selling it.

Somebody send this news off to One Microsoft Way. I'm sure Bill Gates would love to know this. If the tax is truly based on the percieved value of the software, the company could be getting money from the government!

go ahead, tax seatle

[x1l]

I'm sure microsoft won't will miss the money. just put it on bill's tab

programming is intellectual

[Anonymous Coward]

Making the assumption that programming is any more intellectual than manufacturing is absurd. Both require a tremendous amount of planning at first and then become grunt labor. Don't try to move programming above any other labor that exists.

In other news....

[bobdehnhardt]

The entire fleet of Bekins moving vans was last seen converging on Redmond, WA. A company spokesman reported that they had received "one hellacious moving order" from an undisclosed client. This report came on the heels of a sudden dip in the housing market in and around Seattle, as home prices fell 73%, while listings increased 800%....

Wa ST is awful.

[corey_lawson]

Do they tax the creators of other ethereal intellectual property? This is the state that wanted to collect sales tax from operated coin-operated machines. While likely intended for companies that run things like video arcades and commercial laundromats, or service providers for vending machines and payphones, it could have just as easily been extended to apartment building owners who happen to have a coin-operated washer and dryer in the basement. Washington (state) really wants to pass a personal income tax, but probably never will. The money that a software "writer" (define writer. would this extend to all the students in the state's educational system writing code? Would the Univ. of Washington then be held by the state to owe some sort of back tax on Pine or all the code its students write? Would Microsoft and Aldus Corporations be included, or would some convenient loophole be found to not include them?

Re:Wa ST is awful.

[terrymr]

"Washington (state) really wants to pass a personal income tax, but probably never will. "

Probably not as the state constitution prohibits it and the political will would probably never exist to amend the constitution.

Re:Wa ST is awful.

[zamokzam]

As a long-time editor of general fiction, I was involved as a witness in a lawsuit brought against the State of Washington on behalf of a writer who lived in Seattle. He lost; Washington approaches the writers one by one and taxes them. Some give in without a fight, others battle to the state supreme court. At least one of my authors relocated from Washington to Nevada to avoid the tax.

Re:Wa ST is awful.

[Technician]

No property tax.
If that is the case... I'm being robbed! The bill I get every year is listed as property tax. It's much Much less than the bill I used to get in Oregon however. Maybe you meant no state income tax?

Well, duh.

[cperciva]

Why should intellectual property be treated any differently than physical property when it comes to tax laws? If businesses are taxed based on their revenue, they should be taxed separately in each jurisdiction based on the value of goods they produce in said jurisdiction.

I'm reminded of the Cola bottling cases, where syrup was manufactured in a low-tax locale and "sold" to bottling companies (wholely-owned subsidiaries). The syrup price was being set in order to ensure that the bottling companies never made a profit, in order that profit would only be reported in the locale where it was almost tax-free. It was ruled that the sale had to take place at market rates -- in other words, you can't hide money from the taxmen by transferring property from one jurisdiction to another. This is exactly the same issue.

Re:Well, duh.

[corey_lawson]

why is IP different? Because IT'S NOT REAL. The physical expression of it is, but the idea behind it is not. The cola bottling cases are no different than a company like Microsoft that for all intents and purposes is a Washington state company, but is incorporated in Delaware, or the deals that companies set up all the time to rig their accounting, or the phone companies claiming that they are justified in treating 3rd party deployers of competing services differently than their own competitive services yet claiming "market rates" (or $800,000 damages for the distribution of a document available from the company for $15.00).

Re:Well, duh.

[FatRatBastard]

Why should intellectual property be treated any differently than physical property when it comes to tax laws?

Because it opens a pandora's box of issues.

Can you assign a $ ammount of wealth to software in terms of property (not revenue from selling)? If so, then you could assign a value to any type of software, regardless of how much was paid for it. Thus, if you use software that didn't cost you anything, but is important to you/your company and contributes to the profits that your company generates, then the Tax Man will assign a $ ammount of value to it and tax you every year for simply owning the software.

Of course, this begs other questions. Since almost all software is licenced (including BSD, GPL, etc) and ownership of the IP resides with the creators (or the FSF), does that mean that GPL software authors (who retain copyright, or the FSF if givn to them) will be on the hook to pay all the taxes assesed on their software?

This is a bad, bad law.

Re:Well, duh.

[GSloop]

Well, Microsoft sure tries!

The (IIRC antitrust) school settlement was valued by MS at over a billion dollars. Never mind that it's cost was very minimal - it was mostly software. MS complained bitterly about having to provide hardware - claiming that providing software was the same value.

I'm not sure I disagree with your point, but it does seem ironic that these same companies who oppose said taxation, use the "valuation" of their products to look good when they give it away, or have their copyright protections infringed.

It's clear that when it's to their advantage to talk about the IP as a real asset with real valuation they do. When the tax man rolls by, they rush out screaming that they couldn't possibly value said IP for tax purposes!

What hypocrites! [Sheesh!]

I do think there are some reasons to tax IP. Since we're moving to a service and knowledge base economy, then the tax laws ought to move to tax the activity. Tying tax law to physical assets rather than IP makes this quite difficult. Lastly, said companies want the government to protect their IP, but not tax it too?

This is a subject I would need to think about more, but I do believe that there would be a fair way to tax IP.

Cheers!

Re:Well, duh.

[2nd Post!]

It's different because society doesn't have to bear the costs of manufacturing and pollution that physical processes produce.

Creating software is not margianally different than creating a book, creating a movie, creating a song, creating a picture, or creating anything else on a computer. Until there's a finished output, for all intents and purposes, sitting in front of a PC is feeding input into the machine, letting it think, and extracting the output.

Unless you want to see a tax on creating content in general on a PC?

Re:Well, duh.

[GSloop]

The city did provide a decent location for the company to have it's offices. It had to provide schools police, etc.

You may argue that these costs are covered some other way, and I might even agree with you, but the city does provide many things for the company.

Companies (and the rest of us) want it both ways. Provide me a great place to live - no pollution, friendly people, good schools, open space, parks, recreation, low crime, chicks in thongs (oops I digress) and I don't want to pay.

These things cost money. Someone has to pay. If you live there, or have a business there, you should have to pay too.

I think this idea, though it may not be a good one is a way to help allocate costs to those that are there, even if they find a way to shift the monetary activity elsewhere.

Cheers!

Re:Well, duh.

[catfood]

Can you assign a $ ammount of wealth to software in terms of property (not revenue from selling)? If so, then you could assign a value to any type of software, regardless of how much was paid for it. Thus, if you use software that didn't cost you anything, but is important to you/your company and contributes to the profits that your company generates, then the Tax Man will assign a $ ammount of value to it and tax you every year for simply owning the software.

Try reading the article. It's explicitly talking about the city's gross receipts tax. If you're giving your software away, you have no gross receipts.

Re:Well, duh.

[FatRatBastard]

Well, Microsoft sure tries!

True, as do a lot of other companies. I remember Sun getting into a lot of stick because they claimed that Kevin Mitnick cost them "billions" (or maybe it was lots of millions). IIRC The IRS came sniffing around, basically saying "Oh really? Why haven't you reported these 'billions'?" I think Sun quickly retracted their statements.

As for taxes, property taxes are a really squishy area. It depends all on how the gov't decides to assess your "property." Of course, they're the ones assessing and collecting, so it always smacks of a conflict of interest. I say stick to taxing the things that require no guesswork. Tax monitary transactions (sales taxes) and income if you have to tax. Maybe property in terms of real estate. But that's about it. IP is a very, very, very vague thing that would lead to a lot of abuse (both by the gov't and large corperations trying to dodge it).

The gov't here in VA is already values my car more than the market would should I sell it now (and taxes me accordingly), I don't want some gov't accountant telling me that the software my company creates is worth $X (for very large values of X) and tax me annually on it (above and beyond the sales taxes, income taxes, SS taxes, etc that we already pay)

Re:Well, duh.

[Lars T.]

Wether IP is real or not, it has value. Or do you think what makes software (or books or CDs etc.) sell is not the programs, writing or music, but the media it is printed on? Would you pay the exact same amount for the same media if there was just semi-random information on that media? Of course you wouldn't, you just pirate it anyway.

Re:Well, duh.

[medcalf]

Wether IP is real or not, it has value. Or do you think what makes software (or books or CDs etc.) sell is not the programs, writing or music, but the media it is printed on? Would you pay the exact same amount for the same media if there was just semi-random information on that media? Of course you wouldn't, you just pirate it anyway.

You are making a civil law argument - that in law an idea or expression has marketable value, protected by trademark, copyright and patent laws - in the face of a natural law problem, which is that you cannot steal intellectual property. If I use your code and without paying you, I have not deprived you of its use. If I take your car without paying you, I've deprived you of its use. Intellectual property makes no logical sense. The intent is to create the conditions for more inventions, artistic works and the like to come into the public domain, but the result has been the opposite, at least in the US. If you patent a gene's expression (this has been done in the US), and I carry that gene in my DNA, can you sue me? Believe it or not, the answer is likely yes, though the suit would almost certainly get the law thrown out by the courts.

Re:Well, duh.

[ahde]

Seattle may have low pollution (they ship it out to Tacoma and Everett) and low crime, but has failed to deliver on all the rest.

Re:Well, duh.

[Lars T.]

No, you are making a civil law argument (that IP can't phisically change posession and thus can't be stolen). I'm making a business argument. Face it, IP has value, else you wouldn't want it. So as long as anything that has value can be owned it is logical that IP is ownable. The fact that you in the US fuck up IP law totaly doesn't change that. Hell, the only reason the GNU exists is because RMS didn't want his code to be stolen.

Re:Well, duh.

[ghjm]

More interestingly, why should software be treated any differently than other intellectual property when it comes to tax laws?

If you create a tax at the point of creation of intellectual property, then the tax applies whenever you create anything of value through the expression of thought into written or electronic form. If software creation is a tax-incurring activity, then so is (or should be) the creation of the written word, music, speech, jokes, etc.

In other words, suppose I have a conversation with a friend of mine, and we both put intellectual effort into choosing our words. Not only have we have each created intellectual property, we have also demonstrated its value by engaging in a barter transaction. Suppose we talk for two hours, and it can be claimed that a professional conversationalist would earn $20/hour. We have created $80 worth of intellectual property at prevailing market rates; and, if we are located in Washington State, we each owe the government perhaps $5 to $10.

Note that this might already be the case under current IRS code! If intellectual property is "goods" then we have created and exchanged "goods for hire" through a barter arrangement. Imagine that over the course of a year my friend and I spend 500 hours talking to each other. We have each created "goods" worth $10,000 and exchanged them as barter - so we have to file Form 1099s on each other, pay an extra $3,000 (or so) income tax, and we will probably face legal action for our failure to withhold payroll and Social Security taxes from each other!

The scary thing is, this is probably a valid legal argument.

-Graham

Re:Well, duh.

[medcalf]

Love is valuable, but cannot be owned.
My children are valuable. I hope they cannot be owned.

Just because someone is willing to pay for something, that does not mean that you are entitled to have everyone pay for it in order to have it.

Re:Well, duh.

[Arandir]

Yes, the creation of intellectual property should be treated exactly the same as the creation of material property. But that doesn't justify a tax on writing software, rather it justifies the removal of the tax on building airplanes.

Of you have to tax something, tax the sales of the products. Tax Microsoft when it sells a copy of Windows and tax Boeing when it sells a new airplane.

Re:Well, duh.

[TheAwfulTruth]

Course if insanely stupid tax laws did not exist, then that sort of thing would not be necessary or possible. These situations are caused by the very organizations that are crying foul...

Re:Well, duh.

[jafac]

The value of IP is in the artificial constraint on supply.

Since digital data can be infinitely copied with no loss of integrity, and virtually no real-world costs, then it has a virtually infinite supply, and therefore can command a virtually zero price.

In order to make it "worth" something, it's "owner" (under enforcement from the government) has to constrain this supply artificially in order to boost prices. Sort of like building a fence around an oasis in the middle of a desert with an infinite water supply from an underground stream, and charging admission.

It challenges pretty much anyone's sense of right and wrong, and the way it's currently implemented in the US is unconstitutional. But the guy holding the keys to the gate makes lots of money, and that's all that matters.

Re:Well, duh.

[jafac]

IP only has a value because the government enforces the owner's right to constrain supply.

So I guess it's only fair for the government to tax the IP owner so it can recoup it's costs incurred by the enforcement (ie. busting software pirates, in this case).

Re:Well, duh.

[cir77787]

You forget that the company brought intelligent people to the area who will spend $ in local stores and the city will gain revenue indirectly through sales taxes. Also, unless the company is really, really awesome, people will quit and/or get fired. Unless the person has rich parents, they probably can't afford to leave the area and will get a job at another local company. Thus, company A provided company B a service by providing expirience to the person. The person will likely make more money and the next job and have more to spend on the local economy.

We shouldn't tax things with no real $ value. A desk in the making has no real $ value until it's finished and sold. The same goes for IP.

Re:Well, duh.

[jafac]

I'm willing to pay if *I* can prioritize that list. I think I'll put chicks in thongs somewhere above parks.

Re:Well, duh.

[Doomdark]

I do think there are some reasons to tax IP. Since we're moving to a service and knowledge base economy, then the tax laws ought to move to tax the activity. Tying tax law to physical assets rather than IP makes this quite difficult.

Well it seems to me that taxing services should need nothing new or special; sales or value addition tax should probably apply similarly to services than physical products. At least that's how it works in most european countries... and I thought sales tax was applied to service charges in many/most US states too? (or is it only for certain services like phone service?)

As to taxing IP as property (like real estate); value of IP usually diminishes over time, unlike the value of real estate ("they ain't making it anymore"), and the very value of IP is not only difficult to measure (except when a real monetary transaction takes place, in which case taxing is easy with sales tax etc) but also very volatile.

Re:Well, duh.

[Lars T.]

Bullshit. Microsoft doesn't limit supply of its software to boost prices.

But if you insist, I will not give a damn about GPL, because it conects a cost to something that is infinitly copyable - limits on what you can do with the software. So here we have it, the GPL is unconstitutional.

Re:Well, duh.

[jafac]

The EULA (and copyright) constrains supply. By controlling who can run their software, the supply is constrained compared to a hypothetical "natural" situation, where the only limit on who could install and run their software would be how much disk space it took up.

Without that constraint, the software is worth exactly $0. The constraint of free copying is what decreases supply, and increases demand, and gives IP it's value. And while the constitutional impetus for copyright is just and reasonable, the current implementation is not, and therefore, the current implementation of copyright is unconstitutional.

As long as the GPL expires at a certain time on a given piece of work, and that work then falls into the public domain, I don't really have a problem at all with it's constitutionality.

Re:Well, duh.

[Jer]

I'm willing to pay if *I* can prioritize that list. I think I'll put chicks in thongs somewhere above parks.

Run for office and get yourself elected. Then you get to be among the people who get to prioritize. I'm sure that there are actually many cities in the US where a "More chicks in thongs" platform would get you a massive number of votes.

Re:Well, duh.

[sql*kitten]

I say stick to taxing the things that require no guesswork. Tax monitary transactions (sales taxes) and income if you have to tax

There's only one fair system of tax, and it works like this. The citizens work out what the basic set of services they need are. These are things that everyone will use, for example emergency health services, police, streets, etc. An independent body works out how much it costs, then divides that by the number of citizens, and that's how much each person pays (obviously, parents are reponsible for paying their children's share of common services). Everything else is pay-as-you-use, either from your money on hand, or via an insurance scheme. Very simple, and completely fair, and it completely avoids the possibility that assets can be mis-valued by the tax authorities.

Re:Well, duh.

[Noel]

Love isn't IP. It's not something created by somebody thinking.

Thinking, feelingIntellectual Property, Emotional Propertywhat's the difference? It's all immaterial.

Re:Well, duh.

[Noel]

There's only one fair system of tax[a]n independent body

And, pray tell, where do you find this fabled independent body? How do you guarantee that it remains independent?

The Man is already getting his share

[falser]

Software creation requires mainly man-hours, and since employees already pay state income taxes I'd think the state already recieves their share and doesn't have the right to double-tax for intellectual work.

Re:The Man is already getting his share

[Basilius]

As you've probably seen in 47 other places, Washington State does not have a state income tax, so this argument is moot.

Re:The Man is already getting his share

[Registered Coward v2]

Software creation requires mainly man-hours, and since employees already pay state income taxes I'd think the state already recieves their share and doesn't have the right to double-tax for intellectual work.


Washington has no state income tax. - but even if it did, slaries are generally and expense, and would not be taxed at the corporate level (since they are a deduction to revenue).

Re:The Man is already getting his share

[falser]

Ah, wasn't sure if WA had state tax - my mistake. I guess that begs the question of whether or not they should just add a state income tax rather than singling out software companies.

Re:The Man is already getting his share

[Basilius]

And, of course, they could try but it will never be voted in without significant deductions elsewhere. We've got an 8.7% (or so, depending on where you are) sales tax rate among many other things.

Re:The Man is already getting his share

[Sc00ter]

If it's anything like NH (we have no sales tax or state income tax) it will NEVER get voted in.. They tried to do a 0.2% income tax and it got voted down.

Your legislative dollars at work.

[FurryFeet]

I loved this quote...

"Taxing the intellectual property of software companies makes about as much sense as taxing the thought process of a university professor, said Rep. Jeff Morris, D-Anacortes".

So, all teachers, writers, musicians and similar should be tax-exempt?
At least nobody would think of taxing the thought process of a representative. It just wouldn't be worth it.

Re:Your legislative dollars at work.

[Stonehand]

There's a difference between taxing the income based upon the property, and the property itself.

They already have the power to tax income from intellectual property in terms of taxing corporate revenue; IP isn't special in that way.

However, taxing IP *as an asset* is tricky because of the difficulty of assessing it. What is the fair value of the copyright of Microsoft Windows 2000, for instance? One can assign a cost of a *license*, but that's not the same thing. That particular copyright hasn't been up for grabs for a while, so establishing a fair market value would be incredibly difficult.

In some areas, like Allegheny County (PA/USA) there's enough trouble assessing *land*, which does trade hands sufficiently often at a variety of levels so that in theory assessors could do a half-decent job of estimating how much people's property is worth. It's the source of perpetual local complaining regarding who got screwed over and who didn't.

Re:Your legislative dollars at work.

[fireant]

So, all teachers, writers, musicians and similar should be tax-exempt?

Teachers shouldn't be taxed for creating tomorrow's lesson, writers shouldn't be taxed for using their typewriter (or word processor), and a musician shouldn't be taxed for writing sheet music. They already pay taxes in other ways: sales tax, income tax, property tax, etc.

I'm not sure about the specifics of the tax in the article. They call it a "business tax", but then say that they want to tax software companies as manufacturing. I say that if they're not mass producing anything physical within the city limits, they shouldn't be taxed by the city (as a manufacturer). If all they're doing is software development, then they fall under the R&D exemption. But what do I know, IANAL.

Re:Your legislative dollars at work.

[phyxeld]

So, all teachers, writers, musicians and similar should be tax-exempt?

No, their thought-processes should be. Duh!

Re:Your legislative dollars at work.

[mOdQuArK!]

However, taxing IP *as an asset* is tricky because of the difficulty of assessing it. What is the fair value of the copyright of Microsoft Windows 2000, for instance? One can assign a cost of a *license*, but that's not the same thing. That particular copyright hasn't been up for grabs for a while, so establishing a fair market value would be incredibly difficult.

Dunno, seems pretty simple to me; the property is worth whatever amount you can use it to generate, either by selling it or by using it in a way which generates profit (like selling licenses to it or providing services based on it). Since that's rather open-ended (you might be able to sell licenses for it for an indefinite, long period), the tax would probably be applied to the activities which generate the profit, as they occur (e.g., a sales tax on the licenses, services, etc).

This would work out fine for the Open Source stuff, except for those companies trying to make a living on services. (It might still work out for them if their income & property taxes are reduced enough.)

Dunno about the US constitutionality of trying to tax "intellectual" property though.

Now would that be...

[Java Pimp]

... per SLOC or per unit copy licensed?

If you take a walk, I'll tax your feet.

[nesneros]

Given that software companies tend to provide high-end jobs and generally non-polluting production to a city, you would think that you would want MORE of this industry in a city, and would structure the tax code to encourage them to set up shop in your city. At least some of the legislators appear to be aware of this fact.

Re:If you take a walk, I'll tax your feet.

[LamboX]

... and hey when I go for walks I'm usually thinking about a coding problem. So do I get taxed twice? =)

Great

[suckwhat]

Now I'm gonna have to pay taxes on all my "million-dollar ideas".
Joy.

Tax bar napkins

[slickwillie]

They could just add a tax on cocktail napkins, sort of like the tax on recordable media. After all, isn't most good intellectual property created on the back of a napkin, in a bar, just before last call?

Re:Tax bar napkins

[Oink.NET]

They could just add a tax on cocktail napkins

Why is the dividing line the form of media used? What if the software creators only published in assembly language form, in a book? Do you tax the book? Ok, what about magazine articles that contain code snippets? Do you just wait around until someone presses that code to CD and then tax them? Do you tax the CD creator or the code creator?

Once you allow flawed, uninformed logic like this into the legal system, it has all sorts of unintended consequences. If Seattle really wants to share in software creators' profits, they need to work a little harder to come up with a reasonable taxation method that demonstrates they "get" the nature of software. Not just this hand-waving "Hey! You with the pocket protectors! Gimme your lunch money!"

Okay, so how do they plan on CATCHING them?

[feloneous cat]

Let us say I develop Widget(R) at Three-Initial Corporation. Since it takes a key to get in the building (plus retinal scans, a urine test, and a quick, but painful body-cavity search), who is to know that it is "finished"?

Next, using my HIGHLY encrypted network, I ship it to DupIt Corporation in Taiwan. Boom. Product. But how do they determine I did it?

Sounds like a law that can't be enforced to me!

Re:Okay, so how do they plan on CATCHING them?

[erasmus_]

Maybe they catch you because you're incorporated in Seattle and report income on your sale of Widget(R) and deposit money into your account there? Of course you could potentially hide that as well, but obviously the government eventually finds out. If you read the article, it's clear that companies already tried to avoid this matter by manufacturing out of state. But if you're in Seattle and this law is passed, your highly foolproof scheme isn't going to work for long. Urine-test or not.

Re:Okay, so how do they plan on CATCHING them?

[Tackhead]

> Maybe they catch you because you're incorporated in Seattle and report income on your sale of Widget(R) and deposit money into your account there?

Then I'd relocate the company the fuck out of Seattle. When the company produces bits, it doesn't matter where it's incorporated.

There's a reason why lots of companies are based in Delaware and the Bahamas, regardless of where their employees work. A damn good one.

And in the case of MSFT, depending on how much Washington State wanted to loot from Gates, Gates could physically relocate the development work to an offshore haven. "Work for Microsoft! No tax to pay, 'cuz we own the island country of Billgatus! Nature provided the sand, sun, and surf, and Gates.gov provides the schools and computers! Best of all, Billgatus' largest employer, Microsoft, now offers its shareholders a better return-on-assets because even with the added expenses of providing services to its employee/citizens, it no longer has to pay tribute to the feudal lords in the States who thought they could tax the production of bits!"

(That said, the sight of Steve Ballmer in a thong on a hot sunny beach isn't one I'd care to contemplate. But hey, if it's good for the shareholders, I could put up with it.)

The issue at the heart of the matter...

[davidgrenier]

I'm not sure that ultimately the issue at the heart of the matter is whether or not intellectual work should be taxed the same way manufacturing work is (though that plays into it). At the heart of the matter is the fact that the government (whether city, county, state, or federal) is expected to provide certain services and needs to pay for them. The government needs to create and maintain roads so people can get to work. Since Seattle has the 2nd worst traffic in the country it also needs to provide public transit or keep building more and more roads. It needs to provide education for all of those people who are going to grow up and write software. It needs to provide emergency services so those employees and executives don't die in a fire or a car wreck. Etc. Etc. So how does it pay for them? Of course, everyone wants someone ELSE to pay. They can have a flat sales tax on anything sold in the city (or King County, or WA, or the US). They can really highly tax certain types of items (booze, cigarettes). They can tax individual's incomes. They can tax corporate profits. Et cetera, et cetera. With the Seattle economy being what it is, it seems that some folks have decided that taxing software is a necessity, or the city will deteriorate so much that it will be impossible for those software companies to run in this town anyway (especially with the loss of Boeing and the shipping industry in decline). Now this doesn't necessarily mean that I agree 100%, or that I'm some huge big-government fanatic, but I think the basic economic realities have to be understood before folks start flinging out dogma.

Re:The issue at the heart of the matter...

[CodeMonkey555]

They already tax us to pay for these things by demanding money for the pleasure of owning property within their district. We also pay federal income taxes which are doled out to states for education and construction expenses.

At what point will we determine that it is important for us and the companies that employ us and give us products to keep our own money and spend it on what we feel is important rather than what an unelected administrator determines is important.

Bring back the pay for play system!

Re:go ahead, tax seattle

[soft_guy]

Microsoft isn't in Seattle. They are in Redmond which is not part of the city of Seattle.

What about other engineering and service jobs?

[regen]

This leads down a slippery slope. What about other engineering fields? (e.g. Airplanes designed in Seattle but built elsewhere?)

If all service are taxed then software development should be also, otherwise it shouldn't be. I never understand why people try to make special laws for digital media (or software as this case is)

No big deal

[r_j_prahad]

If they're proposing a tax on innovation, I don't think Microsoft has anything to worry about.

Re:No big deal

[curunir]

Nonsense...Microsoft has been coming up with new and innovative ways to screw over their customers since the early 80s.

And have you heard some of the logic spouted by the lawyers in the anti-trust case? Microsoft is nothing if not creative.

What's the Difference?

[Zach Garner]

American Companies outsource large portions of their production to companies in India and the rest of Asia. These foriegn companies do their job better and at a fraction of the salary than their American equivalent.

Who am I talking about? Nike? Kathie Lee? Disney?

or Microsoft?

In many ways, Software companies are already much like manufacturing companies.

Keep your lies consistent

[4/3PI*R^3]

Quote 1:Microsoft says Commercial software pays taxes
Quote 2:...Microsoft Corp., are pushing for an amendment to a municipal tax-reform bill to block the taxation of such intellectual property.

Microsoft's talking out of both sides of their mouth again.
Nothing new!!!!

Re:Keep your lies consistent

[FatRatBastard]

Not at all... MS are claiming that they *already* pay taxes, and that this is above and beyond taxation already in place.

I have to agree with Microsoft on this one. This is one bad law.

Should Authors be taxed by the gov't for the gov't's perceived value of an Author's work? If a book is out of print and no longer being sold, should the gov't have the right to continue to tax the author simply because the gov't feels that IP has value?

If I create a GPL'ed program, retain the copyright to it many folks the world over find it to be an incredibly useful bit of code (one that helps lots of companies save money / generate revenue) should I (as the owner of the IP) be taxed year after year because the gov't determines that bit of code has value?

Re:Keep your lies consistent

[4/3PI*R^3]

I never said there was a logical fallacy, I said MS needs to keep their lies consistent.

MS is trying to convince congress (and the world) of the fallacy of open sourced programs. One of the arguments they offered is that commercial software companies pay taxes -- the implication being that GPL'd software and the creators of thereof cannot be taxed. Then the second a governmental body tries to tax MS, MS is out in fighting force saying "Hey don't tax us and our innovation!!!"

So, my question to MS is do you want to pay taxes or not? If yes then, the sit down and pay the IP tax. If no then, don't try to convince people about how great commercial software is because you can tax it and how bad GPL'd software is because you can't.

Re:Keep your lies consistent

[muleboy]

Should Authors be taxed by the gov't for the gov't's perceived value of an Author's work? If a book is out of print and no longer being sold, should the gov't have the right to continue to tax the author simply because the gov't feels that IP has value?

If I create a GPL'ed program, retain the copyright to it many folks the world over find it to be an incredibly useful bit of code (one that helps lots of companies save money / generate revenue) should I (as the owner of the IP) be taxed year after year because the gov't determines that bit of code has value?

Replace work, IP, and program with real property such as land, and you answered your own question. In other words, if we consider intellectual property the same as real property (as many intellectual property owners would like), then there is absolutely no reason it should not be taxed the same. Certainly the government uses percieved value of land to tax it, without regard for whether or not that land is generating the earnings it is capable of.

Re:Keep your lies consistent

[FatRatBastard]

Certainly the government uses percieved value of land to tax it, without regard for whether or not that land is generating the earnings it is capable of.

I understand that Property=IP. I just happen to believe that property taxes (on real property such as land, autos, jewelry, etc) is shady at best. With something as amorphous as intellectual property things would get really, really messy. When your local tax district falls a little short some fiscal year you know they'll just do some creative "re-evaluation" of IP owned.

In House?

[DickPhallus]

How would in-house software be classified? Would this apply to only software made for public sale?

The city's business and occupation tax is 0.215 percent of gross receipts, minus credit for money spent on research and development, he said

This seems contradictory doesn't it? I mean I would consider software development R&D too... I don't really think that is going to be effective at all. But governments have a wierd way of making the most hair-brained schemes appear to work.

So, if all your software development costs are actually R&D, this is worthless... they'd have to tax something else, like publishing software. But that can all be done out of state.

what does the existing ordinance say?

[mveloso]

Does anyone know what the existing ordinance says? Is it a VAT kind of thing, or what? How do they measure the value of the software created?

---

It seems that the washington software alliance kind of screwed up when it was working with Seattle legislature to come up with this; it would have been better if they had said "no way" and walked.

A careful comparison

[Midnight Thunder]

There is a difference between taxing thought and the income made from the result. IMHO, evelopment should not be taxed, but the money made from the sale of the product should. Otherwise the danger is that of reducing development simply because it costs too much to think - programming after all is more about thought than creation.

Heck, why not tax students for going to school!? (Hmm, maybe that is already being done? - that's why we see more money in the detention system than in the edutcation system).

Microsoft finally has to pay some taxes...

[segfaultdot]

But i wonder if they would force OSS/Free software programmers to pay. That would suck.

This will reduce bloat OR make all software free.

[Bonker]

Especially if they assess tax on a per-byte or a per-intruction rate.

WinXP has many, many millions of lines of code, which Microsoft and its pirates reproduce endlessly. If Each of those lines of code had a $5 tax on it, Microsoft would be forced to start streamlining their code, using less bloaty software production methods... using more tight, sleek assembly code instead of fat, saggy Visual Basic.

Every line of code will have to be evaluted on a cost to benifit ratio!

This has the added benifit of speeding up applications and systems and elminating unecessary

The same holds true for other software projects. Something sleek and sexy like Winamp 2.x would be more cost efficient than the Winamp 3.x line, which is getting pretty bloaty. Of course, I don't see how they could tax winamp since it's a 'free' project. n% of $0 is still $0.

By this same token, it suddenly becomes more cost efficient for Microsoft to give all its software away for free and *only* charge for services.

How do you set the value??

[Mhrmnhrm]

Fist Prost!

All joking aside, I really would like to know how the state intends to set a specific value on code. Clearly, source code such as a TCP/IP stack, VMM, or GUI toolkit are extremely valuable to a multitude of very intelligent people. But while I may be interested in seeing how the process of opening a socket or swapping a memory page works, my hacking skills are nothing compared to the people actually writing these things, and thus their code, while interesting, doesn't hold much value for me. For Joe Sixpack (clueless user extrodinaire), the sourcecode is totally worthless.

Clearly, the functional aspect of the code is what is being considered for taxation. But how do you set the value when nobody can agree on what it's actually worth?

Perhaps taxation by the size of the codebase would work. There is obviously a difference in the size (and inherent IP value) between a TCP stack and a "hello, world" exercise. But again, a "hello, world" program is worth more to the beginning C student than a complete TCP stack, because that small little program is exactly that: small. Being small, it is easy to understand, play with, debug, and do generally useless things with. Give a beginning student the full kernel source, and they'd probably give up within hours (maybe even minutes)

So we can see that taxation by the function of the code won't work, since everybody places a different value on each module (A network driver is useless to someone without a network, and a VMM is silly for someone just starting to learn assembly on an 8086). Taxation by the size of the codebase won't work, because again, smaller programs are more valuable to beginning students, while larger, more complex programs and libraries are more important to experienced developers.

Despite the obvious piracy whining from the usual sources, and the share and share alike from the oss/fs lobby, there is another, less recognized idea behind the "Information wants to be free" mantra... Any given piece of info is worth different amounts to different people, and because of this, attempting to place a fixed value (for taxes, or any other purpose) on a bit of data will ultimately be futile.

The folly of taxing labor and capital

[catfood]

This is just reductio ad absurdum of the concept of taxing labor at all.

Writing software or digging ditches or making Beanie Babies with your own labor and the people you employ is a right, not a privilege. You shouldn't have to pay the government for exercising your natural rights.

Obviously, when you tax something people will do less of it. Does Seattle really want less software to be written there? Fewer widgets built? Fewer ditches dug or Beanie Babies made?

We should be taxing pollution, use of resources, taking up space, and all other forms of Privilege.

Tax bads, not goods.

Re:The folly of taxing labor and capital

[talks_to_birds]

"We should be taxing pollution, use of resources, taking up space, and all other forms of Privilege."

Right on!

Let's tax the sh*t out of all those Lexus SUV's and Land Rovers, single occupant vehicles every one, driving onto the Micro$oft "campus" every day!

t_t_b

Re:The folly of taxing labor and capital

[bperkins]

Right on!

Let's tax the sh*t out of all those Lexus SUV's and Land Rovers, single occupant vehicles every one, driving onto the Micro$oft "campus" every day!


How about slashdot posts? Might cut down on the trolls.

Re:The folly of taxing labor and capital

[Chris Johnson]

...digging ditches beside WHAT, exactly? ;)

Of course it should

[sam_handelman]

A software company makes use of community services - Fire Departments, Public Transportation and so forth. It should pay to support them, just like any other business should support the infrastructure of the economy in which it operates.

Software companies may be more or less subject to the various pressures imposed by such taxation on other forms of manufacturing activity - including the tendency to move their operations overseas. However, software shouldn't be any-more-exempt for these reasons than any other business.

Re:Of course it should

[boster]

No, of course it shouldn't. But the fair way to do it is by taxing income (corporate income tax) and (perhaps) through sales. Taxing the creation of a product is extremely counter productive -- do you then tax a local manufacturer for each widget made even if it's not sold? Or authors for the "value" of their work? Or course you shouldn't!

An income tax addresses these problems: The company (or author or whatever) pays based on what the earn, not produce and is therefore much more uniform and fair. And (should) apply to all regardless of the type of product or service.

Re:Of course it should

[sam_handelman]

Writers and other creative types usually work from home.

What if all of these - salaries, sales, and so forth - take place in communities outside of the reach of the locale where the actual programming facility exists?

The point is - the facility uses community resources, so it should contribute tax revenue to the community. If that means levying a tax on the act of generating commercial code itself, well, that's less than preferable but it is clearly within the purview of the city.

Re:Of course it should

[Mhrmnhrm]

Software companies DO pay for the services you just mentioned, in the form of property taxes. Unless the company in question rents their facilities, they pay direct taxes on owning the land, as well as the appraised value of the facilities on that land. Even if they DO rent the building, those taxes (If the landlord has any brainpower) are integrated into the rent. While it is true that they likely don't pay taxes directly for pressing CD's and such, the facility that does is paying those property taxes, and again (with sufficient brainpower) should include those taxes in the price they charge the software house to press those CDs.

Re:Of course it should

[fferreres]

Great, i'd couldn't but wait to see the USA software industry killed asap. It's very important for software developement to have huge highways, water pipes and such.

Great...

In Other news....

[Greyfox]

A mass exodus of software comapnies was detected departing Seattle. Collapse of the local economy predicted!

This appears to only pertain to Seattle at the moment, though Microsoft is gunning for it. Probably don't want other cities to think they can do the same thing. Lawmakers occasionally push a little too hard when trying to tax stuff. Usually after the affected company or companies threaten to leave, the lawmakers rethink their strategy and everything goes back to normal.

But... think about it for a second here... an "Intellectual Property Tax..." I'd love to see the companies represented by the RIAA assesed for the value of their property and handed a tax bill for several billion dollars. Never happen since they own the lawmakers, of course, but it'd be mighty amusing...

Tax all intellectual activities

[Lonath]

Base it on how much money the thing being written or created it worth and tax the person(s) who wrote it.

Then, since laws raising taxes like this bring money into the state coffers, they should impose taxes on legislators who raise taxes...because the result of their "intellectual" activity is increased revenues for their organization.

Well, I can at least dream, can't I?

Re:Well, duh. Huh?

[Havokmon]

I don't get it.
Well, your Cola explanation does make sense, maybe I'm thinking too little.

If I'm Amish, and I make furniture, would I be taxed while I'm building the furniture?

R&D is not taxed, ie. Blueprints.
But actual progamming is? The manufacturing process is taxed?

That just doesn't seem right. I don't even have any income until the product is finished and sold, and I've already been taxed on it.

For everyone without a...

[talks_to_birds]

...modest knowledge of basic American geography, but with a quick opinion as to what this all means:

Micro$oft is based in Redmond, WA -- which is not, I repeat, not, Seattle, WA

(Thank god...)

Who's in Seattle?

umm..

I think Real (Audio..) is, and Adobe is still...

t_t_b

Re:For everyone without a...

[talks_to_birds]

Good point.

Fixed it; thanks...

t_t_b

Re:For everyone without a...

[WillSeattle]

Nope.

Sigh. Look, RealAudio is north of us. Microsoft, the dark land of shadows, is across Lake Washington, in the land where hope dies and the SUVs roam the earth.

Here in Seattle we have many firms:
Adobe (in Fremont, where I live, Center of the Universe)
Immunex (Queen Anne neighborhood)
Utilikilts (in Fremont, where I live)
and many many more

Those that belong to the dark lord are across the water, where the demons dwell. We here in the Emerald City - we who have had stadiums built against the express vote of the city, forced by the state - we who have forced through a monorail vote though all tried to stop it - we are the ones talking about a tax.

It's our city. Not Washington State's city. Not Bill Gates city (he lives in Redmond). Not Paul Allen (who is building a park in south Lake Union in Seattle that noone realizes is underway) - he lives on Mercer Island, halfway across Lake Washington, like the floating city in The Hobbit.

No, this is Seattle. Home to Ichiro. Home to our own software - and we tend to use Linux and Unix and BSD here.

-

Re:For everyone without a...

[zzyzx]

Real is at least partially in Seattle. They have an office in Belltown right by the Sound.

Re:For everyone without a...

[WillSeattle]

I stand corrected.

The reality is that there are many more firms developing software in Seattle than those two, of course. Actually, I believe even Microsoft has some facilities here, although they're based in Redmond, across the Lake, where the demons lie.

Re:This will reduce bloat OR make all software fre

[tongue]

Not necessarily, especially if the "bloat" is contained in a system-distributed shared library and code links to it. you can theoretically write a relatively tiny program that links to all sorts of system dll's or .so's and calls dialogs contained therein, etc; your instruction count goes down, size of the binary goes down, ergo taxable assets go down.

Sauce for the gander

[coyote-san]

What's that old saying - what's good enough for the goose is good enough for the gander? (That's gander - male goose - not gandolf, you goof!)

If they want to claim Intellectual Property is the equal of Real Property in terms of legal protections, etc., then they should carry the same tax burdens. Property tax, creation tax, whatever. It's time for that corporate free ride to end.

My only concern is that a poorly-written law that targets predatory monopolies could also affect sites that just provide Linux or BSD mirrors (if there's a tax fee per download), or worse would cover the "lone wolf programmer" who just wants to write a better widget for some OSS application.

More generally, there's the issue of whether other services are also taxed. I know some states charge sales tax on *everything* - including the hourly charge for the car mechanic and plumber, for the lawyer, etc. Again, this law should be fair - only tax programmer time if lawyers and accountants are also taxed. Only tax volunteer services if other volunteer services are taxed.

But on this particular issue, if the producer gets as pissed off at you sharing a copy of their software as they would if you set up a family picnic on their campus headquarters, then the IP and RP should either both be taxed or neither be taxed.

Re:Sauce for the gander

[mlsemon2]

I'm missing something here. Let's take something almost completely virtual, like the patents on MP3. When the patent holders get their money, don't they have to pay taxes on it? That seems like a job for the people who make the sales tax, not IP tax; that's a different debate altogether.

It all sounds good on paper, but if you aren't in some contract to give a service in return for someone else's service, it isn't taxable barter. And if you're giving something away, maybe tax can be milked from if your area has stingy gift tax laws. Certainly, it would be unfair to pay taxes on something that hasn't generated any revenue for you.

Re:This will reduce bloat OR make all software fre

[boster]

No... This would just make software companies in that jurisdiction LEAVE. No other place structures taxes like that, nor should they. Companies are usually taxed on income and/or sales, not on production of a product.

It's only fair..

[ftobin]

...if they also implement taxes on making ridiculous laws!

Hah!

[mlknowle]

What a joke! An incredible shortsighted move, really... As American firms compete to keep programming jobs in the country, a state tax is going to drive firms not only out of the state, but may drive them overseas (i.e., "if we have to move, we might as well make sure we only have to move once").

The question of whether it is appropriate to tax software creation like manufactoring is another matter, but simply from a competitive standpoint, this is a really, really dumb move.

I bet it made tech leaders in countries like India happy!

sci-fi movie

[trefoil]

wasn't there some sci-fi movie about controlling what people think? Lots of my software development is done in my head, so they're going to tax my thoughts? great..

that's funny

[global_diffusion]

I was in Olympia a couple of weeks ago (that's the state capitol) to talk to some of my reps about the latest tuition hike for state schools and saw some of this going down. The software guy was a real shady character but definitely smooth with the legislators. It was watching him talk to my reps (when we couldn't get their attention) that made me realize that our government is corrupt beyond hope. Well, maybe not beyond hope. There's always room for hope...

Cause I'm the taxman

[Clay Mitchell]

Should five per cent appear too small
Be thankful I don't take it all
'Cause I'm the taxman, yeah I'm the taxman

If you drive a car, I'll tax the street,
If you try to sit, I'll tax your seat.
If you get too cold I'll tax the heat,
If you take a walk, I'll tax your feet.

Thanks, Stevie!

imagine the loopholes

[beanerspace]

... consider the following partial-prohibition legislations. The Brady Bill and the Clean Air Act. Like them or hate them, their effectiveness is limited because determined manufacterers found loopholes. In the case of fire arms, the manufacterers made some cosemetic and title changes, essentially selling the same weapon under a different name or classification. Same is true with emissions standards, where the auto makers created an entirely new vernacular to get around the law.

Obviously this bill is aimed at MSFT. Like them or hate them, I would think their lawyers might employ similar tactics to get around the letter of the law. They're selling "services" ... perhaphs via an offshore offshoot names PatchSoft ... only they're not kiddng around.

Once again, only penalizing those of us who can't afford big-bad lawyers with even larger price tags.

Hmmm

[Thrawn5150]

Let me see if I can interpret this information correctly: They wish to penalize intellectual activity in the form of programming? And I do have to ask, why is city of Seattle even debating such an issue when this sounds like a state responsiblity(even though it is a bad idea)? This sounds like a really bad attempt to siphon money from the Micro$oft green machine for purposes unknown.

Do they tax Authors?

[Krusher55]

If you write a book, do they tax that or just when the book gets manufactured.

Washington state taxes...

[nvrrobx]

Well, I guess this place figures that since they don't tax our income, they have to tax the hell out of us on everything else.

Just what is the issue supposed to be again?

[drinkypoo]

Should an intellectual activity such as programming be taxed in the same way as manufacturing is?

You cannot draw a parallel here. Manufacturing operations don't have to pay taxes on the materials they need to make finished products. Software operations, however, DO have to pay taxes on the materials they need to make software; Development tools and the like. Sure, there are people out there making money using nothing but free tools, but those aren't the organizations we're worried about anyway.

The solution is just to tax all the finished products in the same way. There's no room to complain, there. As for providing services; Isn't that what property taxes are supposed to be for? Income taxes pay for personal services, and property taxes pay for services to establishments or businesses. At least, this is how it's supposed to work, right?

In other words, if you own property, you want it to be protected by police and fire. You want the paramedics to come if someone is in trouble on your property. I dunno why they decided to get school money out of property taxes, except that a school in your neighborhood (a loosely defined term if ever there was one) is supposed to raise property values. On a personal level, some of your taxes go to pay for police, fire, and schools et cetera as well - This is to cover you, personally (or can be seen this way.)

So if you own a house and live in it, you are paying for both your coverage and your house's coverage between your personal income taxes and the property taxes on your dwelling. If you just rent, then your property owner is expected to take care of their share of things, and then you pay for yours. It's not complicated, conceptually.

One of the problems is that cities court tech companies by giving them tax breaks to convince them to move into the area, and then they discover that, shock amazement, the tax break inhibits their ability to provide services that those taxes would ordinarily pay for. You can have your cake right up until the point where it is eaten, and then you don't have it any more. Seattle has discovered this, and they want to make up new rules that allow them to basically steal the ingredients they need to bake another cake by changing the rules.

This is of course the risk any company runs and must weigh before opening their establishment - How likely are these people to actually end up screwing themselves over and then pass the screwing on to me? But it's still immoral. They made the bed, and now they want someone else to lie in it with them.

Software != physical stuff

[javatips]

I've read some comments about taxing software the same way that physical stuff is taxed.

I've also read comments saying that some taxes are base on the perceived value of a good.

I believe that we cannot apply the same rules to software that to physical goods. Why? It's very simple, physical goods requires money to produce (I'm talking about construction and assembly of physical goods, not the creation - as in R&D - of physical goods). However, software don't cost anything to produce (ok, if you produce physical package to distribute your software it does cost something). Because it's only information, you can reproduce it at no cost.

How is value of a good determined. In general, R&D is not a big factor (it is but only when the product is introduced), the cost of producing the good vs demand is the way to fix the value of a product. Because software cost 0 to produce, even if there is strong demand, you can fulfill it at virtually no cost. So how does one one calculate the value of software... You can't (based on current economic principle).

As we transition in a new kind of economy (note that we will, probably, never completly leave the current economy behind), new laws and new economic rules should be created. The current way of trying to apply the same concept to software (and intellectual property for that matter) will never work. At some point, the system will collapse and new rules will be built.

I don't know the timeframe for this, but I'm sure it will be a lot sooner that we think.

Re:Software != physical stuff

[elflord]

However, software don't cost anything to produce (ok, if you produce physical package to distribute your software it does cost something). Because it's only information, you can reproduce it at no cost.

You're confusing production with reproduction. Of course it doesn't cost anything to copy CDs. But the CD is not the product, the software is. And the software is horribly expensive to produce. Just ask any of the failed software businesses out there.

How is value of a good determined. In general, R&D is not a big factor

It depends on how much money went into the R&D, doesn't it ? Of course, software development is not the same as R&D anyway.

Because software cost 0 to produce,

No, it doesn't. It costs a lot of money to produce. Copying CDs should not be confused with creating software.

As we transition in a new kind of economy (note that we will, probably, never completly leave the current economy behind), new laws and new economic rules should be created.

In case you haven't noticed, they are. For example, the notion that copying media is as productive an activity as authoring software has been dispensed with, because authoring software is a more productive activity than copying CDs. You can wish for "new rules" that favour freeloaders all you like, but you're just not going to see them. Writing software is expensive, and the people who do it are worthy of compensation, and this is reflected in the law.

Of course companies don't pay taxes ...

[RichardBurns]

... their customers do

Interesting

[4of12]

For the case where software creation is regarded as a typical industry, their efforts could be seen as a form of Value Added Tax, about which, I believe, our colleagues in the U.K. could comment further.

The interesting part is where in the equation free or open source software enters.

While I believe that much of the free software I use on a day to day basis provides me with much "value", does it really possess value, if I haven't paid for it?

And, if free software does have value even if it is given away for zero money, if it is to be taxed, then one might well argue that other similar creations would be subject to taxation, such as artwork, literature, acting, music and scientific research that is openly published.

Hello, Morons:

[Rick the Red]

To the morons here in /. who think this affects Microsoft: Microsoft is located in Redmond, not Seattle. The only effect on Microsoft would be rising real estate prices on the eastside as Seattle's high-tech firms (Adobe and Watchguard come to mind) relocate.

To the morons in Seattle who thought this was a good idea: That sucking sound you hear is hundreds of high-tech businesses leaving your city.

Re:Hello, Morons:

[Perdo]

All of Washington state, not just Seattle. Other states tax oil revenues, Washington should tax it's prime industry too. As it stands, Microsoft pays NO taxes to any agency and in fact graciously waives the 1 billion dollar a year tax refund owed to them by the IRS because of our fucked up tax laws. Tax the unholy crap out of them, they pay no dividends or taxes. Money NEVER leaves Microsoft.

Re:Hello, Morons:

[nvrrobx]

Hello, Moron:

If this affects companies with a presence in the city of Seattle, it certainly will affect Microsoft.

The Visio division is based in Seattle, WA.

Re:Hello, Morons:

[jparker]

*Some* of Microsoft is in Redmond. Some is also in Bellevue, Seattle, and no doubt many of the other suburbs in the area. Read the article; Microsoft is obviously worried about the legislation.

Re:Hello, Morons:

[Nethead]

Interesting that you list Watchguard as a high-tech firm. I know some of the people there, they suggest using something other that Watchguard for security :)

Not that I'm a fan of taxes, but....

[Dr. Bent]

I'd rather tax companies (and have those costs passed on to consumers) than pay more in income taxes.

Also, this is the city of Seattle, NOT the state

[nvrrobx]

According to this article this tax is for companies in the city of Seattle, not the entire state of Washington.

The legislation in Olympia is looking into blocking this.

Who's the taxman?

[GungaDan]

Alright, maybe I'm just missing something obvious here (perhaps poor punctuation?), but who the hell is "Stevie," and what has he to do with that marvelous song? Is he the mysterious 5th Beatle or something?

Re:Who's the taxman?

[Pinball Wizard]

Stevie Ray Vaughn covered this song. Its on his Greatest Hits CD

How do you tax thoughts?

[rborek]

Sure, you can tax the manufacture of disks, but how do you tax the creation of software? Do you tax it based on lines of code, on size, or do you tax the number of copies created? And how do you determine all of the above? I'm sure the businesses are already paying taxes (business income tax, sales tax on what they buy and sell directly, etc.), and their employees are also paying taxes, so who cares if they don't get to make a few bucks off of manufacturing a couple of CD's?

Oh boy, lookie here!

[Anonynnous Coward]

It's the DMCA wielding, BSA hiring corporate thugs that say "Code is PROPERTY!" Then, when they hear "Property is subject to taxation," they say, "uh, but it's, uh, special property, and, uh, shoudln't be taxed like other property." Quite laughable. If they want to be able to lock up bits as property, then they can damn well pay taxes on them, too.

Not at all interesting

[catfood]

The interesting part is where in the equation free or open source software enters.

No, that's not the least bit interesting. Software doesn't fall under the city's gross receipts tax, which is what the article is about... until you sell it. See, that's what "gross receipts" means.

Sheesh. Like it's so hard to read the article.

quick everybody, stop thinking.

[McFly777]

The State of Washington is heretofore declared to be a "non-cognative" zone.

After-all, any thoughts you may have could advance a programming effort, which would then make you liable for non-payment of taxes.

Re:Excellent news

[Rick the Red]

Exactly how does taxing commercial software hurt open source? This law, if it sticks, would have the exact opposite affect, if any.

You obviously don't understand Washington's B&O taxes. It's a tax on income (not profit). If you're writing open source and not charging for it, there's no income to tax.

software as service

[Anonymous Coward]

I'll definitely have to look up the law as I'm in Seattle and do some independent development on the side. It seems to me like I don't have much to worry about because this relies on traditional notions of software and selling it. I don't think it takes into account the notion of giving software for free but doing things like selling support for the software or possibly even selling support for the software but bundling it with the "free" software and only selling the bundled version. In a store, this latter idea - free software, charge for support and bundle them together, would seem ridiculous but for software downloads it makes as much sense as companies who charge $30 for their "free" memory upgrades to your new computer. I don't see how this law could be enforced in a systematic way and I question the value of it.

Seattle misuses so much of its funds (mass transit, anyone?) that I guess the politicians are desperate to get more money even though it will certainly hurt its future. Remember a few years ago when every city was boasting about its incentives for software companies and coming up with moronic names like "Tech Alley" to get companies to move there? Now they're apparently trying to get rid of them.

Only if they taxed security holes ...

[ProfMoriarty]

... time to write myself a minivan.

#include <state\wa\govt.h>
void main()
{
while(1)
printf("go fork yourself");
}

Re:Only if they taxed security holes ...

[ProfMoriarty]

Damn ... forgot to add an include in there ...

Add this after the first include:

#include <city\seattle\govt.h>

What it is

[ackthpt]

What it is, IMHO, is simply the city attempting to find a method of collecting revenues to cover budget items. It's a ridiculous, attempting to capitalize on M$ success and creates a Byzantine taxcode which would discourage other business from setting up there. If the existing taxcode for Seattle doesn't gather enough from office space (property tax), income tax, use fees and service fees, they should modify those. Either cut services or increase taxes in a fair and appropriate manner.

Re:What it is

[Chris Johnson]

Well, since Microsoft DOESN'T pay any tax, it's rather understandable. I'm sure Microsoft will find some way to still not pay any tax, further putting pressure on Washington state services when unemployment is apparently second highest in the nation.

Since this is the home state of Microsoft, maybe it would be nice to see what it is like reduced to pure feudalism. I'm sure Microsoft would love that until the absence of police and fire departments force them to house all the employees in a secure compound, until the streets decay and become useless, until the unemployed and homeless rabble organize and try to take stuff from the 'winners' of the game. At that point they might like feudalism a bit less.

I'm just glad I don't live there, is all I can say.

Re:Fucking Snow-Mexican

[LamboX]

I appreciate your help in making my point for me. Thanks =)

The core issue here...

[talks_to_birds]

...is a general one in Washington State.

Politicians here, at every level, are trying anything they can think of to maintain their revenue streams.

Government at all levels here in Washington is under a tremendous pressure to reduce taxation thanks to several populist initiatives written by Tim (I'm a liar) Eyman, and passed for the most part very succesfully by the voters each time one has come up for a vote.

The State legislature has just passed a $0.09 per gallon gas tax increase, and they are down in Olympia squabbling at this very moment about whether they dare let the voters have the final say-so on the tax increase by voting for it in a referendum some time this spring.

Most of the career politicians don't have the backbone to let the public vote, because they know people will vote it down.

So it's not surprising Seattle is going to tax thinking.

They tax just about everything else...

t_t_b

Re:The core issue here...

[BrookHarty]

Washington State crim^H^H^H^HPoliticians don't care about the public. We have passed numerous tax breaks just to have them over turned in court, because they infringe on the states rights to tax. They would love it if we just shut up and let the do whatever they want.

The politics are just as bad as any other state, they will screw you over any way they can to make a buck.

What happened to sales tax?

[loosenut]

The question boils down to whether Seattle should apply the business tax to the development of software -- essentially a thinking process -- as it does to the manufacturing of off-the-shelf software products, software lobbyists say.

"The business tax"? Shouldn't the tax be applied to the business's profits, and be dependent on where the business is headquarted?

If I own ABC Software, and I'm located in Seattle, I can contract programmers in India, and contract a manufacturer in Taiwain, and sell the software all over the world. But the profits are going to be recorded in my ledgers in Seattle, and are therefore subject to any local, state, and national taxes. Am I missing something?

Re:What happened to sales tax?

[WillSeattle]

If I own ABC Software, and I'm located in Seattle, I can contract programmers in India, and contract a manufacturer in Taiwain, and sell the software all over the world. But the profits are going to be recorded in my ledgers in Seattle, and are therefore subject to any local, state, and national taxes. Am I missing something?

No, sounds pretty much what one would expect.

Of course, this means that using contract programmers won't be as cheap as the foreign-terrorist-sponsoring companies wish it was.

Basically though, this is another case of the State trying to tell our city what to do. We voted against the stadiums, and the state made a state-wide referendum, built them against our wishes, and then taxed mostly Seattle for it.

Note we have no income tax in this state - anywhere. None. We have only sales tax and property tax - so it's not like we have choices.

You're either with Seattle - or you're out of it.

-

Re:What happened to sales tax?

[loosenut]

Note we have no income tax in this state - anywhere. None.

I believe that businesses do have to pay an income tax in Washington State. I could be wrong.

Re:What happened to sales tax?

[talks_to_birds]

No income tax --* yet *-- just a Business and Occupations tax on gross receipts.

t_t_b

Re:What happened to sales tax?

[Dirtside]

What I think you're missing (though maybe I'm missing something) is that a company can then put their nominal "headquarters" in a very low-tax jurisdiction, but contract out to workers and companies in high-tax jurisdictions. The company ends up making a much larger profit simply because of where it is located, regardless of how much revenue it produces, even if other costs (office rent, etc.) are the same.

Apparently this is a bad thing but I don't know all that much about economics, so, just consider me trying to foster debate. :)

Re:What happened to sales tax?

[WillSeattle]

No income tax --* yet *-- just a Business and Occupations tax on gross receipts.

Well, we've never had one since we became Washington State, or even before in the Territory.

So, it's a moot point.

And the B&O tax is not a tax on income. That's like saying a property tax on vehicles is the same thing as a sales tax on purchasing a car.

They make look similar. But they're not.

-

Re:What happened to sales tax?

[loosenut]

I think you are right, but I don't see how this has much to do with the Seattle Law. Thanks to the wonders of globalization, any company can do that (and it can be a very bad thing). Thing is, if a company is making larger profits, they can be taxed for those profits. Assuming there is a business income tax for the state or city.

Washington State uses a gross receipts method of calculating taxes:
Dept. of Revenue

Re:What happened to sales tax?

[fferreres]

Your post is enlightened...i couldn't agree more. Sales tax is ok in India, so Indians can buy less and export more. That's becausea sales tax is great only when you want to cut consumer spendings.

Sales taxes are great for corrupt and ignorant goverments in development countries. They are easy to collect and hard to avoid. I KNOW what i mean never mind :)

You just wish you had thought of it first...

[s4m7]

...so quit hitting refresh waiting to see -3 flamebait.

More clueless..

[SoulRider]

legislation from clueless legislators. Why dont they just classify the iso the companies produce to be the taxed product instead of the disc. How do they tax the documentation? The software companies must be sending their docs out of the tax area to be printed. How is this taxed? And if its not then why is this an issue?

Re:This will reduce bloat OR make all software fre

[CromeDome]

What the hell are you talking about? Should we start flowcharting millions-of-line programs down to the function level again, dish them out to individual programmers, and tell them that their function can be no more than one screen in size, all because you think we should tax software by the byte? What kind of development process is that? I sure as hell wouldn't work for your company, much less on your planet. Code size is not indicitive of the value of a particular piece of software.

And assembly language? Not that I'm defending Microsoft here, but let's see you manage a project the size of Windows XP with something as unmanageable as assembly language and see how well your development process turns out, and in what timeframe.

Get a clue, please. That type of thing only could fly in the academic world, and not the real world.

Excellent Idea... If you want to kill your economy

[DaedalusLogic]

That's a great move for Seattle! That will curb and eventually inspire negative growth in a huge sector of your local economy. A classic case of biting the hand that feeds you. OK, so that was sarcastic... but maybe that means that tech jobs will get spread around a little. Software development is one industry where the only resource you truly need is smart people. Unlike the chemical industry where you need things like cheap water and power, or auto industry with good transportation infrastructure. A good software company can equally exist in towns like Chattanooga, TN as it can in Seattle. Tax the software developers... they may not move right away due to large capital investments. However, they won't ever build a new investment in that community.

Of course you can't tax this!

[Lussarn]

Programming is an art, everybody knows that.

What's the big deal?

[Sokie]

As far as I can tell from reading the article, all they are doing is trying to leverage the state Business and Operating tax (B&O) tax on every business in the city and then increase the R&D tax credit once they are getting everyone to chip in. Kind of a more people pay but everyone who does pay, now pays less. Except of course for the people who didn't pay anything before.

My brother and I run a small software/hardware business in WA state (not in Seattle) and we don't pay any B&O tax because of a graduating small business tax credit. But since B&O tax is based on gross revenue, I don't see how software companies should be any different. I never for a second looked at our business tax forms and thought that we should be completely exempt from B&O tax, but I'm glad the credit makes it so we don't owe them anything yet.

Is there something in the article that I missed? All I see is some politicians blowing things way out of proportion with regards to "the taxation of intellectual property". I imagine that Sam Goody pays B&O tax even they are just retailing intellectual property (music). I imagine that the all along the way, the companies involved in producing, recording, and mastering a CD all pay B&O tax, or something similar that is based on their revenue.

But maybe I missed something...

Don't be absurd

[Magnusite]

A software company pays taxes to support the municipality and state. It does so as a company. All companies pay taxes to support the services you speak of. This is not a matter of software companies not wanting to pay any taxes, just not more than their fair share. Why would WA state be considering such a mandate? Hmm... is it because one the most wealthy companies in the world resides in their domain? Could it be they are trying to find a fast way to increase the golden coffers of the tax base?

This is as repugnant as the 'bit tax' proposed in the early nineties. If you don't remember, legislators were considering taxing every digital transmission that related to business. That's right, every fax transmission, every X-Y-ZModem upload and download, every corporate communication on CompuServe or Delphi. It never made it into law because everyone realized how insidious it was.

Or, if you prefer, consider the continuing debates about whether or not to tax commerce via the internet. If we allow this, we open the door to taxing everyone who purveys the internet, in order to assure the state that they will recieve the required money not provided by rogue internet brokerages.

From a human rights point of view, this law is about as nasty as you can get. What's next, taxing mathematics! Remember, software is just controlled mathematics.

Okay, okay, end rant

Re:Don't be absurd

[mccrew]

This is as repugnant as the 'bit tax' proposed in the early nineties. If you don't remember, legislators were considering taxing every digital transmission that related to business. That's right, every fax transmission, every X-Y-ZModem upload and download, every corporate communication on CompuServe or Delphi. It never made it into law because everyone realized how insidious it was.

Oh, c'mon now. That bit tax was a hoax which had gullible users everywhere forwarding the same alarmist e-mails, over and over and over. Source please?

First Boeing, Then Microsoft

[istartedi]

Go ahead, Washington State, tax those jobs right outta there!

Why, I think I here something... sounds like a phone ringing. Hello, Chicago?

MS isn't affected

[Hooya]

...because they're talking about taxing software that's 'created' in seattle/Washington. As we all know, some (if not all) software in windows was written elsewhere (BSD?, CPM, OS/2 etc..) so this tax doesn't apply to them!

This could very well change if they extend the tax to include innovation. oh, I forgot, we're talking about MS.

Answer: no.

[Penguinoflight]

Unfortunatly, it is anyway. We pay sales tax on these products, and the question is, should it be double-taxed?

No Taxes!

[jdevons]

No, programming should not be taxed like manufacturing. Neither should manufacturing for that matter!

Perhaps the question should be:

[rotten_]

"Should an intellectual activity such as programming be taxed in the same way as manufacturing is?"

I think the question should be "Should manufacturing be taxed in teh same way manufacturing is?".

Reminds me of story I read a while back that was a collection of letters to the editor in Moscow, Russia. A lady complained that government mandated size of a flat per number of residences was rediculous. And then rather then say that the whole concept of only allowing a flat to be sized based on the number of people that lived there was rediculous, she went on to argue that instead of 30 sq feet per person it should be 40 sq feet per person (or whatever numbers). It was a case of not thinking about the overall situation, making assumptions and thinking in the paradigm they are used to.

I think the question asked here "Should software be taxed like manufacturing" points to a bigger question of taxing manufacturing. We're so used to taxes that we consider it just when perhaps it may not be.

Washington Taxes

[Tempelherr]

Well, as a Washingtonian, I'm glad to see that they're at least actually delving into other options than those already on the table.

With Washington having the second highest unemployment rate in the country, 7.5%, with oregon being the highest, 8.0%(Current Data Jan 2002, Bureau of Labor Statistics), the situation here is beginning to get downright nasty.

Coupled with all the layoffs in the hard hit sectors(Boeing, etc) and the anti-tax inititiatives by Tim Eyman that have been passed, such as the ones that limited car tabs to $30, or the one last year limiting property tax increases to 1%, the state legislators have been forced to seek other sources of revenue. Granted, they always find loopholes to nullify the anti-tax initiatives, or to get at least a portion of the tax from the areas.

Anyway, to get back to the point, many of the people of Washington really enjoy the services the government provides, yet due to the way taxes have been handled in the past few years (Especially in King County, the largest country) people are rather stoicly opposed to any new taxes. So, the government is forced to try and find additional sources of revenue. Right now, they're working on cutting any extras from the budget, borrowing against Tobacco settlements, and implementing a gas tax. These won't be enough to cover the projected deficit should it actually turn out as projected, so at least legislators are looking somewhere(instead of the infamous bickering they're known for), though I don't believe Software is the best solution.

Re:Washington Taxes

[talks_to_birds]

"So, the government is forced to try and find additional sources of revenue."

Of course, the government could never try to become more efficient, or try to get by on what it has, like I do, every paycheck.

It's always more, more, more.

The f*cking politicians can never get enough of your money.

As for Washington itself, I've lived here for over 25 years, and it's just tax and spend, tax and spend.

Tim Eyman is right, even if he is a liar...

t_t_b

I wonder what the tax rates will be ...

[ProfMoriarty]

Like $0.40 per 1K Lines Of Code? (flat tax)

Or is there going to be a progressive tax like the income tax rates?

$0.50 per 1KLOC .. up to 10KLOCs .. $0.35 per 1KLOC from 10KLOCs to 50KLOCs ... etc.

Or will there be a per character fee?

$0.04 for a { or } ... $0.035 for a & ... of course $150 for a or copyright symbol ...

Boy ... this could really change the obsucation contests ...

only if......

[the_2nd_coming]

only if you are from redmond :-)

Re:Well, duh. Huh?

[Lars T.]

Well, before the change programming the software wasn't taxed, but the manufacturing (as in putting it on media) was. So a SW house making the SW in Seattle, but making the CDs somewhere else, didn't have to pay taxes in Seattle - unlike a company also printing the CDs there. And yes, if you were an Amish in Seattle (big if), you'd have to pay taxes:

The city's business and occupation tax is 0.215 percent of gross receipts, minus credit for money spent on research and development, he said.

And unlike the SW producers, said Amish couldn't get around paying taxes by simply shipping the furniture somewhere else to put finishing to it.

quite amusing actually

[Voltara]

I find it amusing that the companies that argue intellectual property is the same as physical property for control issues (eg. copying is theft), are the same companies that now say IP and physical property are completely different when the issue is taxes.

Keep this in mind

[Shotgun]

businesses don't just pay taxes. They COLLECT taxes.

I dependant upon every level of government to either raise money or close up shop. The only means that government has to do this is to take it from constituents (by force). How to do that fairly is an extremely subjective area. Taxing manufacturers who export goods has the effect of passing the tax burden onto people not voting for the current people in power. Hence, the popularity of hotel and restaurant taxes. The locals are happy, since their property taxes aren't raised, but what they don't realize is that the manufacturer passes the losses onto the employees by forgoing hiring, raises and benefits. This is one more case of politicians looking for more money without being up front about it.

Most governments give *breaks* for this!

[aquarian]

Obviously, Washington lawmakers have their heads up their asses. Most governments try to encourage these kinds of businesses, rather than tax them. Ireland, for instance, allows writers, musicians, and artists to live there tax free- knowing that building a tax haven for creative tycoons pumps billions of pounds into their economy. And it creates good jobs- high paying service jobs, which most people would prefer to logging or fishing. All Washington will accomplish with this is to hasten Microsoft's migration to India.

Plus, as if the highest sales and gasoline taxes in the nation aren't enough already...

Re:Most governments give *breaks* for this!

[WillSeattle]

Obviously, Washington lawmakers have their heads up their asses. Most governments try to encourage these kinds of businesses, rather than tax them. [more blather] All Washington will accomplish with this is to hasten Microsoft's migration to India.

This is Seattle. We have Adobe. We make Utilikilts.

The dark land of Redmond is home to Microsoft. There, across the many miles of lake, the dark lord Bill G reigns over all his minions.

And here we have had our State, which is suing us over this, force us to build two stadiums we the city voted down, and force us to pay taxes for them. One for the dark prince Paul Allen who lives partway across the lake in his tower on Mercer Island.

Cry no tears for the dark minions of these two masters - they reside not here in our fair emerald city of Seattle.

That's called copyright renewal

[yerricde]

If a book is out of print and no longer being sold, should the gov't have the right to continue to tax the author simply because the gov't feels that IP has value?

Yes. This is called a "copyright renewal." It was a feature of the Copyright Act of 1909, abolished for new works in 1976 and for all post-1964 works in 1992.

If I create a GPL'ed program, retain the copyright to it many folks the world over find it to be an incredibly useful bit of code (one that helps lots of companies save money / generate revenue) should I (as the owner of the IP) be taxed year after year because the gov't determines that bit of code has value?

After ten years, how much value do you still perceive in that code? You could just donate the code to the PD and stop paying the renewal fees.

Lawrence Lessig, a law professor and author of popular books about thought monopolies, has advocated a return to copyright renewal. Here's my slightly modified version of his system: Make copyrights on new works last 10 years. Then every 5 years, you have to file an extension to keep your monopoly, you can only file an extension a small number of times (I'd say 13 times, for a maximum term of 75 years), and after 25 years have expired, compulsory licensing under RAND terms for both verbatim copies and derivative works comes into effect.

Re:That's called copyright renewal

[FatRatBastard]

This is called a "copyright renewal." It was a feature of the Copyright Act of 1909, abolished for new works in 1976 and for all post-1964 works in 1992.

Was this a fee that was paid for renewal, or a tax on the percieved value of the copyright? (I'm asking because I honestly don't know). From the sound of it it sounds like the former, and that's different than a property tax.

After ten years, how much value do you still perceive in that code? You could just donate the code to the PD and stop paying the renewal fees.

Linux is 10 years old (I think NT is close, if not already 10). I still see lots of value in both products.

Taxes are different than fees. Paying a fixed fee for a copyright is different than paying taxes on a percieved value of said copyrighted material.

Washington Tax Details

[Belly of the Beast]

Washington State does not have an income tax, instead they use Property, Sales and Business and Occupation (B&O) Taxes. B & O taxes are what are described in the article. You can find a great deal of detail about Washington's B & O tax in this PDF and this PDF. B & O taxes varry by activity, but, in short, the statewide B & O for manufacturing is .00484 of gross sales. Cities.Counties can add local add-ons. I'm not sure what Seattle adds, but I expect not much.

Also, Seattle != Redmond as they are different cities.

Why Seattle's tax is Good for Open Source

[WillSeattle]

It only taxes software developed for sale.

If you work for a non-profit or open-source programming - there is no taxable event.

End result - more open-source software in Seattle.

-

For those that think MS is *NOT* in Seattle...

[Yankovic]

You're wrong. They have a building (Visio is located there) downtown near Pike's Market.

Re:For those that think MS is *NOT* in Seattle...

[talks_to_birds]

Visio was eaten by Micro$oft.

Visio is not Micro$oft.

Visio hardly constitutes "Micro$oft being in Seattle".

t_t_b

Say goodbye to Seattle!!!!

[nexusone]

It is not like Seattle is the only place you can write software. They can always move to another state to avoid the tax. If they stay in Seattle, it is their own choice; they should not complain about it. Since it is their own fault for staying!!

That is what I would do if it was my software company and they where targeting extra tax's on me, I would move the day after the law passed to another state!!!!

Re:Excellent Idea... If you want to kill your econ

[Belly of the Beast]

We have companies leaving Seattle because the town is wallling down around it it's ears. The roads are a mess. Boeing just moved it's HQ to Chi-town to avoid the trafic. And we all can see the rest of their assembly work following soon. If a city does not keep it's infrastructure up companies can not prosper, or even function. Seattle is sinking for lack of funds.

If a software company has many Seattle employees yet it sell nothing from it's Seattle location then it pays no Sales or B & O taxes (the taxin the article) and Washington has no income tax so why should this software company get a free ride while everyone else has to pick up the cost of roads, fire protection, etc???

Grow-up and stop free loading. We all have a responsability to where we live.

budget crunch

[silversurf]

I think it's important to realize a few things...

First off, in case you aren't from Seattle (or Washington State), or don't pay attention to local and state politics and economics here, you have to know that the State of Washington is panicking right now trying to figure out how to pay for a big budget short-fall. They don't want to raise taxes or cut programs. This isn't much different from many other states right now.

What's going on here however, is that the State level government is looking for tax revenue without raising general taxes on the people. Washington State is mostly democratic and most controlled by the west side of the state. This means that we have alot of taxes and alot of "programs" to support our urban areas and their social needs. I think *all* of the politicians (especially democrats) are too afraid to raise taxes for fear of voter backlash.

We had a referrendum here called I-747 that was passed by the voters but recently repealed by the State for various reasons (most of which were political), but it really pissed off all the politicians in the state because it said the State couldn't raise any tax more than 1% with out putting it to the people for a vote first. I think it also made them fear the voters a little bit. Hence why you will see things like this, the legislators looking for a way to gain revenue and protect their favorite programs without directly affecting the general public's pocketbook and vote.

Next, you have to look at the economy in our state. We have tons of little and some large software and web companies who develop here, but do not actually conduct the pressing, shipment or production of the software here. So for tax reasons, the State is looking at these and seeing dollars flying by that it wants a piece of. What's really interesting, is that companies like Amazon (I know they aren't software really) just have their corporate and web site operations here, but the actual shipping takes place elsewhere, probably mostly for logistics reasons, but I bet it's for tax reasons too. Starbucks is the same way, and so is Microsoft. But imagine the money the State would get if they taxed development. All those web companies would have to pay, as well as MSFT (who gets pretty big breaks for it's R&D work currently).

I wouldn't be surprised if this software "development" tax issue expands to include web development directly. Right now that is what many small companies produce as their sole product, but it's not taxed that way because it's currently considered a service. I see it as the State trying to keep up with the present, but still trying to apply a 20 year old tax model to a modern day industry.

The last thing to look at is the fact that Boeing just left and what it left behind is quickly starting to consolidate and dry up. So I think our politicians are now looking at the loss of tax revenue from Boeing manufacturing (which was HUGE here for many years) and they want something to replace that.

I tend to be on the more liberal side of the fence for politics, but I think we are currently faced with a bloated government in Washington State that is very ineffecient and needs to trim down. I also think because we sit in a very divided (almost 50/50 split) in the house and senate (Wa. State not fed) no one wants to, or maybe even can, cut taxes and programs when it's probably the best move right now given the current economic conditions in the state.

My wife, who is an economist and fairly conservative, calls Washington "tariff town". Just another example, there's tax on the boards right now to raise the gas tax by $0.07 a gallon. Currently it's $0.23 per gallon (not to mention local taxes). We need some relief, but dinging the software businesses is just going to drive them away. In the end it's probably a bad idea because fewer businesses = fewer jobs = less peronsal income = less tax revenue.

My $0.07 (per gallon) on the matter,

-s-
Seattle, WA

Re:Of course it should - not

[WillSeattle]

Software companies DO pay for the services you just mentioned, in the form of property taxes.

Not really. Property taxes don't exist for:

1. contract programmers working at home (which is something we encourage here with tax breaks for companies);

2. foreign contract firms that outsource the coding elsewhere (but this taxes them);

3. the buildings - software development uses less square footage per product developed and thus pays fewer taxes, while incurring more city services for fire, police, libraries (especially this) and everything else that the human capital consumes.

Basically, the State of Washington just wants a free ride. They force us to build stadiums here, even when we vote them down, and then impose a tax paid mostly by our city for stadiums mostly used by the dark minions and lords of Mordor//////Microsoft across the water in Redmond and Kirkland and Issiquah.

We will not be cowed by the influences of the dark minions. This tax actually helps Open Source, which mostly thrives in Seattle whilst it is crushed in Redmond. For you can't tax software that has no cost.

-

that's a weird way of putting it

[markj02]

If you ask "should the creation of software be taxed", that sounds just weird. If you ask, "should a company like Microsoft pay a small part of their revenue stream, however generated, into the local economy where the revenue is generated", I think the answer is pretty clear. How you calculate that tax is another question. Talking about "taxing software" may not be the right way of doing it. Maybe they should simply stick with business real estate taxes and tax proportionally to the number of employees (because that's what creates the costs for the city).

The Man is NOT already getting his share

[WillSeattle]

Software creation requires mainly man-hours, and since employees already pay state income taxes I'd think the state already recieves their share and doesn't have the right to double-tax for intellectual work.

Since we don't have an income tax in this state and cities and counties cannot impose one, this is a bunch of tripe.

The only income tax we pay in this state is to the Feds.

They get a free ride. We only make sure they don't get an unfair ride here in Seattle. What the dark lord wishes to do in Redmond or Kirkland or Issiquah is none of our concern, as all the lands under his thrall are across the waters of Lake Washington.

-

Tax Lawmakers

[jhines0042]

I think that there should be a tax on new laws. Each time that a new law is created it should cost a certain amount of money from the people who draft and pass that law.

We should charge double for stupid laws.

What taxes are for...

[LamboX]

I'm not sure if this point has been made already (not in the mood for sifting today), but taxes are not supposed to be a profit sharing cut for the gov't. They are ONLY to alleviate the cost incurred by the gov't in question to help support the creation and deployment of a company's service/product. Some where further down someone mentions Coca-Cola and their case, but it is completely different with the creation of software. Software does not impact the environment at all where it is created. Nor does incur costs to anyone other than developer (or sponsoring publisher). Not even the machines it is created upon, as these have already been taxed for their creation. The gov't is going after software because they think we make too much money. When you say my brain is worth $75/hr it's not just that hour your buying it's all of the hours of sifting through endless amounts of information on new/old techniques, technologies, and costings.

There is no reasonable reason why software "manufacturing" (coding) should be taxed as it makes no impact on anything other than the coder's brain. Not to mention that the whole argument is totally contrary to the logic of a "tax break" for R&D. I think further down someone mentions this already.

Another point is that there is no way to establish how much the code was worth to produce unless you tax based on the time it took to create it, special licenses required (use of logos, SDK's, and other copyright material), and the hardware it was developed on (which is reusable across multiple projects). All of these things have already been taxed, including the time it took to create it (in the form of income tax AND the "employer's burden" for same). Also if the intention is to tax time then what is to stop the developer from saying it only took 10 hours to bang out said code instead of the 10,000 hours a year long project with 5 coders takes (conservative estimate).

None of this even takes into account the Internet, where you can make money in a round about way from making a cool app (like slashdot) that people can use for free via advertising and such. Then what do you tax? The whole infrastructure down to the server? They all had a part in making this engine function and thus creating any income derived from it. Then the gov't will need a "special task force" that is comprised of "experts" to make assessments of the value of the software systems that have been created, which of course costs more money and who's going to pay for that?

Ok, one last point. How do you tax an idea? Some would say that your entire life experience helps to shape your view of the world and thus create your moments of enlightenment or bursts of inspiration. So do you tax the coders entire life every time he concieves a new line of code? Of course not, but how could you draw the line. Any argument you can use to say Intellectual Property can be taxed by , I could use to argue an unlimited and completely arbitrary system of taxation for the same that would sound ridiculous even to the most ignorant "ludite".

Never mind that!! The whole concept of taxing people for developing software as a "manufacturing" tax is just another MORONIC attempt to gain an upper hand on people the gov't can't seem to grasp. Which is self defeating because, as we see in my province (BC, Canada), when you take the money away from coders in one place they will just pick up and move somewhere else where there is money.

we'll regret it

[k2enemy]

... especially when foreign software developers take off like everyone is predicting. then domestic developers (if they haven't already left) will want protection because we will be importing cheaper software that doesn't have a tax tacked on to the price. they will probably get the protection, either in the form off a tariff or tax break (that would be especially ironic). either way the foreign countries will cry afoul to the wto, and it will be a big mess.

or we could just not tax it in the first place.

Sounds like trouble...

[deepvoid]

It's not like we aren't taxed too much already. Taxation is just a form of subjugation. Cities which enact this sort of legislation, are going to lose their software industries, and a few elections to boot.

If you want to see what happens to a city which overtaxes its workers and businesses, look at Philadelphia. Whole sections of the city are empty of people since the jobs needed to occupy those homes are not available due to the presence of Tax and Spend operatchiks who drove the companies away.

Every city, without a single exception, that engaged in this punitive behaviour has found its revenues going down and its crime rate going up. This party responsible for this behaviour has nothing to lose since they are merely adding to their constituency by creating more miserable people who are likely to vote for them.

Taxing software development is just another form a class warfare enacted by the jealous upon the talented for the socialist robber barons to create homogenous misery.

A good idea!

[IGnatius T Foobar]

It's a great idea! I think that all software companies based in the state of Washington should be taxed 3000% or more on everything they create, acquire, sell, think about, or come within 100 feet of. If the federal government can't rein in those monopolists, perhaps the Washington state government can. (grin)

They just want to be more European

[thogard]

Most European countries have a VAT (Value Added Tax) or GST (Good and Services Tax) so development of software is taxed. This is in addition to other taxes such as income taxes, forced retirement contributions and a mess of other taxes that would never go over in the US such as dog taxes, tv taxes, taxes on putting money into a bank account.

Australia just killed about 20 of the silly little taxes and put in a 10% GST (one of the lowest in the world outside of the US) an claimed they would be getting rid of other taxes soon. Now everything has 10% added to the prices and there is a long chain of paying and claiming taxes that is much more complex than a typical US state's sales tax. The resulting paperwork is causing some small businesses lots of problems.

What's the diff between a tax and a user fee?

[yerricde]

Taxes are different than fees. Paying a fixed fee for a copyright is different than paying taxes on a percieved value of said copyrighted material.

Taxes and user fees are no different if the copyright law assumes a fixed dollar amount $X as the value of a work and then charges Y% of $X as the property tax^W^W renewal fee.

Re:What's the diff between a tax and a user fee?

[FatRatBastard]

Taxes and user fees are no different if the copyright law assumes a fixed dollar amount $X as the value of a work and then charges Y% of $X as the property tax^W^W renewal fee.

Which I'd argue then isn't much of a property tax. That's like saying 100 acres of land in Arkansas is going to be taxed at the same rate as 100 acres in Southern Manhatten.

Copyright fees are interesting (and not necc a bad thing as you explained in your previous post), but not the tax revenue generator that gov't likes. There's a reason you pay standard fees for inspection, registration, etc in Va, and pay a seperate property tax that's based on the Va Gov'ts assesment of the value of your car.

Re:Of course it should - not

[Mhrmnhrm]

1. contract programmers working at home (which is something we encourage here with tax breaks for companies)

You're missing your own point here... If the contract programmer is working at home, then the company isn't using city resources to support that person. The work-at-home, though, IS paying taxes to support police/fire/medic/whatnot services by paying their own personal property taxes. Granted, it may not be the same city/state/country, but the services are being paid for.

2. foreign contract firms that outsource the coding elsewhere (but this taxes them)

I don't know enough about how foreign things work. I suppose I'm just a typically world-naive' American in this respect (Though I suspect if you asked a Brit or Frenchman how these things work, they'd be equally as clueless, unless they actually worked in foreign business)

3. the buildings - software development uses less square footage per product developed and thus pays fewer taxes, while incurring more city services for fire, police, libraries (especially this) and everything else that the human capital consumes.

I'm not quite sure what you're getting at here... Software dev does require less space than manufacturing, but there is an associated decrease in the public services required (When's the last time a hacker got their hand mangled by some piece of machinery?). You're right that software jobs typically "consume" more libraries, but even with that, few libraries I know of stock the kind of advanced programming books a coder would need. They'd have the beginner and intermediate stuff, because they're trying to appeal to as broad a population as possible. Dev would would require less in the way of fire support (save when those pesky UPS generators misbehave), less police (hackers generally don't resort to petty theft... they've already got the cheap stuff), and less medical support (No heavy machinery to eat people).

I can't say much for what Washington is trying to accomplish, because as a Midwest native, and an East Coast nerd, what WA is doing is totally counterintuitive to what I would see as good business sense. There is no free lunch (spoon?), and I suspect your politicians will learn this quickly, should your populace wield the weapon known as "voting" properly.

I think therefore I am

[wickedhobo]

So if you tax my intellectual property, and thinking makes me exist......

Tax by what, weight? IQ?

pay per use

[minerva_ks]

Taxation of manufacturing, software creation, and even income when used for revenue purposes are really just a second best option. Politicians lose votes when they set up taxes that directly effect their constituents, so they try to get around the people by using indirect taxes like those placed on the production process or by making the voter think someone else is being taxed more than they are (the rich really are the only ones paying the income tax, right?).

A better option would be to tax the people using state resources. A tax on gasoline that reflected the real public cost of driving a car (road construction and upkeep, pollution, etc) would help pay for transport improvements. A usage fee for public libraries would help defray their cost. Obviously in a real world situation this must be supplimented with an income tax or other form of state revenue in order to make necessary services available to those who can not afford them, but such taxation must be seen for what it really is: income redistribution.

Software Tax?

[sebol]

ops,
They should implement "debate" Tax first.
each time they debating about implementing tax, they must pay tax.

non-profit?

[dalinian]

Hey, free software and open source are not non-profit. Take a look at this company.

Hmm, maybe it would actually be a good idea to tax all non-free software development and forward the collected taxes as aid to the FSF or some other organization.

The tax is on gross receipts...

[KernelWashTech]

Some folks need to get their facts straight before they go off on their Libertarian rants. This WA state tax is on GROSS RECEIPTS. Not on pure thoughts, ideas, bits, bytes, or neurons firing in your head. It is a tax on business activity conducted in the city of Seattle.

Most all businesses in Seattle (and in the state) are assessed a "business and occupation" tax. Why? Because we have no state income tax. Small businesses pay it, manufacturers pay it, retail companies pay it. I paid it when I was a self-employed web dev. Without a state income tax, we are forced to create a hodgepodge of sales, user and property taxes to fund basic public services. This is one of them.

Many software companies have avoided paying this tax because they take advantage of loopholes that allow them to conduct 98 percent of their productive business activity within city limits, and then avoid the tax entirely simply by burning and packaging their CDs somewhere else. There are also numerous exemptions targetted specifically at tech companies. I believe if you don't make a profit, you don't have to pay this tax at all. So it really does not adversely affect startups.

The city has argued, quite reasonably, that coding is part of the process of manufacturing software. Any idiot can see that. Therefore, developing software -- a core part of manufacturing a software product -- is taxable business activity. This is NOT about singling out software companies for taxation. It is about ensuring that software companies carry their fare share of the tax burden required to support services provided by the city.

Those who argue that software companies have less of an impact than polluting industries such as aerospace or pulp mills have a point. To a degree. But software companies clearly use city services and infrastructure. Their employees drive on city roads, and they make demands upon city fire and police. And these companies use the city's power, water and sewage infrastructure. Why should they pay no city biz tax, while all the rest of us do, either directly as employers or self-employed workers, or indirectly as customers of stores and restaurants etc?

IT employers love to kick and scream about not being able to find enough skilled employees, about our secondary schools not producing enough grads skilled in math and science. And they want the public to pay for all training costs, they want skilled "plug and play" workers trained in all the latest technologies, but they don't want to pay ANY taxes. Here in WA, the biz community is strangling our public education system to death as they bitch and moan and get more tax loopholes and exemptions, and put more and more of the tax burden on individual citizens. They talk out of both sides of their mouth.

If you want a top-notch city infrastructure in which to run your company, and you want skilled local and regional job applicants, you need to buck up and help carry the load with all the rest of us.

Re:Excellent Idea... If you want to kill your econ

[DaedalusLogic]

Corporations the size of Boeing and MS don't really pay enough taxes to make or break a budget when compared to the thousands of people they employ. They need to consider changing their tax policy in Washington in relation to private citizens. The government officials may have to take a bullet and do something unpopular to balance things out. Until then I'm just saying that no new software business will ever move into that community and some developing businesses may leave. That's a side effect of being a hot spot for a certain industry... You have to cater to them or they will leave and take your job with them. Then who are you going to count on to pay taxes? The thousands of people now without jobs?

Tennessee is 350 million short this year on its budget. They're not about to tax industry to keep up the pace. They're targeting consumers and raising the sales tax if a new bill passes. No one is going to pick up and move over it... Its too hard for a family to move considering no one is going to give them millions in incentives and tax breaks to move to Chicago and do their jobs.

I'm not free-loading, I take great pride and responsibility in where I live. That is why I'm trying to encourage development which ultimately with smarter taxing and smarter spending will lead to prosperity.

Better Article in the Seattle Times

[stand]

There's a better article about this in the Seattle Times at http://seattletimes.nwsource.com/html/localnews/13 4418970_software12m.html

Like swiss cheese - your arguments

[Tungbo]

There are too many to go into in details. Let's just focus on the main one.

There are no major theoretical differences between Property Tax and Income Tax in terms of their impact on personal privacy.

1. What you do on you land, in fact, DOES affect how you're taxed. (It's called zoning.)

2. Income tax as it's implemented in the US is so complex and invasive only because the govenment is trying to implement social policies.

3. Property tax or wealth tax could be even more complex and invasive than Income tax is today. (Look at Estate Taxes.)

4. A simple income tax is entirely possibel theoretically.

But I think your real beef is with the progressive tax rate:

It is the income tax that allows the government to bribe the majority with money coerced from the minority. It is the income tax which spawns most of the tyranny that the US government practices (admittedly, still less than most places in the world). It is the income tax which sterilizes citizenship by removing the ability of citizens to control their government's behavior by changing their own behavior. It is the income tax which poisons public debate by allowing people to obtain benefits without costs, and thus makes the incentive for an individual to go along with a government program - lest their own government teat be attacked by the beneficiaries of another program - unless they are in the unheard minority who have to fund whatever the latest government program might be. It is the income tax which is LEAST useful and sensible to a free people.

A couple of points:

1. Those with higher income usually amass more property. Thus, they are using more government services, i.e. the police, army, and fire department, who are defending their property rights.

2. It's facinating that you don't mention VAT which is heavily used in Europe. While similar to Sales tax, it taxes each components of a final product at each assembly step. It has minimal impact on consumer privacy.

3. US conservatives dislike the VAT because they feel it hids the amount of taxes being collected. They PREFER the income tax because it keeps reminding the voters how much the government is 'taking' from the people.

4. You can breath easy. Since the US Supreme Court has ruled that money is speech, those with money should be able to continue buying politicians as needed regardless of how the unwashed masses votes!

Re:Excellent Idea... If you want to kill your econ

[Rick the Red]

The problem with an income tax in Washington State is that nobody here trusts the politicians (wow! really? how unusual!). We'd probably go for an income tax if it replaced existing taxes, but everyone knows that none of the other taxes would go away, or even be significantly reduced.

What might fly is a constitutional amendment that forces the Legislature to totally re-structure the tax system such that they can't impose the old taxes again once an income tax is in place. And that'll never happen, because in Washington only the Legislature can amend the Constitution.

Not Really a novelty tax

[Belly of the Beast]

The Wasington B & O tax is simple tax on gross sales (Like a sales tax only taken away from the sellers gross, not added directly to the buyers cost). B & O taxes were created, in part, to handle the case of wholesale as Washington sales taxes apply only at retail.

Seattle is simply saying that software is just the same as insurance claims processing, car repaire or airplane building. The tax laws also handle the case of making a part in one location, say Seatle, and shipping it to another location, say LA, where it gets included in a second product even if it is all don einside the same corporation. It's no different here. Tax laws handle internal transfers just fine.

As far a an income tax. Washington has among the most regresive taxes in the country and they are geting worse. We have a half-wit tax crusader who keeps cutting progressive taxes (progressive is a term of art that means the rich pay proportionally more) and then businesses bot to the legislature screaming that we need to fix our infrastructure so they are forced to raise regressive (regressive==the poor pay more) taxes such as sales taxes and gambling. And the voters are in no mood to use their brains.

We need better, broader education in this county, but that is off topic.

Economics history: Adam Smith's Laws of Taxation

[mccalli]

Adam Smith defined the most generally accepted rules for taxation in around 1776.

They are:

1. A tax must be proportionate to ability to pay
2. A tax must be 'certain' - ie. it must be clearly understood what is being taxed and by how much
3. A tax must be convenient to pay, preferably at the time the taxable transaction takes place
4. A tax must be economic - it should cost little to collect or it is pointless

Now, lets apply these to the proposal shall we?

Point 1 isn't questioned here. Point 2? You blew it. Point 3? Very doubtful this proposal makes it. Point 4? Hmm..50/50. Easy to pay, but due to point 3 it might be costly to work out what should be charged.

So, the proposal failes on at least two out of four of the rulse, and arguably on a third as well. So it's between 50% and 75% 'bad' according to classical theory.

Time to think again.

Cheers,
Ian

Re:Of course it should - not

[WillSeattle]

1. contract programmers working at home (which is something we encourage here with tax breaks for companies)

You're missing your own point here... If the contract programmer is working at home, then the company isn't using city resources to support that person. The work-at-home, though, IS paying taxes to support police/fire/medic/whatnot services by paying their own personal property taxes. Granted, it may not be the same city/state/country, but the services are being paid for.

It still costs the City of Seattle money. We have to provide for the landline there and its integrity, the ability for the home worker to visit the HQ (roads, other usages), the phone line to the HQ - and in Seattle we OWN the land line space which we RENT to telecoms, unlike other cities.

You may not like us, but we are our own city. If companies don't like it - they're free to move elsewhere. But a LOT of companies seem to like it, so we're not about to change to please the tax leeches///////avoiders nearby.

Right now more than 1/3 of our taxes collected in the city are sent to the county and state and never spent here. We have the highest rate of that in the whole state among cities.

You reap what you sow.

Re:Of course it should - not

[WillSeattle]

Our citizens LIKE this program.

It's the dark lord in Redmond who dislikes it.

When he moves to Seattle, he can vote on our taxes. Until then, we decide how we tax those in our Emerald City - and the State would be well advised to stay away - for if we pull the plug on the budget, nothing will get done - and since we subsidize the county and the state very highly, we actually can fill those services locally, whilst the rest of the state learns who really pays the taxes. It's us.

-

It's already Taxed, in one for another..

[Cygnusx12]

Isn't it?

Consider..
When I log my hours, I log not only time spent, but on what I was working on..(obvious enough)

Mgmnts justification is that expenses that are related to Capitalizable projects are taxed at a different rate.

With that in mind.. isn't your work taxed? I guess it does raise some intresting questions for the open source community..Like.. could hours donated to an open source project count as a deduction? Why not?

The tax man commeth

[Kibo]

The problem with washington is they have a massive budget short fall, but really no programs that can be cut. There was an initiative that barely passed, limiting government growth when the economy was booming. The idea was to create a rainy day fund. And surprise surprise, the planning worked. We had a massive surplus that would have helped us ride out a rough spot and avoid binge and purge spending so common in governments. The only problem is the economy was booming, and there was a huge surplus so the inbred hicks that account for most of washington state, just naturally assumed that the economic boom would continue indefinately. A perfectly reasonable assumption. So they decided on significant tax cuts, most significantly in the taxes that went to pay for road repairs and construction. That surplus that should have protected us? Not what it was. Government can't get much smaller without eliminating important services thanks to the limited growth. And government has to create innovative ways to raise taxes as most of the normal routes require approval by the voters, who are inbred hicks. Sure, in King County and most of the metropolitin areas things go in a more or less intelligent manner, but state wide people vote for these insipid initiatives assumeing that government should run on prayers and wishful thinking. I literally could not have more contempt for these people. The people responsible for the current state of affairs are the hick, conservative voters. Not the politicians, no one else. But hey, maybe next year washington will be forced to teach the "intelligent design" version of creationism. After all there is "no evidence of evolution".

Personally, I think we need a law that would return taxes to the community that paid them. Sure, I realize it would probably be unconstitutional. But if these idiots had to pay their own way, and didn't have the wealth of cities subsidising them, they'd change their tune about the responsabilities of government real quick.

Oh, and Boeing leaving. That has nothing to do with seattle's infrastructure. That has to do with their plans on moving to ever greater amounts of foreign outsourcing. And strikes outside your corporate head quarters are a little more difficult to pull off if the workers are far away. They made a lot of excuses about how washington wasn't competative tax wise, but Boeing got spectacular tax exemptions.

Re:The tax man commeth

[sansoo]

I work in hick central, Washington; chief geek for a saw mill. The local newspaper is full of letters from my neighbors complaining about closing nursing homes, poor quality roads, bus routes closing, fewer police. They voted against the latest school levy, too (which it sorely needed). The kids are all bored and leave town when they grow up.

It's already Taxed, in one form or another..

[Cygnusx12]

thats what the title should be.. ugh.. mod -1 for shitty typing.

Re:Excellent Idea... If you want to kill your econ

[Genady]

This is such a great Idea I'm surprised that San Francisco didn't try to pass it. ;)

doesn't income tax do this already?

[Leknor]

Doesn't income tax do this already? Aren't they effectivly taxing the creating of my company's work by charing me income tax? The flow of much is circular so a tax here or a tax there doesn't change the big picture.

The Aldus Loophole

[litlnemo]

There is a very convenient loophole to exclude Aldus, for sure. That loophole being: they no longer exist. ;)

You probably mean Adobe, current guardians of the PageMaker legacy, also with Seattle offices.

Carry on...

Inheritance taxes

[jhantin]

The one thing that really gripes me about inheritance taxes, though, is that in order for them to hold water, they necessitate a gift tax. It's there to close a loophole, to prevent Rich Dad from slipping a few million untaxed currency units to the kids sometime before he joins the choir invisible. IIRC the gift tax imposes inheritance-equivalent taxes on any transfer of assets exceeding $10,000 in the US.

what is "software development?"

[Anonymous Coward]

I mean, where does it stop? If I create a shell script to add users to my e-mail system, does that get taxed as software? What about web scripts that talk to databases like PHP; do you tax someone for that? Do you tax it if it's for business use but not for home use? I don't know software development is too much like writing to me. We don't tax authors for books written we tax them on the profit they may from the books, seems like it should be the same. I mean, talk about an innovation killer (well, I could write you a shell script to do that, but I can't afford the taxes on it...) This is just nuts (and the only Seattle company that could afford it....Microsoft....oh joy

Re: short version

[fferreres]

My short version I:

- A high sales tax can kill your economy
- A high income tax can only slow it down

My short version II:

- A high sales tax kills all high-volume low-margin bussiness
- A high income tax can only cut profits

My short version III:
- Look at Argentina's economy, which is collapsed due to 21% VAT + 3% gross sales tax (income tax doesn't matter when you don't have profits).

Re: sorry ......

[fferreres]

It is the income tax that allows the government to bribe the majority with money coerced from the minority.

No, it's the sales tax that rapes the masses spending-power so that the goverment can "secure" some companies revenues even when they do not innovate and battle against competition.

People that earn $2000 a month spend something like 95%. People that earn 100.000 a month spend about 30%, the remainder is savings.

This is ok, if you want the USA to be, for example, like Brazil.

Hmmmm....

[Eric Damron]

Now if we could just get them to move that tax a little north.... Say to Redmond....

I especially like...

[ebyrob]

That Dwight Dively guy.

Dively added. "There are those in the software industry who basically feel that they shouldn't pay taxes at all -- and hence this amendment."

Nuff said.

You don't understand what money is then.

[hey!]

Since the government is the entity responsible for manufacturing the money, and the people are the consumers of that money, then why does the government need the money back? Sounds rather inefficient to me.

It's not that simple. What the government needs to run is various things of value -- equipment, land, faciities, supplies, labor. It takes these out of the pool available for private consumption, one way or another. Whatever the government consumes is by definition not consumed by the private sector. Taxation is just the way we distribute the removal of value from private uses and put them to public uses. The taxation would still exist whether you actually filled out a form and sent it in or not, so long as the government is consuming. What you are proposing amounts to a consumption tax on goods of the kind which the government needs. That is to say you pay in terms of higher costs for factors that the government uses.

Suppose businesses A & B produce the same economic value, but A uses goods which the government needs much of and B uses goods the government needs none of. Then A effectively pays taxes and B does not.

And what happens when the economy contracts? You still need teachers, firefighters and policemen.

the economy would be a great deal more stable since the primary instability in any ecomomy is fluctuations in taxation.

I'm curious where you got this particular factoid. It seems more like the opposite to me -- tax revenue fluctuates with economic performance.


If the amount of money they receive is directly proportional to economic health and stability of their region, the politians will be more motivated to selecting sound laws and policies as opposed to the parasitic ones they foist on us now.

This, I think, would be a terrible idea. Poor regions need to create infrastructure so businesses that might locate there can ship their materials in and goods out. They need to provide police services so that they aren't robbed blind. They need to provide a literate work force. A region that had a string of bad luck -- for example when an industry moved out, would sink like a stone and stay there. You would have the regional equivalent of slums. Slums do not benefit the cities they exist in; mega-slums will not benefit the country that tries this scheme.

The bottom line is to control government spending, you need to control politicians. Without control of politicans then spending will never be controlled under any system you might want to impose.

the politians will be more motivated to selecting sound laws and policies as opposed to the parasitic ones they foist on us now.

The problem with all the clever hacks I've seen proposed for the taxation system is that they are ass-backwards and pie-in-the-sky. You need spending reform, to control the diversion of goods from private consumption. You need taxation reform, to distribute this in a fair way and a way which does not interfere unduly with economic systems that are working well. But to get any kind of reform, you have to start with political reform, which means an end to plurality voting and the two party system so that new ideas are possible in the public sector.

Re:You don't understand what money is then.

[deepvoid]

That particullar factiod happens to be the basis of simple axiomatic truth: If you change the taxation rate the response in GNP is directly related. The reverse is not so.

Increases in economic performance create a short term increase in tax revenue, but if the tax rate is raised in response, then the economy will decline. The delay may be months, or even years depending on the affected sector, but the response always happens.

The economy follows three primary factors along with numerous secondary ones.
1) Productivity
An ecomnomy which produces more needed goods has better spending power and hence a greater stability.
2) Available Assets
Liquid and durable assets such as money and resources give the ecomomy momentum, another stibilizing factor. A region with a small money supply eventually resorts to bartering, and one with too much money gets inflation. Crop failure, mining accidents and other resource affecting elements fall into this category.
3) Friction
Taxation, war, crime, and labor disputes, all contribute to instability since they are signs of social, political, and fiscal mismanagment. Though factors outside of a region's control might produce war may help the economy as long as the war does not affect available assets.

As far as a definition of money:
Money is a symbolic replacement for an asset, which may be time, service, or substance. Period.
It is used to replace heavier and more cumbersome things like houses and boats which are harder to carry arround in your pocket. The only role goverment should play with regards to money is the proper distribution of currency as the old becomes worn and tattered, as a common currency reduces barriers to trade between communities.

Taxation is ANTI-MONEY, not money. Since it effectively destroys the asset the money symbolizes without a proportionate reciprical asset in exchange.

Cash-hungry cities always pull this crap.

[Reziac]

An actual incident:

Several years ago, one of the big aerospace corps (I forget if it was Lockheed or Rockwell) wanted to reopen a plant up here in Palmdale, California. This would have resulted in about 5,000 new high-paying jobs desperately needed in the severely depressed local economy, plus all the construction jobs involved to upgrade the facility, new jobs in the various support industries, etc.

The city of Palmdale said, "Sure! But first, pay us this $10,000 fee. BTW, here's a copy of our new, higher tax schedule for incoming businesses."

The aerospace corp said "In your dreams," and reopened a plant in Georgia instead.

Real smart, Palmdale.

Seattle, are you listening?

Definitely yes!

[Pig Hogger]

Definitely yes, software, just like any endeavour should be taxed.

Why developping software be any different than building a house, drafting a set of plans or publishing technical books?

Ah yes.

[Scott Francis[Mecham]

>they're based in Redmond, across the Lake, where the demons lie.

It never fails to amuse me when native WA'ers point frantically at Redmond as the source of "evil". As if there's those Microsoft flags waving on every flagpole. As if the Microsoft buildings weren't a hell of a lot closer to Bellevue/Crossroads than they are to downtown Redmond. Let's hear it for "unincorporated King County".

'Course, downtown Redmond's city planning map resembles the average Microsoft product, so maybe they actually have something there...

Re:Ah yes.

[WillSeattle]

Well, Seattle and also Tacoma are bastions of Open Source - and across one of the world's longest floating bridges - is where the dark lord and his minions hatch their plots of world domination by Microsoft.

I just read a story that it's not just Seattle that's being sued on this - and this is a law we've had for some time, so it's the whiners across the Lake that are attacking it.

-

Charge by the byte?

[xixax]

That would be cool. Imagine the incentive to write dense, compact code becase you'll be charged by volume. Windows would be taxed like a Detroit gas guzzler and things like QNX would pay zot all.

Xix.

Predictable for the Puget Sound...

[mbogosian]

I lived in Seattle for about 20 years, and I can tell you that politics in the Pacific Northwest are weird (if by "weird", I mean short-sighted). Olympia has a history of trying to piggyback financially by taxing the **** out of large companies in Washington state. It amazes me that they're continuing this route after bending Boeing so far over that it has started to move its operations to a more tax-friendly environment.

Re:Predictable for the Puget Sound...

[jhylkema]

Bending Boeing over? Hah! Boeing pays ZERO property or B&O tax. If that's a "bending over", I'd like to get in on that action.

Companies do not pay taxes, YOU do.

[serutan]

Does anybody really still not understand this? Companies do not PAY taxes, they COLLECT taxes. Business tax of any kind is just another expense that has to be built into the price of the product. Any legislator whose version of tax relief for us peasants is to tax those big old evil corporations is lying, plain and simple.

If we completely did away with all corporate taxation and replaced it with a national sales tax, properly calculated, the net cost of living would be the same. The differende would be that we would KNOW how much tax we were paying. Congress wouldn't like that at all. Educated citizens (oops, sorry, I meant "consumers") are the last thing they want.

Isn't Software SPEECH, Not a Product

[inKubus]

This looks like a subversive attempt to backdoor recent efforts to deem source code "speech" by way of a legal precedent. If this thing goes through, code becomes a product, and begins to fall under regulations by the US Dept. of Commerce, among other entities. It will no longer be protected by the First Amendment of the constitution.

Re: there is a feedback for I.T. : migration

[guybarr]

* income taxes - The government's motivation ... tax rate as high as possible without sparking a revolution ... Since there is no feedback loop ...

there is a feedcback loop, but it is a much longer-term one than for the other taxes.

the richest / most productive people will tend to migrate out of a highly-taxed society.

e.g. look at france.

Re:Those who don't learn from history repeat it.

[Technician]

The people who build expensive boats remember 1991 as the start of a war. That's when Congress imposed a 10 percent tax on all boats costing more than $100,000. While it's true that most folks who can pay $1 million for a boat can pay $100,000 more, many potential buyers flat refused. Couple that with a bad economy and high interest rates, and the big-boat industry was knocked flat. Viking went from two plants and 1,500 employees to one plant and 70 employees.
Shamelessly cut and pasted from an article found here. http://www.shorecast.com/html/Features/PawlingFeat ures/pawlingYacht.html

Try that tax and you'll probably see Bill Gates and Co. pack up and hire Mayflower Moving Co.

When will they ever learn?

Re:This will reduce bloat OR make all software fre

[botik32]

using less bloaty software production methods... using more tight, sleek assembly code instead of fat, saggy Visual Basic.

umm.. not defending VB here, but since you were talking about number of lines, wouldn't assembly code be like twice the line count in VB since you'd have to explicitly move stuff into registers, into memory, push parameters to the stack on function calls and the like?

Re: sorry ......

[fferreres]

People that earn $2000 a month, if they have any kind of clue, are spending about $800 of that money on real estate, which represents a certain amount of 'savings.'

Yes, they are paying it to the guys that had a 70% savings ratio. A sales tax cuts their $1200 like butter, which is worst imho.

But I don't care. People that run the stuff try do their best and that's fine (I guess).