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

Right now they get a tax break

[drodver]

Research and Development time is tax deductable.

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?

[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?

[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?

[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?

[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?

[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?

[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?

[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

[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

[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!

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%....

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.

[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.

[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.

[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.

[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.

[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

[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

[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.

[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.

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.

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!"

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

[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.

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).

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

[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...

[zzyzx]

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

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.

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!

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..

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.

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.

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.

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: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.

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?

[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?

[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 :)

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.)

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.

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

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.

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.

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.

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.

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.

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).

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.

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.

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: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.

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

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: 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.

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.

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?

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.

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: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?

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).