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Keeping Microsoft Happy
Jeff writes "In Citizen Microsoft, I report on Microsoft's use of Nevada corporations to avoid approximately $327 million in Washington state taxes while telling voters they need to pay more to fund education. I also contrast Microsoft's attacks on the open source community with its in-state lobbying efforts and its recent promise to get more involved in local politics. The cover has Gates in a gorilla suit."
I must say no willing gorilla would allow its body to be used in such a photography. It's an outrage!
"I don't mind God, it's his fan club I can't stand!" E8
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September 29 - October 5, 2004
Citizen Microsoft
It's time we stopped acquiescing to the behemoth in Redmond, because what's good for big business isn't necessarily good for Washington.
by Jeff Reifman
By any measure, Microsoft is capitalism's greatest success. In July, the company announced plans to distribute $75 billion in dividends to shareholders over the next four years. One executive, in a morale-boosting internal e-mail, recently called Windows the most successful product in history. Even Googling "corporation" returns Microsoft at the top of the search results. But what has been best for Microsoft's shareholders has not always been best for Washington taxpayers and our community.
Every time Microsoft hires someone in Washington, it creates 3.5 new jobs here. According to the company, Microsoft created an estimated 117,620 new jobs in Washington between 1990 and 2001. But while Microsoft promotes the positive impact of success, all this growth has placed a heavy burden on our schools, roads, and overall livability.
Recently, Forbes ranked Seattle as the most overpriced city in the country. Our school class sizes are the fourth largest in the nation. Washington's percentage of residents enrolled in college ranks 46th out of 50 states. Seattle teacher salaries rank 97th out of 100 major cities. Our traffic is the 17th worst in the country. And let's not forget more than 167,000 Washington children without health care and the growing ranks of homeless citizens staking out highway off-ramps in search of handouts.
Most of us accept on faith that what's good for business is good for our state. Our Legislature spends much of its time trying to make Washington a competitive choice for businesses. But it's about time we started asking hard questions about where our competitiveness is taking us and who is pushing the agenda. How is it that with one of the richest corporations in the world in our backyard, our state has become less livable?
Tax exemptions are the mantra of Washington's Legislature. As Seattle Weekly reported earlier (see "$64 Billion Falls Through the Tax Cracks," Feb. 18), the state has amassed 503 business tax breaks valued at $64 billion per biennium budget. Cheered on by corporate lobbyists, including Microsoft's, Gov. Gary Locke and lawmakers implemented $20 billion of those exemptions in just the past four years. Last year, the state granted an additional $3.2 billion in breaks over the next 20 years to entice Boeing to locate the 7E7 assembly plant in Everett instead of some other state. Meanwhile, Forbes reports, Seattle ranks in the bottom fifth of major cities in job growth, income growth, cost of living, and housing affordability. And the state is predicting a $3 billion deficit by the end of the decade. As Microsoft's shareholders begin to reap their $75 billion dividend, they leave a growing infrastructure deficit in Washington.
That's the result of good times. Until now, Microsoft has enjoyed tremendous financial success. But it's entering a new era of software competition. It won't be able to rely on the dominance of the Windows operating system to be profitable. In fact, Microsoft's dependence on revenue from Windows and its other flagship product, the Office suite of applications, makes it vulnerable to new and increasingly popular alternatives to those now-ubiquitous programs. The free market is responding to the monopoly in Redmond. It's going to get tough. Meantime, last week the company said it plans to become far more active in Washington politics than in the past, citing the business climate, education funding, and transportation as areas where the state can do better. These aren't improvements with which Microsoft wishes to help. These are areas of concern the company wants remedied at taxpayer expense. If you want to anticipate how Microsoft might approach these and other local issues as the software business becomes more challenging, you need to study the company's track record with competitors
I've always thought of him as more of a chimp than a gorilla. I mean, gorillas are imposing and can appear wise, whereas chimps are little scamps who'll try to get away with anything.
The cover has Gates in a gorilla suit....
:D
As opposed to Steve Balmer who just jumps and dances around like one.
Join the TWIT army now!
Seven years ago, Microsoft opened a small office in Reno, Nev., to collect the money it got from PC manufacturers that installed Windows and Office on the computers they sold. In the years since, Microsoft has sheltered more than $60 billion in royalty revenue in Nevada, a state with no corporate income tax, costing Washington an estimated $327 million in unrealized tax revenue.
That should be easy to verify, contact the SecState of Nevada
And in other news, the sky is blue, and the sun rises in the East and sets in the West.
all sorts of companies incorporate in Nevada not just Microsoft for this same purpose. In fact, while Delaware is the number one state to incorporate, Nevada follows up close behind because of the lax laws. Just like I'm sure you, your friends, and your family go down to Oregon to do your Christmas shopping so you don't have to pay state sales tax. If you want to close these loopholes then every state needs to have consistent incorporation statutues and laws. The only companies that incorporate in their own state are the ones who can't afford to incorporate in another and/or follow another state's governance laws and procedures .
If they wanted to evade $350 million in taxes, all they had to do was threaten to leave the state. It worked for Boeing. In fairness, WA state has a very, very messed up B&O tax... In fact they maintain the most regressive tax structure in the nation.
From the article:
"Every time Microsoft hires someone in Washington, it creates 3.5 new jobs here. According to the company, Microsoft created an estimated 117,620 new jobs in Washington between 1990 and 2001. But while Microsoft promotes the positive impact of success, all this growth has placed a heavy burden on our schools, roads, and overall livability."
Wow - How could Microsoft be so insensitive as to create jobs.
However, this also raises the BS meter. I always love when I hear "We create xx jobs for every one we hire". Sounds good... but it doesn't add up. To even out, there has to be a job somewhere that causes -1.5 people to be hired. Other than the 435 CongressPricks, and the one in the Oval Office, there aren't too many jobs like that.
...here's a link to the actual article.
submitter WROTE the article. you are the one who didn't read.
Slashdot in 5 Paragraphs
Check out the testimony of Paul Misener, Amazon's VP of Global Public Policy, as he reminds Nevada legislators who questioned Amazon's failure to pay sales tax that Amazon solved its Washington and Georgia tax problems by closing fulfillment centers in the two states.
This is more an indictment of the various tax laws and the shenanigans of the legislative bodies that enact them than of any company or individual that might take "advantage" of them.
Legislators, state and federal, have no incentive to make straight-forward, logical, honest tax laws. They get too much gain from making the laws obstuse and full of holes, for special friends.
Oh, and if you look at any statistics, poor people don't pay enough taxes.
This issue is a bit more complicated than you think.
If you haven't paid sales tax while being in another state you have to pay "use" tax in your home state. This tax is equal to the amount of sales tax you'd have to pay if you made the same purchase in your home state. For someone in WA this means that if they went down to Oregon and spent $1K on merchandise taxable in WA, they owe the state $88 in taxes or whatever they pay in their county.
This is very easy to circumvent. You set up a company where all your employees are located. You set up another company in the tax shelter state. You have the taxed company do business with the untaxed company. Maybe the taxed company pays a consulting fee to the untaxed company. The taxed company suddenly shows no profit, therefore it pays no income tax. The untaxed company shows a huge profit but it pays no income tax anyway so it doesn't matter. There are a million other ways to legally get around paying taxes.
Probably a more realistic system would be to require a corporation to state its "home turf" (much as a ship states its home nationality). The corporation would then have to obey the laws (including tax laws) of its home turf AS WELL AS the laws of wherever any outposts were.
So having a branch in Nevada would mean Microsoft had to pay Nevada taxes AND Washington taxes.
This isn't unusual, and is how many countries elsewhere work income tax. Those from Britain will remember the Ken Dodd trial, where the British Government successfully argued that overseas earnings - even those where he had paid tax overseas - were ALSO taxable in the UK.
Yeah, you could argue that this is unfair, but the problem is that a lot of big-name celebrities and corporations have moved to tax havens. As tax exiles, they get to keep all of their money. The consequence of that is that, in order to maintain any kind of level of service, everyone else has to pay more.
Eventually, what you end up with is the very rich being wholly and completely subsidized by the very poor. Welfare in reverse. Such a system is inherently unstable. The poor - by definition - don't have much in the way of resources, so the greater their burden, the greater the chances of the system collapsing.
Let's take an admittedly extreme example. Let's say that the economy rested virtually entirely on the shoulders of minimum wage workers. It is physically impossible to work more than 3 shifts in a day. Given all that, and given the State and Federal income taxes at that level of income, how many minimum wage workers would you need to cover the average State budget and a typical Federal budget?
If the answer exceeds the population of the US, then neither the States NOR the Federal Government can afford to support tax exiles.
(In an ironic twist, those who do live in tax exile are often the most influential in Government, inverting the age-old critisism that there should be no taxation without representation. Here, they have no taxation, but often all the representation.)
It's a small world and it smells funny; I'd buy another if it wasn't for the money; Take back what I paid (SoM)
To keep Mircosoft happy, you give them a big blue button that says "SCREW SOMEONE OVER" in big bold letters. As long as they can keep pressing it, they'll never lose their errections.
Microsoft represents the very worst, most pathological elements of corporations in general.
Microsoft takes standard coporate psychopathy, and amplifies it.
This situation is a perfect case in point. They ask for more from more from governments, pay less, and rationalize this greedy behaviour by arguing they "create jobs".
This is the same kind of arrogance demonstrated by companies that outsource IT jobs. Corporations are mere guests of the jurisdictions in which they operate. If they no longer make their fair contribution to society, then they should be forced to pony up their share.
We have to pay our share of taxes, despite the skills and labour we offer society. Why shouldn't corporations be held to the same standards and given the same societal responsibilities as individuals?
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There is a serious question of how to regulate companies like Microsoft when they have such concentration of wealth they can basically afford to buy congress and the leadership of major political parties. It really does sound like these companies are destroying the very people and institutions that allowed them to become successful.
I've a father that is a CPA, but don't take tax advise from me, hire a CPA.
Tax law isn't something that is consistent and fair. It's a hodgepodge of well meaning laws all intended to do various things which will provide the goverment funding while not trying to destroy the economy at the same time.
That means a person may legally owe (depending on how he files) a whole range of taxes. If you choose to pay more, you're not a single bit more "legal" than if you pay the minimum. Add a few states into the mix, and some off-shore holdings, and I can mentally visualize the complexity of the problem growing.
As for the poor not paying enough taxes, well that's an opinion. But the lower taxing of the poor is a philosophical argument encoded in tax law. The argument is something along the lines of, well, if we tax them, then they'll never make it to middle class which is where we really make our money. Other arguements like, "big business is really what drives the economy, so they should get a tax break so they can do more business" are also philosophical in nature, but people tend to forget this.
As a result, you've got a lot of conflicting ideas on what is taxable, what is not, and how much. Just look at the relatively simple tax laws for food. There's literally cases where you can't know if an item is taxable until you lay down some sort of priority on which way you're going to interpert the laws.
Food is not taxable. Some snacks and candies are. Prepackaged food being consumed on the premises is. Beef jerky is a snack, yet it has a history of being a real food staple. Chewbacca lives on Endor. That means if the stop-and-go has a food court, then the beef jerky should be taxed, but if it lacks one, then no. It's not confusing because of political kick-backs, but because of political do-gooders who really tried to fix it on a case-by-case basis over the last 200 years.
IMHO, Microsoft is doing exactly what they are supposed to do as a corporation: limit costs, and increase profit. That's what capitalism is all about. Unless I misunderstood that part of economics.
Hmm, maybe that's why their software sucks so bad. They don't care about making good software, they only care about making good money.
So I don't have to sign an EULA and a two-year service agreement to use a road to drive the store.
Why should the *government* hire teachers?
To keep everone else's kids out of trouble and off my lawn.
Why should the *government* hire firefighters?
So I don't have to find my credit card before I can get somebody to rescue my family from a burning building.
Why should the *government* give disabled people money?
So I don't have to trip over them on the sidewalk and in stairwells as if I was Charlton Heston in Soylent Green.
Since you're the one who doesn't seem to need anybody else, why don't you head for the border.
I think it's time to point out Super Obvious Tax Fact #1-- 99% of tax loopholes AREN'T. They are specifically written into law in order to promote free enterprise health, the backbone of this country lest everybody have a lobotomy at the mention of Microsoft. I find it amazing how the submitter portrays this story as MS being above the law and commiting tax evasion when they are doing no such thing. Infact, the submitter (and half yas out there) should be looking at Nevada, who specifically wrote their tax code to encourage companies to set up shop in their state. Companies like -gasp- Mircrosoft. I'm sure you'll be seeing huge crocodile tears shed by the Nevada state government for having to host one of the richest companies in the world.
Looks like those 'loopholes' worked out pretty well for them.
You need a FREE iPod Nano
Having dug up some info on the California Secretary of State's website at http://kepler.ss.ca.gov/, I discovered the following:
1. Apple Computer is incorporated in California, but owns subsidiaries, such as "Apple Computer Peripherals, Inc." that are incorporated in Delaware. Apple even owned "Apple Computer Domestic Subsidiary No. 4", incorporated in Delaware - I guess that ACDS No's 1-3 were too old to be on the Sec. of State's online records.
2. Sun Microsystems: Almost entirely Californian, but there was a Delaware corporation, Sun Microsystems, Inc. that was created in 1987.
3. HP? Well, there is a Hewlett Packard Retiree's Club incorporated in California. Agilent? Delaware. The old HP was in California. The new one? I couldn't find it.
4. Novell? Incorporated in Delaware.
5. eMachines? Delaware.
6. IBM? Seems to be in Delaware, but there's a "IBM Global Services India Private Limited" in India. Wonder how much IBM phone support comes from there? (Seriously - I don't know).
I'm tired and I'm going to sleep, so I leave additional research as an exercise for the interested. The point here is that most of the big corporations seem to be incorporated in "friendly" states like Delaware, or at least have subsidiaries in Delaware the way Apple Computer seems to have, apparently for the purpose of minimizing tax liability and taking advantage of other laws benefiting corporations.
So is MS ripping off the good people of the State of Washington? Sure. But it's only par for the course, and it's what the other corporations are doing and will keep doing until we amend the constitution, repeal dual soverignty, and eliminate the states as entities with the power to legislate (ie, it ain't going to happen). It's the same thing as "forum shopping" (filing lawsuits in the jurisdiction with the most favorable law, if you can), or even some advanced estate planning techinques (some states have completely repealed the Rule Against Perpetutities, which allows people to create trusts domiciled in those states that can, literally, last forever).
Hell, want to know the biggest corporate scam?
1. Buy an asset owned by a municipality - a bus, subway car, sewer system, for an example.
2. Lease it back to the municipality for an amount roughly equivalent for what you paid for it amortized over a few years.
3. Depreciate the hell out of it and pay little or no corporate taxes, ever.
4. Once you've milked the depreciation, sell the asset back to the municipality for a nominal value.
5. Lather, rinse, and repeat.
6. ??? (couldn't resist)
7. Profit.
The loopholes exist, and corporations (and people) take advantage of them. And when they don't exist, lobbyists convince legislatures to create them. Are we doomed? Not really. Washington may be whining over a few hundred million bucks, but it's not as if the state government has collapsed. Yet...
144l. ph34r my 133t l3g4l 5k1lz!
Since when has it been illegal to legally make money?
I was recently involved in setting up a corporation and rather than set it up in my own state, there were advantages, other than taxes, for setting it up in Nevada. You will notice, for example, that many companies are incorporated in Deleware or elsewhere, often for the better legal protection provided by that state's laws. For example, trying to sue a Nevada corporation may be more difficult than many other states.
In our case, taxes were not the intent at all. We still pay local state taxes as well, so the savings are not that significant. There is some tax savings since some of the taxes are paid to Nevada instead, but nothing significant.
Now what I do feel bad about is how some companies set up their offices offshore in places like the Caymen islands to avoid federal income taxes or other federal laws. If a US based company does this, then they should not get the benefits of being a US company. I also feel that the federal government should not be allowed to sign contracts with companies that do this. I.e. why should my tax dollars go to Haliburton when the company sets up offices (usually just a mail stop) in places like the Caymen islands or elsewhere to not only avoid paying US taxes, but to also circumvent US laws and do business in places like Iran.
This post is encrypted twice with ROT-13. Documenting or attempting to crack this encryption is illegal.
Just because, in the opinions of other /. posters, every other corporation is slanted and corrupt does not make the crimes of Microsoft any more legal.
Genius? That's a dubious title for Bill Gates. He's a sharp businessman, nothing more, nothing less. He saw opportunities to steal IP before IP was a big deal, and he took them.
Look at it this way. If it wasn't him, it would be someone else in his spot. The market wanted personal computers, with an operating system that was readily available and ran on commodity hardware. He provided half of that equation. Meanwhile, niche computing and heavyweight stuff was reserved for Unix, Irix, Sun and other players. His real genius was releasing bug ridden software that ran just well enough to let you get some work done, but not well enough to convince you that you didn't need the latest upgrade release.
Ask any Windows 95 user why they would want 98. Is there a long list of features that are new? Not really. Instead, it promised what every other Microsoft upgrade promised and continue to promise: greater stability, speed, performance, and compatibility. For those of you that refuse to get on the upgrade conveyor belt, you'll be left ass-out in the cold when MS declares end-of-life for your OS and stops releasing patches for it. Upgrade or get owned.
There are those of us that prefer choice and we generally use MacOS or Linux. So what if we don't have 1000 crap games and 3 good ones. So what if we can't download heaps of junk freeware. So what if we don't need virus protection software and commercial firewalls. We get along just fine without MS.
Actually I can't throw too many stones, because every call I get from an end user that has 215 pieces of spyware and adware clogging up their pc is money in the bank for me. The sad thing is, they think what they use is all that can be used without taking out a second mortgage to buy a G5 tower. One customer actually asked me about Linux, especially after he saw how beautiful it was running on my Dell laptop. Converted.
For all you brainless posters who are sarcastically dismissing M$'s actions as acceptable corporate strategy - you are missing the whole *POINT* of the article!
The problem is not ONLY with M$ avoiding taxes, but their HYPOCRISY, since at the same time they are spouting out of their backend about how the residents are not paying enough and trying to get the people to pay even MORE taxes.
What a bunch of BS! If I were a resident of WA, I'd want to kick them out.
To even out, there has to be a job somewhere that causes -1.5 people to be hired.
Wrong! Wrong! WRONG!
That's zero-sum thinking, and life isn't really a zero-sum game. If Bill Gates gets richer, that doesn't actually mean that poor people get poorer. If you are well-fed, that doesn't actually mean that someone else has to be hungry.
Microsoft is claiming that for each person they hire in Washington state, the state gets extra jobs. This is because that extra MS employee gets paid, and spends money in the state (at Starbucks, for example, as some other posters said). The money can come from all over.
And guess what -- we are all richer than anyone was 50 years ago. What do I mean? For $200 I can buy a cool pocket computer on eBay, with colour display and everything. How much would that cost 50 years ago? Oh, they didn't have colour pocket computers, or eBay for that matter. Our health care is better, so our life expectancy is higher. And while pop music sucks now, the cool music from then is still available now, and we can buy cool TV shows on DVD.
What is the point of the above ramble? It's just this: when someone discovers something cool or invents something cool, the whole world gets a bit richer (at least if that person shares the discovery or the world at least finds out). There is no part of the world that has to get poorer when the rest of the world gets richer. We use money to keep score, sort of, but don't forget that even a billionaire 50 years ago couldn't buy an iPod, or modern health care.
People think there is a finite amount of good stuff, and the rich people hoard it somehow. That's not how it works.
If you are writing new tax laws, write them to maximize the benefit to society, not to punish the richest guys. If cutting the tax rate would encourage more spending and make more tax revenues, then do that. But some people will cry that it's unfair because it lets the rich keep more of their money. Because they are using zero-sum thinking to look at the world.
I really HATE zero-sum thinking.
the article is saying seattle has been screwed over already...what happens when MS actually has to COMPETE to make a profit?
If given a choice, I would take Bill Gates over Steve Jobs anyday. Ever watch that TV special with those two in the 80s. Gates was a complete geek, but Jobs was a geek with serious attitude problems toward his own engineers.
They portrayed him as this abusive chief with absolutely zero respect toward everyone who worked for him. Ego trip every day and made his engineers pushed to an unhealthy limit.
Bill Gates made bad software acceptable in the market. Steve Jobs would have made bad corporate culture acceptable.
I'm not sure which is worse: the fact that you base your opinion of Bill Gates and Steve Jobs on a made-for-TV movie, or the fact that people were dumb enough to rate your post +4, Interesting.
Next time, try to base your opinions of people on something a little more substantial, will you please?