Keeping Microsoft Happy

Wake up and join the Real World... by Hangtime · 2004-10-01 15:17 · Score: 5, Informative

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 .

Re:Wake up and join the Real World... by Hangtime · 2004-10-01 15:39 · Score: 5, Insightful

Ohhh! Ohhh! I got an idea too. What if the majority of my revenue comes from another state since were are talking about state INCOME tax and where my LABOR comes from can have nothing to do where I make my money. But wait, what if I have multiple businesses, all of whom who have labor in every state, and I need one jurisdiction to deal with all possible legal challenges to contracts. That's when I incorporate in Deleware because the Delware Chancery Courts are the default Supreme Court for business law in the country. No, you cannot expect anyone to incorporate in just any state based upon the parameter that suits your purpose at the time. You have to either create consistentcy in US law or you have to deal with situations such as this.
Re:Wake up and join the Real World... by Fnkmaster · 2004-10-01 16:03 · Score: 5, Informative

Well, in general, there are lots of reasons to incorporate in different states other than just saving money on taxes. I don't know what the specifics in Washington state vs. Nevada are, so I won't comment on that. But in Massachusetts, a corporation doing business in the state and registered as a business entity in the state has "nexus" in the state and thus is subject to the corporate excise tax on all income apportioned to or attributable to the state. It doesn't matter where you are incorporated - I run a Delaware Corporation, and still have to pay a minimum 456 dollar excise tax to Massachusetts every year.

You generally incorporate in a different state to take advantage of their chancery courts, anonymity laws and corporate stucture statutes (allowing more flexible or customized corporate structures, like the Delaware Series LLC for example). And you want to have your corporate entities in a state that doesn't add a substantial amount of tax on top of what you'll already owe to the states where you do business and generate income (Delaware, for instance, charges only a nominal amount of tax every year based on the number of shares outstanding - but like I said, this doesn't mean I don't pay excise or corporate taxes, I still pay them in MA since that's where I do business!). Additionally Massachusetts has a foreign corporation registration fee which makes up for any money you save by registering your corporation in another state - so you literally save nothing (and we're talking about differences here of a few hundred dollars a year, not something Microsoft cares about).

If Microsoft is doing business in Nevada and attributing income to that state, then that's not really a loophole at all. If they are mis-attributing income, that's just fraud. There are tax loopholes out there, but this article doesn't really make clear what loopholes Microsoft is actually using, or if Microsoft just uses Nevada corporations for business entities and groups subsumed within Microsoft Inc. because of their flexible corporate law. Maybe Washington just isn't as anal as Massachusetts about collecting their taxes from all businesses, or just are failing to enforce the appropriate attribution of income to Washington state? This stuff is always confusing in the software world, since it's not always so clear cut to say where the work was performed and where the income came from.

Why not make some politicians squirm? by mortram · 2004-10-01 15:17 · Score: 5, Interesting

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.

New Math by Anonymous Coward · 2004-10-01 15:18 · Score: 5, Interesting

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.

Since the submitter forgot... by mblase · 2004-10-01 15:25 · Score: 5, Informative

...here's a link to the actual article.

not as simple as that by plasm4 · 2004-10-01 15:44 · Score: 5, Informative

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.

Unfortunately... by jd · 2004-10-01 16:18 · Score: 5, Interesting

Americans aren't all that good about being consistant, even within a single State. (Not that any other country is much better.) To expect all fifty States to unify around a single optimised set of laws is hopeful at best. Most Americans would even argue that such a concept is "bad" as the present system gives individuals the ability to "customize" where they live, to a degree.

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)

Re:Unfortunately... by Fnkmaster · 2004-10-01 16:43 · Score: 5, Informative

So having a branch in Nevada would mean Microsoft had to pay Nevada taxes AND Washington taxes.

You effectively do. You have to pay corporation registration and filing fees in the jurisdiction your corporation is registered in, in exchange for taking advantage of their general corporate organizational laws and chancery courts. You pay corporate excise or income taxes in the state where you actually conduct business, and if you conduct business in multiple states, you essentially are supposed to divide up that income and attribute it appropriately to each state. At least, this is the way the states that I'm familiar with deal with the issue. Delaware doesn't want to charge you full excise taxes for doing business there, they make good money out of having the best, most flexible, and well tested corporate structure statutes.

In any case, a state can't really tax a corporation or individual on income that is already getting taxed at a state level elsewhere, at least not without chasing everybody out. For a national corporation, anyway, this is all particularly confusing. If you employ all your people in state A and develop your software there, then you should probably pay taxes there. But it's possible to transfer ownership of that software to a corporation in another state, for example, and have it's income attributable to a totally separate entity in that other state, making it look like operations in state A are not that profitable while the corporation as a whole is raking in lots of profits (this may be what Microsoft is doing, but it's not clear from the article at all).

Anyway, the only way to make the kind of uniform changes you describe would be to do so at the federal level and impose them on the states (not likely). What if you have a branch in Nevada, Washington and Florida? How about in every state? Well, you already have to pay taxes in all these states, but you can't expect a company to pay taxes on all their income in ALL the states they do business in, they'd owe more taxes than they have income! So you come back to the problem of attributing and assigning income - it's a sticky problem, and ultimately you have to rely on a certain degree of honesty and tools like Sarbannes-Oxley to force that honesty. Beyond that, states need to deal with corporations that are abusing tax laws when they occur - if all your employees are in Washington and the company is making 10 billion dollars a year, but only attributing a billion dollars of it to work done in Washington, they are probably abusing the definitions provided for by law and they need to be cracked down on.

Wake up and smell the capitalism by vulcan_pupil · 2004-10-01 16:36 · Score: 5, Insightful

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.

Re:Of all the things to knock MS for... by Waffle+Iron · 2004-10-01 16:45 · Score: 5, Insightful

Why should the *government* build roads?

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.

M$ Hypocrisy by Anonymous Coward · 2004-10-01 17:40 · Score: 5, Insightful

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.

Zero-sum thinking by Anonymous Coward · 2004-10-01 20:14 · Score: 5, Insightful

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.

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