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Creative Capitalism Gets Microsoft $528M Tax Break
NewsCloud writes "Microsoft makes products in Washington but records software sales to PC makers and high-volume customers through an operation in Nevada, where there is no corporate tax. So Washington has missed out on more than half a billion in taxes; revenue it could use for badly needed infrastructure needs — such as the needed replacement of the 520 bridge which connects Seattle ... to Microsoft. Reported by Slashdot in 2004, the numbers have increased with the company's growth to approx. $76M in savings last year alone. The author questions the legality of the practice given Microsoft's 35,500+ employees and 11.2 million square feet of real estate in Washington state."
Do I hear someone call for "Small government" ? This is what happens when the sheeple are being led by corporate hacks calling for small government: no checks on the corporations, while people are starving on the streets.
Would Washington rather MS move their operations to Nevada and lose the tax base of all the employees? This situation is actually a good argument for getting rid of corporate taxes. Corps wouldn't just sit on the money they saved. They would invest it by hiring more people and spending more money where they are actually based.
The 35k plus employees pay taxes in state and Washington State is certainly aware of that fact. If they make too much of a grumble about the corporate loop hole, they could lose the much larger 35k plus employee tax base. Those 35k are probably just the people who work for M$. There are probably lots and lots of other Washington residents whose primary income derives from Redmund.
A corporation has a financial duty to avoid paying unnecessary taxes. If you don't like the way those "fat cats" (I notice rabble rousers use that term a lot) get out of paying taxes, talk to the government and have them close the loopholes. More importantly, not that every dollar Microsoft pulls in is taxed _multiple_ times by the time it makes it into the shareholders' pockets. The fact is that it's a myth that corporations are pulling one over on the government, corporate taxes are a little silly since the money _is_ taxed before it goes into any individual's pocket.
Microsoft has effectively paid its employees with your tax dollars for years.
http://www.fool.com/portfolios/rulemaker/2000/rulemaker000217.htm
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Basically, Microsoft receives cash by issuing employee stock options, after which the company then receives billions of dollars in tax deductions from the IRS for doing so. Add in the warrants it sells on its own stock, and the company made over $5 billion off the stock market last year (fiscal year ended July 1999), tax-free. For comparison, its after-tax net income was only $7.8 billion. Microsoft may not be much in the programming department, but its accountants are impressive.
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Corporations pay taxes on their own income (generally 35%), but money they pay out in salaries to employees is deductible from the corporation's income. Since granting options to employees results in taxable income to those employees, Microsoft gets to deduct that taxable employee income from its own taxable corporate income, and that's where Microsoft got a tax-free $3.1 billion in cash in fiscal 1999: "Stock option income tax benefits."
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I guess Microsoft should maintain their own bridge then.
Nevada may have lesser public services than Washington, or higher non-corporate taxes. Either way, Microsoft and it's employees are enjoying privileges in Washington that they've skipped out of paying for, placing more burden on Washington's other residents.
If Nevada is such a great, efficient state then I see no reason why Microsoft shouldn't move their actual operation there, instead of just maintaining a front for tax evasion purposes.
I hate Microsoft as much as the next guy (okay, maybe not around here, but I really really hate them!), but why shouldn't they structure their corporation to reduce the tax burden? Just be glad it's Nevada and not Belize.
Large corporations exploit tax loopholes? Who would have thought?
I read the internet for the articles.
Let's do away with taxes. And, we can do away with all the things taxes pay for: the education system that trains Microsoft's employees, the roads that allow the employees to get to work, the police that help protect Microsoft from the roving bands of rabid cats, the standing militia that protects Washington from invasion by Canada. (Those bastards covet Washington, and are just *waiting* to invade.)
Corporations benefit from -- nay, depend on! -- public infrastructure. Public infrastructure costs money. It's been proven time and again that private interests cannot provide neutral, equitable infrastructure at a reasonable price. Taxes are necessary.
Now, taxing both corporations and individuals seems a bit of double-dipping, I agree. Tax the corporations, and let the individuals keep their wages. Politicians would end up with a lot more votes that way (though a lot less money through corporate sponsorship and whatnot).
Microsoft is to software what Budweiser is to beer.
is generally defined as the use of private mean of production on a free market. Regardless of one's opinion on the news, the title of the news is inaccurate, and let's say it stupid.
I for one cheer for anyone protecting money from the prying hands of the State.
\u262D = \u5350
Even the Lauffer Curve, beloved of Reagan, says that taxes lead to more productivity. While 100% is bad, 0% is also bad. The right number is in-between.
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No, it didn't net Microsoft anything. The proper title should be "Restrictive socialism costs Microsoft competitors billions."
When I had my retail store, we moved literally 3 miles across a State line because of a sales tax differential of nearly 4%. That's significant, when many of our items were $500-$1000, meaning a savings to the consumer of $20-$40 in taxes. Even funnier, the county/state with the lower tax rate had BETTER public facilities and police attention (the store in the old State had regular robberies and theft), and my customers had a 5 minute longer hop to get there.
We've talked repeatedly about moving out of our State and leaving some customers behind if our State decides to start a labor sales tax. It's a terrible idea, as more taxes don't mean more income (and neither do less taxes necessarily) for the State. It's a VERY complicated "invisible hand" situation.
I appreciate when companies find loopholes, because it gives me hope that I can use them, too. I hate W2s, as 1099s offer many more tax benefits. I've seen many friends give up their stable W2 jobs to move into 1099 contracting, and see their income double, but their tax share not move up as much. When I heard Haliburton was moving offshore, I investigated it and found that there are tons of savings to do so, even if your primary business is still in the States. It makes sense.
Yeah, Microsoft will take heat for this, but the reality is that small and medium sized business owners should do everything in their power to find the least-regulated economies to operate out of. I love seeing companies move out of California, employees and all, and hitting States that so far have not shut down the engine of business, thinking that the State can help the poor when in fact it is jobs, not entitlements, that help the poor.
Even the Lauffer Curve, beloved of Reagan, says that taxes lead to more productivity. While 100% is bad, 0% is also bad. The right number is in-between
The problem is that a lot of leading political figures on the left believe that 50% is the right mark, and we Reaganites believe that's a bit too high!
0% being useful assumes investment in useful things like roads and bridges that actually improve the business climate. If it doesn't improve business, which does actually include quality of life and nationalistic branding stuff, then, it shouldn't be there. That would automatically chop a lot out of the budget, for sure.
Question I have is, why do rates need to go up at all? Population is increasing, GDP is increasing.. shouldn't government spending increases be constrained, at least, to GDP? Unfortunately Bush has been absolutely terrible on this one, but no President will do actually the right thing here either. I mean, why should Medicare ever go up more than GDP?
This is my sig.
The other major business of Washington state - Boeing - flies their planes just outside the U.S. territorial limit offshore to sign the transfer papers with international customers so that they won't have to pay tax. Should we complain about them too?
It is not like Washington isn't getting a cut out of MS. With 11.2 Million square feet or real estate, think of the property taxes? With 35,000+ employees, think of the payroll taxes?
Seriously, please don't tell me everybody on Slashdot is naive enough to think that companies like Red Hat, SUSE and Ubuntu aren't working the tax system either! Companies from a one man show to an MNC use this system to pay the least amount of tax they can. Nevada and Delaware have long maintained favorable tax treatment of corporations exactly for this purpose. If Washington wants in on this action, they can offer the same incentives to encourage MS to claim those profit in WA.
There is no valid contract for you to pay for your food when you go into a restaurant, yet few people dine and dash. No one would assume the restaurant is just giving you the food for free. What there is is an implied contract. You eat the food, you pay the bill. With government services, there is the same implied contract. If you don't want to pay the bill, don't make use of the services. If you don't agree to pay taxes, go live somewhere else, you have no right to live here.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
That Microsoft's behavior isn't unique in any way, shape or form. That what microsoft does is standard operating procedure for all mega-corporations.
Paying taxes in the state with the lowest corporate tax rate and forming corporations in Delaware is done for the same reason. It's the best deal.
If this is outrageous to the submitter, then I hope he never discovers how most electronics firms with an office in the U.S. work.
As an FYI, they are set up as subsidiaries that "buy" their product from the most attractive exporting/manufacturing office from some other part of the world of the same corporation. The U.S. office then operates at a perpetual loss (paying less tax) by hiding the income generated as the cost paid to "buy" the goods from some other part of the world.
Minimize tax, maximize profit!
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Ignore this story - Washington is taxing itself into oblivion. Boeing moved their corporate headquarters - and most of their taxable profit - to Chicago over the taxation and treatment of business in this State. The ONLY things that is keeping Washington alive right now are:
1. Agriculture. Hard to move a farm, so they're stuck. Of course, our State wants to breach all the dams and eliminate the irrigation systems, which would kill these businesses.
2. Boeing. Already moved their corp headquarters, and unfortunately for Boeing, the physical assets here - buildings, equipment, and people - are so huge that you can't afford to move them. But more and more work is shifted outside the State...
3. Microsoft. Faces the similar situation with Boeing, because of the size of the campus and people. Stuck for now, but does more and more outside the State.
Washington is screwed. It has the highest gas tax in the nation, and still hasn't repaired road damage from the 2001 Nisqually Earthquake. The legislature and governor raised the State budget by 33% in 3 years, and now projects deficits left and right, yet it's also decreased MANDATORY funding of the State employee's pension fund. And now it wants to put the screws to Microsoft...
Washington is dead, it just doesn't know it yet...
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
If Nevada is such a great, efficient state then I see no reason why Microsoft shouldn't move their actual operation there, instead of just maintaining a front for tax evasion purposes.
And, as you file your own tax returns this year, I'll bet you carefully record each internet transaction from out of state, ensuring that you pay full taxes even though it would have been easy to avoid it? Of course, your charitable deductions will be paid at the lower rate you really know your junk was worth rather than the higher "standard rate" you know you can get away with? Similarly, when you realize your itemized receipts don't add up to as much as the standard deduction, you'll still take the lower amount you know you really deserve? You'll also stop using lower rate credit cards issued out of Delaware in favor of higher rate ones from your own state?
Sure, you could be saving money on your own taxes. But won't anybody think of the children in your own state who are in cramped classes because there aren't enough tax dollars. Thank God for people like you who make a point of paying every dollar they can, rather than looking for the best possible savings.
When an individual figures out ways to avoid paying taxes - or paying as little as possible - it's considered frugal. When a corporation does it, it's evil?
This is a textbook case of high taxation modifying the behavior of the taxed. If Washington's tax rates weren't punitive for these sales, there wouldn't be any incentive for the company to be incorporated in Nevada. This is a common corporate practice, and demonstrates the necessity of small laboratories of democracy, aka, states. Washington is seeing how Nevada's tax code is modifying the behavior of Microsoft, and Washington has the choice to modify their tax code or continue pursuing their own version of it. It's not Microsoft's fault for playing by the rules to maximize profit.
Government's view of the economy: If it moves, tax it. If it keeps moving,regulate it. If it stops moving, subsidize it.
That's not what the Laffer Curve says. It says that tax revenues are optimized at a certain point. Taxes always* have a negative effect on productivity, and that has to be considered against the potential increase in tax revenue that an increase in the tax rate would otherwise bring.
* Specific uses for tax dollars can increase productivity, but that increase is usually not as much as the productivity that a firm could gain by just spending the money itself.
Remember that statement next time you drive along a road. Where TF did that road come from?
Engineering is the art of compromise.
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I for one will not stand for good paying jobs in the USA. Any candidate that encourages more tech jobs to move to India has my vote!
The fact is that it's a myth that corporations are pulling one over on the government
They're not pulling one over on the government- they're pulling one over on us.
In the 1950's, the corporate share of taxes was about 50%. Citizens paid half, corporations paid half.
Now? it is about 2%. And why is that?
Corporate lobbying. Corporate lobbying pays for all the toys and the re-election campaigns.
Please help metamoderate.
Amusingly enough, MS has paid a fair bit into King County municipal infrastructure issues. They bought a bigger fire truck (in exchange for being allowed to build a building taller than 4 stories). They built a bus transit center. I beleive they've had a part in paying to get bridges widened and other traffic improvements near the MSFT campus.
The MSFT employee base does a hell of a lot more for King County than the other way around.
WA politics are horribly corrupt and stupid.
Former Redmond resident, Current MS employee (in Fargo, ND, where the local government is much less stupid)
As an MS employee and shareholder, I hope we continue to diversify away from the Redmond campus. It is extremely expensive and the business climate in WA is unstable and increasingly hostile. The overwhelming majority of MS employees are transplants from elsewhere.
The nice thing about markets is that socio-economic conditions are a market also, and as US cities get stupider and stupider, they'll lose business and "lose" in the market place. Hopefully corrections occur before there is too much uncomfortable displacement for all parties.
My opinions are my own, and do not necessarily represent those of my employer.
So they pay corporate taxes in Nevada, where there are no corporate taxes, and they pay their employees in Washington, where there is no income tax?
It would be fun if everyone started parasitising like that...
I suffer from attention surplus disorder.
Absolutely not, they already pay WA state taxes, the article is misleading. MS does pay WA taxes, and presumably quite a bit. They pay property taxes on the land they occupy and sales tax on anything that is purchased for the business.
People who purchase MS software or services have to pay sales tax on those transactions and anything that MS sells online is also subjected to WA tax for anybody that lives in the state. I don't believe that MS is required or really should be paying more taxes than they are presently to my state.
I haven't seen the figures themselves, but it doesn't matter where the sales are recorded, the amount of taxes that corporations can be taxed here are extremely low compared with the money that MS products bring in through sales tax. We're talking 6.5% base sales tax compared with corporate taxes of 0.00484% for gross manufacturing receipts, 0.00471% for retailing and 0.015% for other services.
The money just isn't that large compared with the additional sales tax, gas tax, property tax and the taxes paid to the state by their employees.
Impossible? No, certainly not. I've read about schemes whereby people in lower income brackets can be reimbursed for a portion of their consumption tax. It's impossible to be completely fair with a simple flat consumption tax, sure, but, with some added complexity, it can be made more fair. The question is just whether such a system is simpler than the current income tax mess we have right now. If done correctly, I think it could be. But it'll never happen, at least not in the US.
Xfce: Lighter than some, heavier than others. Just right.
I earn a salary and pay income taxes. I then use my income to buy a toaster and pay sales taxes. Double taxation! Then the store pays taxes on its income. Triple taxation! Then the store employees pay income taxes. Quadruple taxation! And then the store employees pay sales taxes on their purchases. Quintuple taxation! And so on. It's a totally meaningless argument.
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