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Microsoft Tax Dodge At Issue In Washington State
newscloud writes "With Washington State facing a billion-dollar biennial budget deficit, the spotlight again shifts to Microsoft's software licensing office in Reno, Nevada. 'Although the majority of its software development is performed in Washington State, Microsoft records its estimated $18 billion in licensing revenue per year through a corporate office in Reno, Nevada where there is no licensing tax. Just by enforcing the state's existing tax law from 2008 onwards, we could reduce Washington's revenue shortfall by more than 70 percent. Alternately, we could pursue the entire $707 million from Microsoft's thirteen years of tax dodging and cover most of the expected deficit going forward.' We have discussed Microsoft's creative capitalism in the past."
...I can't see how anyone could expect Microsoft to act differently.
There appears to be a legal loophole that has allowed Microsoft to hang onto $707 million over the years. Until a judge rules otherwise, they're going to exploit that loophole. When the loophole is closed, Microsoft is going to look for a new one. Can you say you'd act any differently?
What's that? You do act differently? You pay your taxes, you say? Well then... it sounds as though Washington would have better luck recouping its money if it simply raised the state income tax. Presumably all of the employees at Microsoft's Redmond campus file taxes in the state, yes?
Breakfast served all day!
Way to blame MS for using state resources without contributing to that cost.
What changed under Obama? Nothing Good
There is this line in the article: "Just by enforcing the state's existing tax law from 2008 onwards, we could reduce Washington's revenue shortfall by more than 70 percent." What? The law that says Washington state can tax business transacted in another state? They want to CHANGE THE LAW, not enforce existing law. Maybe if the state were to partner with MS and not view it as their own personal ATM, they could close a bit of their defecit. Is the Washington State economy really based on anything more than Software, Airliners, "The World's Largest Store" and over-priced coffee?
Ken
No. Other states will see this and say "gee, I'd love just 1% of Microsoft." And lower the tax rate just to attract them.
If you don't think they would move, then riddle me this. Why did they set up the Nevada shop in the first place? If not motivated by tax.
Way to blame the state's shitty accounting and fiscal responsibility on Microsoft. They pay for their facilities taxes, employee taxes etc. The licensing issue is a NON-issue. I don't see why it's a big deal for a company to use certain states for the divisions they choose.
Basic economics. Corps don't pay taxes. Taxes are a cost. Costs get passed on to customers, shareholders and employees. They get passed on to you. You who buy any products made by corporations. You who has money in a 401K, Roth or any form of interest bearing account. You you work for a corporation.
There is no one else. Get over it.
"It is better to die on one's feet than to live on one's knees." - Albert Camus
The word is "Value Added Tax" boys and girls. This is why states like Michigan have them. Companies can "move the cheese" all they want, but each organizational unit has to account for it's "productivity" i.e. the added value of their step, not just whether they made "cash profit" in order to satisfy SEC and GAPP rules. Manufacturing states learned long ago that the parent company will always make manufacturing into "cost centers" that always lose money on their operations because they don't "sell anything", both to stiff workers and the taxman. They learned to make each part of the company rate the "value" of it's incoming raw goods versus the "upstream" items. The numbers have to add up on "somebody's" books so it's easier to get the tax money where the work is done.
VAT is closer to what we plebs pay as "income tax" rather than just pure "profits tax".
As though all of their competitors aren't essentially doing that already. Even MS has development in India now (and other countries, not all of which count as third world). We (on slashot) got all up in arms over IBM offering employees the chance to keep their jobs by moving to india, the main architecture for intel desktop CPU's was developed in Israel. Sure, moving out of the US would get them bad press in one place, but it would get them really good press elsewhere. Everywhere outside the US assumes the US is using MS to spy on them (which it probably is) and the US assumes everyone else is trying to inject people into big companies to spy on them (they are).
The nature of the modern world is that at least half of anything worth having is made somewhere other than where you are. Want to buy fighter jets? Good luck getting electronic control systems and displays that aren't made in east asia. Want to buy software? There are developers contributing code from all over the world.
As it is RIM (blackberrry) is a foreign company selling critical systems infrastructure in the US. And the US has a plethora of free trade agreements, MS could very smartly move its official HQ to somewhere cheap (Switzerland), with free trade to the US and watch the government cringe as it has to fight through years of losing court cases on whether imposing tariffs are legal.
As the guy above says, they could just move to a more tax advantageous state too rather than jump ship entirely.
Or they could just move 140 miles north to Canada. Very minor shift in culture, no language barriers, no tariffs, and the US government already uses a proprietary Canadian OS on some of their devices.
Or they could just move to Nevada.
In any case, the article doesn't provide any evidence that Microsoft is doing anything illegal, though they heavily imply it. The article links to a couple of other sites (written by the same author, how original!) that basically spew the same nonsense, but there is no indication why Microsoft can't do exactly what they are doing.
I'm dubious about the concept that Washington state deserves a slice of a cool billion dollars or so from the-rest-of-the-world just because they have developers in the state. If Ford were to put a factory in Redmond where they make cars, does Washington have some moral right to collect taxes on all the cars sold by Ford anywhere? (Or even just all the cars sold by Ford from that factory?) How about a factory and the corporate HQ building? How about corporate HQ, a factory, and a random dealership? What's so special about any of those workplaces that they should expose the company's entire product line to a certain tax regime? What makes that "fair"? The whims of the legislature of the state of Washington and whatever situational ethics they may or may not have today?
The World Wide Web is dying. Soon, we shall have only the Internet.
From Kerry Packer, Australian media billionaire before the Print Media Inquiry (1991)
"I am not evading tax in any way, shape or form.
Now of course I am minimizing my tax and if anybody in this country doesn't minimize their tax they want their heads read because as a government I can tell you you're not spending it that well that we should be donating extra."
I've already given you the answer on this subject, I have told you that I pay whatever tax I am required to pay under the law, not a penny more, not a penny less, and the suggestion that I am trying to evade tax, which is what you're putting forward, I find highly offensive and I don't intend to cooperate with you in the blackening of my character.
Domestic spying is now "Benign Information Gathering"
A tax on profit != a cost of production.
Products and services are already priced to maximize revenue. If Microsoft (or any other company on the planet) can charge customers more money without consequences to their bottom line - they'll go ahead and charge their customers more.
Microsoft is DOING NOTHING WRONG
They're doing nothing illegal, which is quite a different thing--as you pointed out earlier in your post.
They thought the same about Boeing. It's now in Chicago.
You want to keep the seat of leadership where you have some hope of seeing a benefit. (Consider Bentonville, AR.) They can move anywhere, anytime they want to. And they have the fiduciary responsibility to do so, or will be sued into oblivion by their own shareholders.
Microsoft has to pay other taxes, just not this one, to Washington. There are a slew of taxes that corporations have to pay.
The act of licensing a product doesn't actually use state resources.
If Microsoft licenses 2,000,000 $250 copies of Vista, it doesn't utilize any more state resources than if they had licensed 200,000 copies of vista, or if they had licensed 2,000,000 $100 copies instead.
You might think it implies they hire more support people in Washington, and thus further use state infrastructure... but it doesn't, thanks to outsourcing and call centers in India.
And most copies of Windows licensed are OEM, and volume licensed, which doesn't generate additional support demands.
> " Like hell they will. You think all those C-levels, VPs and billionaire executives will want to move?
And I'm sure the locals said the same thing about Boeing as they happily taxed the crap out of them to fund their left coast utopia. Of course they did move their headquarters out of the state. And are building a big non-union plant down south.
Microsoft doesn't have to just pick up it's ball and leave. Just keep building out facilities in multiple States and countries like they have been doing and play each of them against the other for the most favorable tax and regulatory treatement. If Washington gets too aggressive on this issue threaten to move the official headquarters. There ARE a lot of nice places just in the US and many are actually pretty nice to live in. The current location wasn't even the first one ya know.
Even better leverage, especially in this crappy economy, is to just threaten to push all new hiring to more favorable business environments. I.e. threaten the politicians with a terrible press release about a new thousand headcount shop that won't be opening in the state because of the bad business climate. And if they think it is a bluff, do it and do it over until they either get a clue or the center of mass has actually moved to a better place and then really relocate the HQ.
For a company like Microsoft where they are doesn't really matter much so long as it is the sort of place key personnel wouldn't be demoralized living in. They have no ties to a natural resource, no major transportation needs, etc.
Democrat delenda est
The government simple cannot and should not "roll over" for business. That has simply got to stop.
Okay. Please name several instances where the Washington state government has "rolled over" for Microsoft; please provide references so I can check up on them.
I am not aware of any "rolling over" by the state government. Microsoft is a Washington company. It pays its Washington business tax, its various real estate taxes (and those are freaking huge because Microsoft drove up all the property values remotely close to its headquarters), and the employees of Microsoft live and shop in the state, thus paying real estate taxes, sales taxes, and restaurant taxes. In short, Microsoft has brought a whole bunch of money into Washington state's coffers. I'm sure the state would like some more, but Microsoft is not illegally evading taxes, as far as I know.
And I don't hold it immoral for Microsoft to game the system in exactly the same ways that every other company does. As others have noted, how many companies are incorporated in Delaware?
If Microsoft had to move, it would be EXTREMELY painful and it would probably be an active news story for the next months following that.
You cannot use that particular threat forever; eventually the company gets tired of it, and actually moves.
Case in point: Boeing. Boeing did finally get fed up with Washington state, and they moved their headquarters to Chicago. Airplanes are still assembled in Washington, at least for now. Boeing executives publicly claimed that they wanted to be in a different time zone, but I don't believe that; for years, Boeing had been negotiating with the Washington state government, trying to get a better deal, without success; Illinois offered them enough to make it worth the move.
http://money.cnn.com/2001/03/21/companies/boeing/
Boeing actually moving their headquarters was a big shock here, and I would not be surprised if Washington state would be willing to do a certain amount of "rolling over" if Boeing threatened to move the airplane assembly as well. That also goes for Microsoft: I'll bet the state government would do quite a lot of "rolling over" if that is what it took to stop Microsoft from leaving the state.
Let'm go...if they actually would go. Other states will see this and, if they manage to grow a pair, will also tax them...
I'm afraid that's not how it works. Other states would go "OMFG we have a chance to get freaking Microsoft in our state" and they would start thinking about all the tax revenues that would be shifting from Washington to their state. They would start offering deals to Microsoft.
And it is just as legal for Microsoft to shop around for the best state to move to, as it is for you to shop around for where you want to live. I, and no doubt many other people, prefer living in Washington state rather than Oregon because Washington doesn't have a state income tax, and Oregon does. Am I a bad person for not moving to Oregon and paying Oregon income tax? Am I somehow cheating Oregon out of the taxes they could have had if only I had moved there? Is Microsoft a bad company for legally shifting money to another state where the tax situation is more favorable?
steveha
lf(1): it's like ls(1) but sorts filenames by extension, tersely
Well, I've not seen anywhere on the article, nor on this forum, a listing of what laws were broken.
I mean, corporations do this all the time...many companies incorporate in Delaware for the tax breaks they get, even while most of their manufacturing/business/warehouses are in other states. While you might rightully bitch about the 'moral' aspect of this...if they really broke no laws on the books, then they did nothing wrong legally.
Would Washington be a better place if MS just pulled up roots, and moved to another state? Another country?
I'm just curious...why are tax revenues so bad in the state where a company like MS is employing what I could guess is a good number of people and what I would guess were pretty good salaries/bill rates? What is the state income tax like there? What is the sales tax there? What is the property tax there?
Most states get most of their money from many or (in the case of my state ALL) of these.
I'm just saying...if MS (and I can't believe I"m defending MS here) actually broke no tax laws, then you really can't accuse them of tax evasion. It is not against the law to work within the law. If you don't like the tax laws as they are, change them. Just don't be pissed if they then leave the state. Other states would be thrilled to have the high paying jobs within their borders.
Light travels faster than sound. This is why some people appear bright until you hear them speak.........
And if you're seriously suggesting that a sales tax is better than an income tax of similar income, then you really need an economics lesson, badly.
No, you do. While all taxes are a disincentive to production, taxing people on what they spend instead of what they earn encourages savings.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
"The Bill & Melinda Gates Foundation broke ground Tuesday on its new $500 million headquarters, which the world's largest charitable foundation hopes to occupy in late 2010."
Just how much do you think a nearly million square foot complex in downtown Seattle should cost, capable, as you said, of supporting 1200 employees.
The headquarters are being paid for by the Gates' directly, not out of the $38B endowment they've set up.
Yeah, "using its $37.3 billion endowment to fight diseases like AIDS and malaria, start a green revolution in Africa, improve American high schools and provide Internet access at libraries throughout the world" at a minimum mandated level of $1.5B/year sounds fucking horrible and selfish of them, if you ask me.
Why shouldn't they tax licensing? You think it's not a product? Get real.
I also hope they stick it to Microsoft good. With their huge campus in Washington there's no way they should be able to dodge taxes by "selling" out of Nevada, period.
"I'm just curious...why are tax revenues so bad in the state where a company like MS is employing what I could guess is a good number of people and what I would guess were pretty good salaries/bill rates?"
Because Washington has no income tax which is a major reason Microsoft is based there and Bill Gates lives there. They depend on property taxes among other things, which are probably having a substantial shortfall in a crashing real estate market.
Corporate taxes are a lot like the Internet, no one wants to pay for anything, they just want a lot of cool things for free, you know like highways, schools, universities, prisons(so there isn't so much crime). Not sure if they still do but there was a time Microsoft was using prisoners as ultra cheap labor to pack products.
Not versed on tax law enough to say if Microsoft is breaking the law but its a given they are bending it to the absolute limit if they aren't out right breaking it, like most big corporations. They want the middle class working people to pay all the taxes.
I'd seriously like to see Washington put the smack down on them and see Microsoft pull up stakes and move to the nice repressive one party dictatorship that is China and see how Microsoft's execs really like it there if they actually have to live and work there. Or move to India and live in a tiny high tech pocket of affluence in a country with otherwise grinding poverty, serious ethnic and religious tensions and a near perpetual state of war with Pakistan.
@de_machina
Your words suggest you believe only the "current administration" is the problem?
Sorry, but it's pretty naive and, as you say, short-sighted, to think that the previous administration was any better, or that the future one will be.
Down with the career politician! SUPPORT TERM LIMITS
Or be the member of a board for a corporation and buy everything except basic food on the Corp credit card, buy a house through the corp then rent it off the corp, own nothing and take a tiny salary. Then send the corporations profits to a shell account in the cayman islands then claim your expenses back as a cost at tax time claiming the corp is not profitable, your offshore account unreachable by the tax man to see if your lying or not.
Effectively paying no tax.
As many thousands of the upper class do.
Oh I forgot, then have misguided middle class individuals argue for your right to continue doing this. While lobbying your mates in government to increase the tax burden on them because your corp needs infrastructure built and a solid and expensive society to exist to continue being profitable in your highly "unprofitable" venture (wink wink).
Then laugh all the way to the bank come retirement.
Can we get an administration in office that understands some economics?
So you mean encouraging imports over exports, removing corporate personhood, supporting cooperatives and small scale businesses and breaking up large monopolies? Or do you really believe the last 8 years haven't been completely dysfunctional, too?
Actually, the studies that I have seen are looking at expenditures on care, and resulting outcomes of the patients that received the care. The outcomes are largely uncorrelated with variations in spending across the US, which vary by almost 100% from lowest to highest, and are universally somewhat worse than similar outcomes from the Canadian, British or French systems for similar cases. They're not horrible, but they aren't the best despite radically higher spending on a case by case basis in the countries with the evil commie plans.
GP talks about government waste. Medicare, the US government run health system for the elderly, has about half the administrative cost load of private insurance companies, and aggressive negotiates for lower treatment costs. It could have been a force for lowered drug costs, but Congress specifically prohibited that. The government waste tends to come from Congress, not the rank and file.
I was taught to respect my elders. The trouble is, it's getting harder and harder to find some.