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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."
Way to blame microsoft for the state deficit.
...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!
... and threaten to move out. If MSFT leaves or even reduces force, greater Seattle's retail and real estate would be crippled, not to mention sales tax and property tax revenues. I'd like to see those taxes paid too, but unfortunately MSFT has the greater bargaining chip here.
Among my favorite are "but Microsoft will just move outside of the U.S." Like hell they will. You think all those C-levels, VPs and billionaire executives will want to move? And the interruption of process? The huge shift in culture? And the public opinion of Microsoft will surely enable any Microsoft competitors. And finally, if they moved out of the U.S., they wouldn't stop selling to the U.S. and you can bet there would be LARGE tariffs imposed on the import of Microsoft Software and could you imagine the new problems they would have to face being a "foreign business" selling critical systems software and infrastructure products to sensitive areas of government? Bad enough they are local, but a foreign company selling the US government crappy software?
The various problems and changes that would result are too many to imagine.
Probably best that Microsoft pay their damned taxes like everyone else.
Well, I guess the Washington government could try to pass a law that taxes a company for a subsidiary whose primary location is in a tax-free zone. If it stood up to the inevitable legal challenge, I have no idea what the unintended consequences would be for the tax landscape.
2. I single out Microsoft because it's, by far, one of the biggest offenders, but I would like to see the uniform enforcement of state tax law to all corporations using out of state facilities to minimize tax payments.
I definitely agree. Would be great. But as someone stated above, you can't expect one company (in this case Microsoft) to be forced to follow a rule and then not force the rest of the companies. Well, I suppose you could, but in all fairness, should Washington, or any other state, be able to single out one offender, leaving others to get away with the same? Uniformality in this would be best.
They're just looking for an easy way out, to make Microsoft pay for the state's own economic blunders. Surely Washington has known about this for a while but chose to ignore it. They can close the "loophole" now, but I don't see why it is fair for them to make it retroactively illegal. I actually thought such ex-post-facto laws were illegal themselves.
I don't think the guy who writes this article really understands tax law. Neither do I really, but atleast I'll admit it. It seems to me that I remember Tax Avoidance being perfectly legal and accepted. I really think he misunderstands the idea that there's some existing tax law to be enforced that applies to Microsoft's actions. The software is licensed out of NV, hence, NV law applies. There are major jurisdictional issues inherent in taxation law and so far as I can tell as a layman, there's nothing afoul of any regulation going on here.
If there were, you can be sure Washington State would have their hands in Microsoft's pockets already.
That's kind of why most corporations are incorporated in Delaware, too. There's jurisdictional issues being blatantly ignored by this person in order to make a point and that is not justified.
That all said, I did some more reading and it looks like this guy has barked up this tree before.
http://crosscut.com/2008/02/02/microsoft/11167/
which was posted to Slashdot back then
http://slashdot.org/article.pl?sid=08/02/04/1520219
and a followup with his anti-arguments to the posts from Slashdot back then.
http://www.idealog.us/2008/02/top-reader-excu.html
Oh and 2004 too:
http://slashdot.org/article.pl?sid=04/10/01/2137228&tid=109
You'll notice, a year ago, he supposedly already addressed all the issues everyone here could possibly present. Unfortunately, he's also completely ignored the one about the constitutionality of taxation and jurisdiction and focuses more on wishy washy sort of justification arguments made that appeal more to a sense of right or wrong, rather than the case law regarding jurisdictional tax issues.
Career campaigner on this issue, hey Jeff? Too bad you've wasted 5 YEARS on this subject and you're never going to get anywhere because Microsoft is DOING NOTHING WRONG.
correct; if lawmakers don't want corp entities USING the laws, then why have the bogus abusable laws in the first place?
"waaaaah! they're taking money from my state."
hey, its way worse than that; most companies in tech are sending money OFFSHORE, never to come back again, anyway. playing the 'tax and income game' left and right.
close the loopholes and stop letting corps get away with murder.
duh!
but you cannot force a company NOT to use things that are legal. I hate MS but even I can see this.
--
"It is now safe to switch off your computer."
...why don't you just do so?
Warning: this article may contain humor, sarcasm, parody, and perhaps even irony. Read at your own risk.
Here we have yet another example of the Evil coming out of Microsoft. The State of Washington and its taxpayers have spent a pretty bit of coin providing an educated workforce for Microsoft, by creating all the infrastructure such as the electric utilities, the roads, the police, fire and the rest. Without all of these public services, companies like Microsoft would be much, much less profitable.
If these companies are so hell bent not to pay taxes--then why don't they move to Russia? When I lived there, zero taxes were taken from my pay. Companies paid hardly any taxes. Oh yeah, they had to pay the Russian Mafia because the tax-starved government had no power.
So, we see the most anti-American behavior imaginable is some hugely wealthy company like Microsoft scamming the taxpayer. I hope that the state of Washington hits M$ for their entire back taxes. Microsoft could pay it out of petty cash.
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
This isn't a liberal tax and spend issue. This is an issue of a giant company guzzling state services (fire, water, police, increased road traffic, etc. etc. etc.) and letting the little guys pick up the tab. You know what? If MS isn't interested in paying its way, than fuck 'em. And yeah, they could move to Oklahoma or India, but how many of the really valuable employees are going to want to live in a backwards locality? It could be a death sentence for MS just because of the brain drain, not to mention the turmoil caused by moving.
What changed under Obama? Nothing Good
This is exactly the kind of thing tax raisers refuse to understand. When taxes are too high, people will change the way they do business. It's perfectly legal to do this.
The term "Tax Dodger" is thrown around like it's a bad thing, it's not. It's smart to dodge taxes. In fact, many people do it. We use online retailers to avoid state sales tax. People who live near state lines will drive to the other state to make big purchases if there is a sales tax savings to be realized. I have cousin who travels from MD to DE to do just that.
If they make the tax too burdensome, we can watch Microsoft pick up and move from Washington to some other state that's not so arrogant as to assume that all money is theirs.
LK
"Hi. This is my friend, Jack Shit, and you don't know him." - Lord Kano
Simply deem the licenses created in WA and sent to NV where they were sold. A license is sort of fictional anyway. Tax the exported licenses.
What changed under Obama? Nothing Good
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
Soak the rich.
We need to quit being assholes. Tie taxes to consumption and be done with it. Quit trying to rob the successful to pay for your shitty entitlement programs.
#1. Sales taxes are the most regressive form of taxation.
#2. The state does not get a cut of the money that you spend out of state. Which is an issue when you're talking a large number of millionaires or better.
How much of Microsoft's software did the state of Washington write?
There are plenty of places to do business where you don't have to pay a huge tribute to satisfy the greed of the local warlords. Some of them are even in the United States.
The State of Washington should try being less greedy. They should do less and ask the dependent class to do more for themselves.
As always, my first suggestion is for anyone on government housing assistance to be required to live with a roommate to share housing expenses. It's good enough for college students, it should be good enough for welfare recipients.
Really? Cause all those employee's don't pay for fire, water, police, road traffic and other things. These things are used by people not the businesses I'm sick of fucks like you who want to drive out business.
So help me understand this:
1. Microsoft is the 3rd largest employer in your state
2. You are in a recession
3. You have a 9.2% unemployment rate
4. You want to raise taxes on business.
So that your government has more money to redistribute to people who are not working, who lost their jobs because companies like Microsoft couldn't afford to keep them on in the first place.
Let me propose an alternative.
Reduce your spending and reduce taxes so that you can afford to pay your bills, and Microsoft can afford to rehire your residents.
Like our sales tax, this license tax is actually a use tax. Its collected by the vendor at the point of sale, but its based upon the jurisdiction where the product is to be used. So the only revenue WA state is going to collect is that on the sales to WA state residents and businesses. Businesses in the state are subject to audits and must show where the appropriate use tax has been paid, either in the form of a sales tax, or via their WA State dept of revenue tax returns. Anyone buying goods or services who can document a residence or business outside of WA state are exempt from the tax anyway (their home state may have similar taxes that apply). Boeing does the same thing with its airplanes (even before it became an Illinois based corporation).
Microsoft (and other companies) often sell through offices in states with no taxes. Not to avoid paying them, which they don't have to anyway. But to avoid having to document sales to exempt individuals and companies in 49 other states. Since its the duty of the end user to see to it that use taxes have been paid, the state would be better off chasing after its businesses (which it already does, to a point) and residents (which it typically lets slide) for the taxes owed.
Have gnu, will travel.
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.
If you live in Washington, you have to pay more taxes because Microsoft is avoiding theirs. Your attitude only makes sense if you're a Microsoft exec or major shareholder. If you're not, you're cutting of your nose to spite your face.
And the Gates' too. Why think of all the construction wages and taxes they must have paid on the new Gates Foundation Campus. This lavish facility, costing $2 Billion - a mere 5% of the foundation's capital - will be a magnet to the great humanitarians of our time. They'll fly in from all over the world on their private jets to this quiet 12 acre parklike sanctuary in the heart of Seattle where they can serenely contemplate how to best relieve the plight of the world's poor while their needs are supported by 1,200 employees. In between spa treatments and lavish dining they'll confer with other great minds, and hopefully the breakthrough thinking that has evaded us all these centuries can finally occur! At their leisure they can view the historic 15,000 square foot museum that tells of the Foundation's work. Naturally armed guards will discreetly keep them free of distraction caused by the 7,000 homeless people living only a few blocks away.
Why, look at this vision:
Sinclair said the two intersecting, light-filled, V-shaped buildings with a private, landscaped courtyard symbolize the organization's connection to Seattle and its efforts to reach out to the people around the world.
"When I look at the building I think they're like boomerangs that you throw out and they come back," she said.
The nearly transparent structure -- including glass interior walls and fixtures -- is supposed to elicit confidence in the foundation's mission, by making the enterprise inside clear to the outside world, as well as connect the people who work at the foundation, said Steve McConnell, design partner at NBBJ, the Seattle-based architects for the project.
Doesn't it just make you aspire to lend your hands to their noble cause?
Help stamp out iliturcy.
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.
Oh my god a ballmer chair throwing joke! So funnay!
If Washington wants Microsoft to book their sales in their state, then they should remove the disincentives in their tax code that make it worthwhile for a company to maintain a subsidiary in another state. As it is, the state of washington makes hundreds of millions of dollars from other taxes paid by microsoft and their employees.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
"Other states will see this and, if they manage to grow a pair, will also tax them"
They won't. Delaware has been a haven to corporations forever. Florida and Delaware are considered low tax states and thus they benefit by attracting lots of people who pay a little bit of taxes.
We can argue this all day long, but the results are there in front of you. It's already happened.
You were mistaken. Which is odd, since memory shouldn't be a problem for you
lets examine his claim about post dating 13 years of taxes. if this has been law for 13 years why haven't they gone after MS before now, if MS is cause why weren't we in deficet 13 years ago?
If you mod me down, I will become more powerful than you can imagine....
"This isn't a liberal tax and spend issue. "
No, it's not. It's a Tragedy of the Commons issue. Any service provided for "free" (i.e. provided at the expense of non-users) results in over-use of that service. Microsoft should pay for their own fire, water, security, roads, etc., and then they should be free to keep the money they earn for their shareholders.
He who lights his taper at mine, receives light without darkening me.
I will post in the best slashdot etiquette possible. hmm... two evil empires, the State gov. or MS. In a landslide I would choose MS every time in this situation. I don't have to pay the so called MS tax if I don't want. I don't get that choice at all when it comes to the State. The States (not just WA) spend WAAAY more then the take from us. Yes all you liberal do gooders, I said take. Add up the taxes you pay sometime. Don't forget to include all the 'extra' taxes you pay with your post tax wages. WA crying like a little bitch is the ultimate 'no personal responsibility" claim I have heard.
They, meaning all the States, must stop spending more then they have. Take a hard look at bloated employment roles, excessive pension/health care plans, failed social programs and tighten the belt like everyone else must.
If I were MS, I would tell WA to pound f'ing sand and move my entire operation to Nevada. Then let's see how big their deficit would be.
That will help Linux, when the USA Federal Government mandates use and requires all providers to support Linux.
You might want to lay off the crack pipe. They'll be more likely to sign off purchases of Apple computers, designed in California.
For a site about things like basic rights, Slashdot users sure do like to censor "dissent".
The problem with the "Well they are using resources," argument is that you should be getting money for those resources through your taxes on the things they use. Yes, I agree that they need to help pay for thing in the state. That is why you tax their property, tax the electricity they buy, tax their payroll, etc. You tax the things that actually represent their usage. If they have a 100,000 sq ft plant, they should pay property tax on that. It clearly uses resources, land not being the least of those, so you tax them for owning it, much like all of us who own houses pay property tax.
The only reason Washington is bitching is because they have a big budget shortfall. Part of that might be because they don't have an income tax. Ok well I'm sure that is popular with your voters, but it isn't a good way of running things. A state income tax is a reasonable way of making sure that people who use state resources pay for them. You earn money living in that state, you pay out some of that money in tax.
I really don't see they have any room to bitch about this. You don't like that a multi-national does business in different places? Well too bad, that's how it works. They can always leave, and then you'll get nothing.
The trick is to find a good way to tax people and companies such that they pay for the things they use in the state, will not making it too onerous to any group, so that they are tempted to leave. However it seems legislatures sometimes look at big employers as just massive money pits. "Oh we'll just charge them more, they can afford it." Well, maybe they'll leave if you do that.
Rainbird did that to California. They had their headquarters there but it was getting prohibitively expensive. So they relocated to Arizona (where they had a big manufacturing plant). Their employees were generally happy too since cost of living was less.
I don't have a lot of sympathy if a state does something like eliminates an income tax to panders to voters, and then tries to make it up with company taxes. If the companies then leave, well that's what you get. Have to try and make taxes fair to everyone, because in a free country, they always have the option of packing up and moving somewhere else.
Rarely do sales taxes cover things like rent, utilities, and food. Since these are most of the 'base load' for the poor, they are effectively only taxed on their bad habits, EG booze and ciggs, for which a strong argument can be made that they should be discouraged anyway.
Rich people buy fancy cars, boats, buy lots of gas, etc. that DO get taxed.
I have no problem with your religion until you decide it's reason to deprive others of the truth.
And when the mexicans run across the boarder and have babies in the closest ER, they pay taxes on almost everything they buy, except basic food, on the way there. If our tax was income based, the state wouldn't get a penny out of them.
I understand the arguments against a sales tax, but it sure is fair in that almost everyone pays them, not just those in the middle, because with an income tax, the rich and the poor get out of paying them.
About the only way I know people get out of sales tax is to buy only food (not realistic), order things from out of state (legit, but you can't order everything), or have some type of home/small business and lie about things you are buying to "resale" (and that does happen, but not on a large scale).
transporter_ii
Doctors destroy health, lawyers destroy justice, universities destroy knowledge, religion destroys spirituality
What else would the come up next? Tax on taxes?
Don't think it hasn't been seriously considered.
Power does not corrupt - power attracts the corrupt.
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 know you hate MS, well, I dislike MS too, but I let my dislike of MS to affect what is right
A tax on licensing, no matter which party is being taxed, is still plain wrong !
Muchas Gracias, Señor Edward Snowden !
And its also ok, to have your US business with corporate headquarters in the caymans, because that isn't cheating the system, either.
You want to show us how patriotic you are, corporate America? Pay your fucking taxes like you are supposed to.
HA! I just wasted some of your bandwidth with a frivolous sig!
Since a lot of commenters on my blog misunderstand Wa. State Tax Law, I've posted text of the statue there under Notes for commenters at the bottom. http://blog.reifman.org/2009/09/road-balanced-budget-leads-to-microsoft.html * The law does not distinguish between license sales intrastate, interstate or international * By transferring it's software to Reno for sale from Nevada, Microsoft is accomplishing a "sleight of hand" which probably would not pass muster in Washington State court. I also addressed a lot of common arguments people make against Microsoft paying its taxes here - back in 2008: Top Reader Excuses for Microsoft's Tax Avoidance (Idealog) http://www.idealog.us/2008/02/top-reader-excu.html
Huh? How is that any more or less 'wrong' than a tax on anything else? Tax is always an artificial way for governments to get revenue, supposedly because that money goes to create and maintain the economic and social environment in which the company being taxed is able to flourish. Governments will always want to get a cut whenever money changes hands between companies, whether it's the sale of physical goods, services, or licenses and other rights.
"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."
That's not strictly true. While it is true that you avoid some state taxes (e.g. franchise taxes) if you incorporate in Deleware, that is not the reason most firms incorporate in DE.
The main reason companies incorporate in DE is to take advantage of favorable corporate law regarding how corporations may be governed. Things like poison pill statues, how boards are elected, limits on management liability, relaxed rules on board composition, etc. Tax avoidance is pretty minor since, you can't use your DE status to avoid any income, property, sales, or use tax.
- Rob
Think about it. Every dollar someone makes is taxed with income taxes (and sales taxes for a lot of them). That same dollar, keep your eye on it, gets spent, someone else gets it, for producing a good or service that it is exchanged for. They in turn are taxed on it. And again, and again, and again. And it just keeps going like that. Dollars get taxed on themselves several times over what they are worth, and they start as private bank debt notes to begin with and are loaned into existence. And because this is an exchange of debt instruments for debt instruments, the original "fee" that the lender charged can never be "paid off".
It's the biggest complicated ongoing set of economic frauds out there, since they switched from money being representations of past produced wealth (or intrinsic wealth directly), with a natural scarcity that more reflected the real market, to representations of poof created "credit" by some anointed private contractor to the government, which is all the "Federal" reserve is, a private contractor that took over which was legally supposed to be Congress's job on setting the value of the officially recognized and accepted currency.
And that's why we have such an economic mess today, one of the main reasons, they opened up the legal possibility of unlimited future calls on your labor to the banking establishment, "just because", with *no way possible even theoretically* to ever "pay them off".