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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.
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.
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."
The guy writing this article is some loony activist one man army who's been arguing this issue since at least 2004. Who knows his motivations, but let's not read into this article as though it's some sort of concerted effort that Washington Legislators are taking seriously.
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
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".
#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.
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.
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.
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."
"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.
"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....
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.
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.
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!
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.
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
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".