Slashdot Mirror
Microsoft Freeloading In Washington State Courts
reifman writes "For tax purposes, Microsoft reports that it's earned its estimated $143 billion in software licensing revenue in Nevada, where there is no licensing tax, as we discussed a few weeks ago. However, for legal purposes, Microsoft relies on Washington law and its underfunded courts to defend its contracts as it did in Microsoft Licensing GP vs. TSR Silicon. Application of common legal doctrines such as nexus, the step doctrine, and alter ego theory may lead to findings that Microsoft owes the state more than $1 billion in taxes, interest, and penalties."
Do you go out of your way to find the way in which you can legally give the government the most possible tax revenue?
It is absurd to suggest that any public company not do the maximum they can to minimize their tax liability. You obviously have an ax to grind with MS, and that's fine, but digging up this kind of garbage is ridiculous. The same statements that you have made about MS can probably be made about 95% of the Fortune 500.
"Man is nothing without the works of man" -- Helvetius
I wonder how much of an impact would be, for MS, to pay that amount.
I also wonder how much did they expect this to happen but did it anyway, just in case it works.
So, they have a tax free ride, while all along I have to pay taxes for everything?...how convenient for them.
It could be interesting to have all the corporations based in the US pay taxes, not the huge and outrageous taxes customary in the US, but something like a flat rate 12.5% like they do in Ireland, it would generate more income for the state and impulse the economy.
How much revenue does Washington State get from Microsoft? Not just in direct taxes but on all the taxes that the employees pay? Odds are that one billion is a drop in the bucket and Washington state will not risk ticking off Microsoft.
Microsoft is a money pump for Washington State. How many billions of dollars a year does it bring into the state from other states and even countries?
Not that I say it is right but Washington State will not go after Microsoft for this because it just isn't worth the effort or the risk.
See my blog http://ilovecookes.blogspot.com/ for light hearted technical information.
I live here in Seattle, and this has been discussed in the newspapers before. Actually Microsoft does sell software here in Washington, just not very much. However, I think the state is just as happy to have all the high paying jobs. Technically Boeing is the largest single employer here in Seattle and they have sold planes out of Delaware for many years. It's nothing new.
Washington state has sales tax in place of income tax in other states. Currently it is 6.5% state wide, with an added 2.5% here in King county. So MS, Boeing, Motorola, Adobe, etc. all have sales outlets outside the state.
once more into the breach
Did you see the Borg icon next to the story? Anything less than scathing villinization of the MacroHard Collective is blasphemy!
Over half of what I earn goes to the government in taxes. Most of which get wasted so industry doesn't have to pay to expand their infastructure. OT but for example my power bill just went up to pay for new transmission lines to the states. But the people in the states can buy power produced an hr away from me for half the price I pay.
And it couldn't happen to a nicer guy!
So then Microsoft would have no problem with me buying my MS licenses in China and using them in the US, right?
Yeah, riiiiiight.
.
I have a mutual fund that includes MS stock and I expect them to use all legal means possible to reduce their expenses. One way is to minimize taxes.
I would also point out that MS does not really pay taxes. This is just another expense that gets passed to the consumer.
I think it was during their anti-monopoly case that it came out they hadn't paid taxes in something like 3 of 4 years.
I swear to God...I swear to God! That is NOT how you treat your human!
This is why we need to do away with income taxes, and use only a point-of-sale tax like the FairTac (http://FairTax.org)
So what? This is what tax lawyers DO. Any competent company would do this, and I don't see anything wrong with it.
Why does the name of Michael J. Fox appears at the top of the contract?
Was reading an article from the BBC on corporations in the UK claiming other countries as their headquarters to save tax dollars.
Evidently if you do this in the UK, they check see that the heads of the company are ACTUALLY operating in that country.
Why don't we do that here in the US? It seems like a fair standard to me.
Is it Nevada? No? Though luck. Pay up suckers.
Change their accounting and tax laws and this "problem" will go away! On the other hand, one of the downsides of having a federal system with 50 semi-independent states is you have competition. Washington might not like them, but Montana or Idaho might be more than willing to let Microsoft set up shop with nary a peep said ill of their practices.
Of course, the up side to having that competition is that you have the ability to move to a state that is governed to your liking instead of having to stew in bitter resentment as a one-size-fits-all policy is forced on you.
Microsoft doesn't owe Washington jack crap, because what's it's doing with this Nevada thing is entirely legal. If Washington wants a piece of the pie then they need to change their state law to prohibit this practice by entities incorporated in Washington.
why doesn't the government taxes us 100% so we can all have free food, free housing, free entertainment, free transportation, etc.?
There are quite a few of us who wouldn't mind such a system. Or at least higher taxes for better services. Then there are people (like you, I assume) who do mind such. Government makes a compromise between the groups by taxing a part but not all of your profits. If you don't like the compromise made in your country, you can move to a country with government that is closer to your idealogies. If such a country is willing to accept you as a citizen, of course.
Application of common legal doctrines such as nexus, the step doctrine, and alter ego theory
Those don't sound like legal doctrines. They sound like sci-fi movie titles.
Give me Classic Slashdot or give me death!
In the last 20-25 years, the US has become far less business-friendly than it once was. A lot more regulations, an increasingly litigious society coupled with a legal code that is often vague, more expectations on benefits, etc.
It also doesn't help things that the expectations of the American people haven't changed. My boss' cousin works for Honda as an assembly line worker. He makes a fair wage; the UAW guys practically down the street from their plant expect a few times that pay and benefits for the same job which puts their combined income at a level higher than most of the senior software engineers I work with! They act like it's still 1950 and the American car manufacturers face no serious competition from cheaper, more reasonable Japanese and Korean labor and products.
Trial courts are based at the county level, not the state level. Counties get their revenues from property taxes and sales taxes within their borders, not state income tax. It is wrong to say that Microsoft is avoiding paying the same taxes that fund the courts.
Also, each of the doctrines mentioned in the article has a specific usage. They don't stand alone as a cause of action (lawsuit). The author of the original article is not a lawyer. As they say, "a little knowledge is a dangerous thing".
I feel obligated to explain that the tests for personal and subject matter jurisdiction of a court are different than the ones for where a business is "located" for tax purposes or corporate charter purposes. First off, nearly all US corporations are based in Delaware for numerous reasons - one of them being their well developed corporate law jurisprudence (the Delaware chancellory courts are widely accepted as being among the best in the country). Second, companies cannot just file lawsuits anywhere they feel like. They have to get personal jurisdiction of the court over the defendant - say you have a contract dispute with a company in Pennsylvania over a deal you made in Florida, but you live in South Carolina. If the company you are suing has no place of business in SC and doesn't do substantial business there, you cannot just go to the SC courts and sue them. You can file a lawsuit in Pennsylvania or (probably - depending on the state long arm statute) Florida. You may also be able to file suit in another state if the contract says that disputes will be resolved by the courts of X state (depending again on the long arm statute). Any other state that these 3 (including your home state of South Carolina), and the court will almost certainly grant the company's motion to dismiss for lack of personal jurisdiction.
Microsoft, being a big company with lots of negotiating power, probably had a choice of law provisions put into these contracts putting them into Washington state courts. Alternatively, these companies that the lawsuits are with could have had their own primary offices in Washington state - meaning that that's where jurisdiction can attach. They can't just willy-nilly ask for a change of venue to Nevada just because that's where Microsoft is "based" for tax purposes. The only way for Microsoft to get into court in Nevada is for them to sue a defendant located in Nevada, a Nevada choice of law provision to be inserted into the contract, or for SOMEONE TO FILE SUIT AGAINST THEM IN NEVADA - presuming that their tax residency there is sufficient under Nevada's long arm statute.
Oh and if somehow a corporation that is truly not a "citizen" of Washington got hauled into court there by Microsoft, any lawyer would file to have the case removed to federal court, then probably for a transfer of venue to a district court nearer to the dispute or defendant. This is of course provided that Microsoft and the corporation are completely diverse (no commonalities of state citizenship) and the dollar amount in dispute is over $75,000.
-= According to Wikipedia =-
Astroturfing is an English-language euphemism referring to political, advertising, or public relations campaigns that are formally planned by an organization, but designed to mask its origins to create the impression of being spontaneous, popular "grassroots" behavior. The term refers to AstroTurf, a brand of synthetic carpeting designed to look like natural grass.
Thus, submitting a story to your own blog is probably Astroturfing.
Good for them. This is what they pay their lawyers and bean counters for. If they weren't working the system like this I would be disappointed.
All businesses and individuals should reduce their tax burden any way they can. If uncle sugar didn't want it to happen he would change the rules.
Do you go out of your way to find the way in which you can legally give the government the most possible tax revenue?
""Anyone may arrange his affairs so that his taxes shall be as low as
possible; he is not bound to choose that pattern which best pays the
treasury. There is not even a patriotic duty to increase one's taxes.
Over and over again the Courts have said that there is nothing sinister
in so arranging affairs as to keep taxes as low as possible. Everyone
does it, rich and poor alike and all do right, for nobody owes any
public duty to pay more than the law demands."" - US Federal Court judge Learned Hand
Life is hard, and the world is cruel
Nothing is changed in a license: it goes out with the CD that is taken as a cost of another department. So out of that 143 bn, what is spent on costs to attain that revenue that isn't counted as a cost elsewhere?
NoYob's criticism was simplistic too.
The issue is that rather than paying what the spirit of the tax law says, they spend money to avoid it.
Therefore more money is spent closing those loopholes. And more money spent checking people's tax returns. And more money has to be collected from those who pay so little tax, there's no benefit to paying someone to find those tax loopholes.
If everyone paid what was needed, the average tax burden would reduce quite a bit.
It's possible that the Washington State government is perfectly fine with the situation. After all, I'm sure Microsoft brings in a lot of money to the state despite finding a loophole in this particular area.
What M$ is doing in not right but is not illegal apparently. so for any thing to happen the law needs to be changed. and I believe this guy has been trying to do this for years for this story has been posted several times on slashdot, with hundreds of comments on each post with same gist. http://news.slashdot.org/story/09/09/22/225233/Microsoft-Tax-Dodge-At-Issue-In-Washington-State (Sept 22, 09) http://slashdot.org/article.pl?sid=08/02/04/1520219 (Feb 04, 08) and http://slashdot.org/article.pl?sid=04/10/01/2137228 (Oct 01, 04)
Trying to minimize their tax liability in a grotesquely complex and arbitrary system. Quit being righteously indignant. You do it too. Taxes are not voluntary. Everybody pays what they have to and no more.
Warning: this article may contain humor, sarcasm, parody, and perhaps even irony. Read at your own risk.
It is absurd to suggest that any public company not do the maximum they can to minimize their tax liability.
It is similarly absurd to suggest that concerned individuals and governments not do the maximum they can to ensure that corporations taking advantage of government services pay for those services. I find it very telling that libertarians around here consistently and aggressively stand up for the rights of massive corporations, but rarely, if ever, stand up for actual human beings.
No you three ARE the idiot.
MS have a monopoly. A genuine one. If you want Microsoft Windows, you have to buy theirs. It's called "copyright" "patent" and "trade secret".
Therefore the price isn't what is profitable, it's the maximum that the market will bear.
If the price goes up, they get more per-unit but even fewer units and therefore profits go down.
If they counter it by increasing price again, then they get even fewer units and profits go down more.
Until the market doesn't buy any more.
If you think this is news, you may want to look into what's special about Zug (Switzerland).
the net result to the state / province / country, may not be as bad as companies which offshore their employees ( and the taxes those employees pay ) to another country. The total of the employees' taxes may be greater than the corporations taxes.
Piracy is rampant in China, so MS adjusted their prices there. See, for example: Microsoft cuts prices in China to fight piracy.
"Microsoft said it had slashed the price for Office 2007 Home and Student Edition to 199 yuan ($29) from 699 yuan ($102)."
"But I don't think most people report their income in an entirely different state to avoid paying taxes."
Most people don't have the opportunity. Those that do, probably would. I would.
"Since when is everybody else does it an acceptable argument?"
Actually, for many things it IS a perfectly acceptable argument. It implies that the problem isn't the action by the entity, but that the act is permitted - and tolerated (or even accepted) - by society.
"Ehhh... I guess it is true that a public company's first responsibility is to maximize the investment of its stockholders... Which minimizing tax liability will help accomplish... But you really think it is absurd to be surprised that a company would go this far?"
Of course it's absurd to be surprised. To me this sounds like an uncomplicated decision for any corporation. Structure your national presence to minimize the tax burden, structure your litigation to maximize your chance of success. It would be absurd for a publicly traded company to do any less.
"The problem is that the system is being abused - not that Microsoft is committing the abuse."
Calling it "abuse" doesn't make it so. If Microsoft is operating within the rules then they are not abusing the system, they are "using" it. If it isn't working well, then it should be changed.
So you vouch for global patent system, eh? How 'bout A FEDERAL TAX SYSTEM?!
I have zero respect for Micro$oft.
I find this conversation and others about state taxes interesting because people rarely bring up the real problem.
Federal taxes.
I pay far, far more in Federal taxes than state taxes. And what do those assholes do with it? Send it to another state? Force the states to implement federal laws which the federal govt. has no jurisdiction over by holding back highway money to improve the road system I actually use? Use it to buy votes from old people and poor people? Pay assholes $8k to buy a house or $4.5k to buy a car? Seriously, wtf?
The Federal govt should be doing things like funding the military, cross-state law enforcement, food and drug safety, diplomacy, etc.. not bullshit vote pandering and wealth redistribution. I have no control over how the federal govt spends my money, I have 50-200X the control over my local state.
So quit whining about the big mean evil corporations and look at the real problem here.
Washington State is a college in Pullman.
Why are Washington's courts underfunded despite the State having the additional taxes compared to Nevada? I mean, even if Microsoft does not pay their "fair share", at least some other companies in the State do. And yet, the courts remain "underfunded".
Could it be, that the tax revenue is being used for something else, and that even if Microsoft did pay as kdawson would want them to, the courts would've remained underfunded anyway?
In Soviet Washington the swamp drains you.
of it's software, but has no problem trying to not pay for taxes. Seems if microsoft is leading by example then people should have no problem getting microsoft software for free.
This is pretty much standard operating procedure for corporations from "mom and pop" all the way up the chain to multi-billion dollar businesses. It's been this way for decades and will continue to be this way.
This wouldn't be any kind of news if it weren't MS.
"Growing old is inevitable; growing up is optional."
Washington State has absolutely horrible tax laws. The tax rate on business is insane and there have been many companies (Boeing, Amazon, etc) that have publicly announced closing or reducing operations in WA due solely to the tax burden. I'm not surprised that Microsoft would do the same.
Even with the high taxes, we still have a huge deficit. Go liberal/progressing mindsets!
No, WA doesn't have an income tax. They do, however, have a pretty hefty sales tax. Not far from the MSFT main campus is a strip of road that has a Jaguar/Land Rover dealer (I think they have Lambos, too), Rolls/Bentley dealer, BMW, and Aston Martin dealers, along with a used car showroom that carries new Lotus cars and used cars most of us will never afford. All of them are within a few blocks of each other. All of them pass on to the state of WA a nice chunk of change with each car purchased, and I doubt any would be there (except for maybe BMW and Jag/LR) were MSFT not down the road.
The point is, the state government is getting their money one way or the other, and WA has chosen the sales tax route. In addition to the sales tax, WA gets to collect corporate tax from the car dealers and big-screen TV dealers. WA was also wise enough to encourage MSFT to stay far enough from sales-tax-free Portland so as to not make it worth the drive.
Just want to clarify things for a few of the commenters: Although offensive, it's completely legal for Microsoft to sue in Washington courts on its Nevada-based contracts. However, it's record of doing so further erodes its tax argument that it isn't in the software licensing business in Washington. The article, if you take the time to read it, explains why Microsoft's tax practices may constitute illegal tax evasion. It's really up to the Department of Revenue to explain why it's as yet chosen not to contest Microsoft's returns - and they are preparing to respond again soon.
The TFA (one of them) says: Since the tax is small, less than half a percent of gross revenue, it does not violate the Commerce Clause of the Constitution, which regulates interstate trade.
Say WHAT?
The commerce clause says:
[The Congress shall have power] To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;
Not "except for state taxes under one percent". All commerce. Every last copper.
(And how is a tax totaling a billion dollars "small"?)
If nothing else in the article seems bogus that's an incandescant red flag.
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
Hmm... A company imports cars into the US and sells them here.
Q: How much profit do they make?
A: sale price minus their costs, of course!
Q: so what are their costs?
A: Um... they'll tell us?
Q: Riiight....
I despise Microsoft software. It is the bane of my existence, but give me a break. I assure you, Microsoft-related court fees have next to no bearing on your economic situation.
Help me understand this:
1. Microsoft is the 3rd largest employer in your state
2. You are in a recession
3. You have a 9.3% 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 just like every other American, and reduce taxes on employers like Microsoft, so that they can afford rehire to your residents.
Think again.
Boeing only just moved its headquarters from Seattle to Chicago in 2001.
Analysts are predicting that Boeing's production facilities could be gone from WA state entirely in another 10 years, taking 100,000 job with them.
If an airplane manufacturing company can up and leave, a software company sure as hell can up and leave.
"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands." - Judge Learned Hand
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
What you are saying is that because the indirect effects that are caused by every other business on earth are caused by Microsoft as well, they should be exempt from playing by the same rules as the laundry shop next door? Interesting..
Of course, the implied threat that MS might leave the area in your post makes it OK to not play fair. The bullies are always right, after all. ;) argument of modern business.
"I did not punch you in the face and you still complain that I took your lunch money? Maybe I should mash you into pulp after $educational_institute is over." - The killer (literally