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10% Tax On Custom Software, $100M Tax Cut For Microsoft

Posted by Soulskill on from the since-they're-so-strapped dept.

reifman writes "Last week, the Washington State House of Representatives passed a bill which would impose a 10% tax on custom software while all but eliminating a $100 million yearly tax obligation that some say Microsoft is wrongfully avoiding by routing large chunks of business through an office in Nevada. 'I believe we've got an issue of justice and fairness here,' said Rep. Maralyn Chase. 'Most of the custom software purveyors are small businesses. It's a question for me of how we fairly distribute the tax burden.' 'It means that a 5 person team of entrepreneurs building a cool custom software suite, or a group of system integrators, would face a 10% tax on their services while keeping the exact same project in-house would not be taxed,' wrote Rep. Reuven Carlyle. 'It would be a massive blow to the entrepreneurial community in our state.' The bill won't become law until the House and Senate work out how best to raise another $300 million in taxes. A sales tax increase on consumers is also being considered."

17 of 305 comments (clear)

  1. Bad bill... by LostCluster · · Score: 5, Interesting

    This is clearly is bad for the individual geek who makes their living selling simple custom programs that do only what the user wants/needs and nothing that they don't, unlike Microsoft omnibus packages. It's a case of government by large corporation over the individual if this passes.

    1. Re:Bad bill... by NotBornYesterday · · Score: 5, Interesting

      Maybe that should be their next step. If MS refuses to pay their fair share of taxes (after all, they enjoy the benefits of the roads, police, fire, and other services that are supported by these taxes, correct?), WA should launch an initiative to go open source. Whether they follow through or not isn't the point (although I'd love to see it happen). Getting MS back to the negotiating table to avoid being embarrassed in their own backyard would be priceless.

      --
      I prefer rogues to imbeciles because they sometimes take a rest.
    2. Re:Bad bill... by phantomfive · · Score: 5, Interesting

      In a poor economic situation, cutting spending is a hell of a anti-stimulus for economic activity...

      This is an incredibly misleading over-generalization, one which I keep seeing smart people make. If you think about it, it should be obvious that whether 'cutting spending' is good for the economy or bad is extremely dependent on what the money was being spent on, and where the money was coming from.

      On the spending side, it is an extremely bad idea to cut spending on roads if some of the roads become unusable as a result (obviously). It is a rather good idea to cut spending if most of the money ends up directly in another country. This should also be obvious.

      On the income side, when you spend money, it has to come from somewhere. If the government happens to have a pile of cash saved up, a recession is definitely a good time to spend it. If the government has to increase taxes to get the money, it could have a net negative effect on the economy (this also depends on where the money goes: if you raise taxes to build a new road, the resultant positives could outweigh this negative). If the government has to borrow money, it could have a negative effect, because it borrowed money from people who would have otherwise spent the money on potentially more valuable projects. If the government has to get money by printing more, well, you might as well just hit your economy with a sledgehammer.

      See how it is? It's not enough to say spending is good. You have to look at the details. Geeks should be good at that.

      --
      Qxe4
    3. Re:Bad bill... by perlface · · Score: 3, Interesting

      Washington State is spending more money this year than last year - that is not a cut in spending. They have wasted $300mm on a unneeded Data Palace (Center) among other things... A 10% sales tax on custom software is a method to shift funds from the $1billion+ spend on state IT projects into the general fund - because the 10% tax will apply to state projects as well.

    4. Re:Bad bill... by phantomfive · · Score: 2, Interesting

      In fact, the return on government spending is LESS than individual spending (I'm trying to dig up those numbers now).

      It's an incredibly difficult number to calculate, because of the lack of good experiments. You only have a recession every decade more or less, so it's hard to come up with good generalization. Maybe in a century or two we'll have it down....

      But for now, I recently read one economist who managed to put the multiplier at around 0.6. He was only able to do this using data from wartime, though, which is probably not the best way to spend government money (once a bomb explodes, it's of no more use to the economy). If the money instead is spent on a new freeway, the multiplier can be much much greater than 1. So it is not simple at all, to calculate the effect of government spending accurately, you need to figure out exactly where the money is coming from, and where it is going.

      Wikipedia has a rough overview of the subject.

      --
      Qxe4
    5. Re:Bad bill... by Red+Flayer · · Score: 3, Interesting

      That money is best left in the hands of the individuals to spend as they will.

      That's a bold assertion. What happens when they spend all the money on consumer goods produced in Asia?

      What happens if, instead, the money was spent on infrastructure that directly benefits people in the state?

      You cannot spend your way out of a recession.

      On what basis do you make that assertion? Just regurgitating Austrian or Chicago precepts -- or do you really have an understanding of economics? Even the Austrians recognize that public spending in times of recession stimulates the private economy and can hasten the end of a recessionary period... the value judgment on whether this is the *optimal* course of action in the long run is a different matter.

      Every dollar that goverment spends is one less dollar that the individual spends. In fact, the return on government spending is LESS than individual spending (I'm trying to dig up those numbers now).

      Please do share them when you've found them. I hope they are broken down by sector. Do you have them by state, or just federal? Does the federal breakdown only include domestic spending? Are the societal benefits of the judiciary spending included?

      If it were that easy to determine exactly how effective public spending is, we wouldn't be in this quagmire. I do hope you produce some data that is useful.

      --
      "Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai
    6. Re:Bad bill... by tweek · · Score: 3, Interesting

      Sorry for not posting sooner. Sick child in the house.

      That's a bold assertion. What happens when they spend all the money on consumer goods produced in Asia?

      Irrelevant. Those goods may be produced in Asia but they are sold by people with jobs here - advertisers, retail staff and so forth. I'm not up for getting into a massive discussion about it but take a look at http://cafehayek.com/myths-and-fallacies and some of the articles there. You should have more respect for his opinion than mine. To answer the second question, I'm not an economist but he is.

      I find it interesting that you mention "Even the Austrians..." because I was just reading about that today. I really need to use some sort of web clipping addon.

      Anyway, I would have to say I align myself pretty strongly with Hayek but my personal philosophy is whatever provides the greatest amount of individual economic freedom.

      And I'm still looking for a good "unbiased" source of information on government spending. I hesitate to link to a third-party news source (especially News Busters) quoting Milton Friedman from a book, however this link has a subsection that is of interest:

      http://newsbusters.org/node/27813/print

      My google-fu isn't strong enough at this late hour but I also found an interesting statement:

      "When the economy is doing fine, he estimates, $1 of government spending yields 40 cents in extra production and related jobs." - http://www.dailyfinance.com/story/does-the-return-on-government-spending-triple-in-a-depression/19200069/

      In a such a short article, there's not much meat but I'm interested in seeing any corroboration and/or rebutal to the theories at the end.

      Taken in light of the Friedman statements and the basic reality of where government gets its money would seem to suggest that there IS a very small window where government COULD stimulate the economy.

      However that window is smaller, IMHO, than trying to hit a two-meter thermal exhaust port. On one side (spending too early) it's wasteful and takes money from the private sector. On the other side, you end up with massive inflation.

      I think the safer course of action with those odds is to leave the money with the people who know how to spend it best in their situation, the people who earned it.

      --
      "Fighting the underpants gnomes since 1998!" "Bruce Schneier knows the state of schroedinger's cat"
  2. FOSS Contributions by c++0xFF · · Score: 3, Interesting

    At first I thought ... "that doesn't affect me, I run Linux" ...

    But what about paying a developer to work on a FOSS application? Would that be taxed? It is custom software, after all.

    1. Re:FOSS Contributions by ircmaxell · · Score: 5, Interesting

      Actually, that's the ticket. If by custom, they mean written against a customers specifications, then it's pretty shitty. If by custom, they mean for one and only one client, then it should be pretty easy to get around. Imagine this. Company A hires you to build a custom piece of software. Once you're done, you just need to make it available for purchase to other companies. Then it's strictly not "custom" anymore, since more than one company can use it. So it all boils down to their definition of custom...

      This is nothing more than a prime example of lobbyists in action. How else could you explain that the first "community" to do this contains one of the largest "non-custom" computer engineering firms in the country? I wonder what the state congressmen (or whatever they are called up there) got in return for this sweet deal... Money? Drugs? Sex? Free Computers?

      --
      If a man isn't willing to take some risk for his opinions, either his opinions are no good or he's no good
    2. Re:FOSS Contributions by beanball75 · · Score: 5, Interesting

      At first I thought ... "that doesn't affect me..."

      This is a very common attitude that is degrading our lives in all areas in my opinion. To me, it's like playing chess and looking just one move ahead.

    3. Re:FOSS Contributions by c++0xFF · · Score: 4, Interesting

      I was looking over the proposed law and found some interesting information on this.

      First, I'm not a lawyer or politician. Be ye forewarned.

      Page 87 makes it seem that this isn't a new tax, but a removal of an exemption. From the document:

      (7)(a) The term also includes the sale of or charge made for custom software and the customization of prewritten computer software to a consumer, regardless of the method of delivery to the consumer. (b) The term also includes the charge made to consumers for the right to access and use custom software and customized prewritten computer software, where possession of the software is maintained by the seller or a third party.

      In other words, the following are taxable:

      1) The sale of "custom software"
      2) The amount paid to customize software that's already written
      3) Licensing fees to access custom software

      Back to the original question in this thread, it seems that FOSS could fall under 2) in my list -- developers are often paid to add specific features (thereby customizing the software) by individual or companies. As nothing is charged for the sale and licensing of FOSS (generally), 1 and 3 woudn't apply.

      I will say, however, that "custom software" is not defined in said document.

    4. Re:FOSS Contributions by Rene+S.+Hollan · · Score: 2, Interesting

      Fine. I won't write software. I will write books. In a nice OCRable font. About a nice piece of fiction of how to translate the narrative into executable code.

      --
      In Liberty, Rene
  3. Re:Andrew would be upset, again. by lorenlal · · Score: 4, Interesting

    Just so you know, the state of Michigan tried a 3% tax on gross receipts on physicians... It got shot down in the state senate after the house passed it. They're trying it again in by hiding it in a new budget bill.

    I bring this up because it's in the same idea of trying to find new tax sources, that affect a small population to make it not unpopular... And it helps if that particular group is perceived to be "well off." It's poor policy to make one profession bear the burden of the masses (IMHO). It's a great way to try to drive business out of an area. It's also a great way to pass the burden onto the consumer without and claim that taxes have been raised.

  4. Move by ScientiaPotentiaEst · · Score: 2, Interesting

    Fortunately my little corporation isn't in Washington. I know first hand that there are many states more conducive to small business. Unless there is some specific reason for remaining there, it isn't be too hard to move. 10% is no small increase, so it's definitely worth looking into a change of locale.

    I don't suppose anyone in the WA government considered reducing expenditures enough to make up the difference. Too radical a concept I guess.

  5. Re:Andrew would be upset, again. by Archangel+Michael · · Score: 2, Interesting

    This is why tax policy should be re-evaluated. We should not be taxing things we want people to do, we should be taxing the things we don't want people doing.

    If we, as a society, value something, taxing it is the most assured way of destroying it. Let us legalize drugs, prostitution and every other "victimless crime" we have now, and tax it.

    I have never understood the idea of taxing things people need like income.

    --
    Agent K: A *person* is smart. People are dumb, stupid, panicky animals, and you know it.
  6. Re:Andrew would be upset, again. by nomadic · · Score: 3, Interesting

    I have never understood the idea of taxing things people need like income.

    Because that way you can pay for other things people need, like roads, hospital, military protection, police, fire, etc. There honestly isn't really anything taxable other than income that can cover these things.

  7. Re:Microsoft's tax cut and a sales tax by LordKazan · · Score: 3, Interesting

    sales taxes are not just not-progressive - they're regressive.

    Rich and poor people need to buy a lot of the same basic things that are taxed - that tax eats up a larger percent of a poor persons income. that is the definition of a regressive tax.

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