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

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."

Comments

Bad bill...

[LostCluster]

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.

Re:Bad bill...

[Red Flayer]

Too late, it's already done.

Yeah, it's all done, except for those pesky State Senate vote and Governor sign/veto issues.

have completely inored the most obvious: closing the MS tax dodge instead of giving them a free pass that this bill just did.

It sounds good until you realize that MS have WA by the balls. Piss them off and they move employees out of state. Boeing did it... MS could too. Sure, there's no state income tax, but that's a lot of sales tax WA won't collect.

Or they could just I don't know cut all the extraneous crap that they shouldn't be doing to begin with but I suppose that actually solving the problem would piss off everyone dependent on the bloat.

Have you seen the WA budget over the past two years? They've made DRASTIC cuts in spending. The question is if they can find another $300 MM to cut, or if they're better off find additional $300 MM in revenue. In a poor economic situation, cutting spending is a hell of a anti-stimulus for economic activity... the better course of action is to wait for economic recovery to make additional budget cuts (whether or not that would actually happen is a different story).

Re:Bad bill...

[NotBornYesterday]

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.

Re:Bad bill...

[phantomfive]

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.

Re:Bad bill...

[Red Flayer]

OMG how the fuck is increasing taxes , i.e., money flowing to the government, going to increase the economy vs cutting out the middleman and just having the money flow in the economy in the first place??

Because a lot of the money flowing in the economy in the first place doesn't flow. It is hoarded, it leaves the local economy when used to purchase non-local goods, etc.

Never mind the fact that *some* public spending has a *positive* impact on the economy greater than the amount spent (public mental health services, for example).

And never mind that while the government is the "middleman" in the spending, they are not extracting profit. This is not like a creator-wholesaler-distributor transaction where the wholesaler takes some cash and runs off with it as profit. The tax money is returned to the economy, via employee wages, etc. The question is the return on that spending.

But, like, OMG, whatever...

Re:Andrew would be upset, again.

[Sponge Bath]

Andrew Stack would be upset at having to pay any taxes. He was also a loony. The selective 10% on custom software is a supremely stupid thing, but invoking the name of an anti-government crackpot isn't helpful.

Re:FOSS Contributions

[ircmaxell]

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?

Re:FOSS Contributions

[beanball75]

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.

Re:Tax custom software ? logic ?

[Aquitaine]

Sales tax doesn't usually apply to custom software, where 'custom software' means you can't just buy it on a shelf or download it. My company sells custom software that runs youth sports leagues.

We pay income tax on all our revenue, of course, but we don't have to collect sales tax so long as it's a 'service' -- meaning no 'click here to download our software.' So custom software is not currently taxed in most states.

Washington state also doesn't have an income tax at all.

Depending on your current state and existing tax burden, I could see paying a fair tax for something like this, but not ten percent. Custom software is already pretty expensive (possibly one of the reasons it's not currently taxed) and because it doesn't have fixed price, it's tough to track for tax purposes -- I could say 'well, our software costs a hundred bucks, but my consulting fees to set it up and maintain it for you are $10,000 a year' since that's a professional fee/service. Sort of how attorneys work - you're paying for their expertise, not really for a 'product.'