That BoingBoing headline–“Broke-ass Washington state set to give MSFT $100M annual tax cut and amnesty for $1B in evasion“–should make the people (well, Jeff Reifman) at Microsoft Tax Dodge happy–they’ve been wondering where the Seattle Times has been on this issue. Who needs old media? BoingBoing is here.
To catch you up, many people have long known about Microsoft’s bid to avoid paying Washington state’s B&O royalty tax by setting up Microsoft Licensing Incorporated in Reno, Nevada. Jeff Reifman has been reporting on that story since 2004, as he will be the first to mention, in a slightly incredulous, “Has it been that long?” way. (Reifman has worked at both Microsoft and Seattle Weekly.)
Although Microsoft makes no secret of producing its software in Washington state, the idea is that since the sales “location” is domiciled in Nevada, they’re not subject to Washington state taxes. Notes Reifman:
Nevada’s tax rate for licensed software is zero. Washington’s is .484%, lowered in 1998 from 1.5% by lobbying from…the software industry.
Washington state, to my knowledge, has never bothered to challenge the legality of this blatant tax dodge, though the Department of Revenue is well aware of it. Reifman estimates that the tax avoidance amounts to over $700 million by now, before interest and penalties. But collection doesn’t seem to be top-of-mind in Olympia. Taxes on bottled water and soda are. Says Reifman, “Allowing Microsoft to evade the royalty tax to date appears to be an administrative decision.”
Rep. Ross Hunter
Instead, with a Fish-like “Bygones,” there is House bill 3176, with Rep. Ross Hunter as lead sponsor, which would close the Nevada dodge down by specifying that any company with a “substantial nexus” in Washington needs to pay taxes here.
But, the bill goes on to say, the taxes will be figured by apportionment. So in the case of Microsoft software sales, the tax will be levied only on income from software sales to Washington state residents. That, says Reifman, amounts to a $100 million tax cut (so far as Washington state is concerned–other states would have their chance at taxing sales to their residents). But the biggest issue is that the bill’s language seems to give Microsoft legal amnesty, since it sets July 1, 2010, as the date at which, going forward, the state will crack down on “abusive” tax dodges.
Is it appropriate to mention here that Hunter worked at Microsoft for 17 years? I don’t say that to impugn his motives, so much as clarify them. I don’t always agree with Hunter, but I’ve never felt he didn’t have a defensible rationale for his actions. Still, since the state already has a five-year statute of limitations on uncollected tax revenues, it seems peculiar to limit the bill’s impact even further.
Living in Washington State, I’ve seen the state over tax large companies and I don’t blame Microsoft for their actions. You would of thought, that the State would of got the hint, when Boeing moved their headquarters to Chicago years back. The state wanted Boeing to pay for everything around their plants, that should of been shared. They killed the golden goose. The second line for the 777 went to North Carolina, a loss of thousands of jobs, the State and Boeing was trying to blame it on the unions. North Carolina gave Boeing all kinds of tax breaks, it was so obvious where they were going. Washington use to be business friendly, but, since Gary Locke became governor and now with our present governor all they know is spend, now the State with a 2 billion dollar deficit. More businesses are going to be leaving. The whole state supports that sinkhole between Olympia and Seattle. You are even taxed an extra $4.00 for the reflective material on your license plates. The abuse of tax money for a corrupt, incomplete so far over budget, on a mass transit system that supports King County, but, other counties have to pay taxes to support it. A couple years ago They had only 2 trains on a 1.5 mile strip that was completed and they collided. It wouldn’t surprise me if Microsoft started moving more and more of their operations out of the Seattle area.
In your second sentence you wrote “would of” when you should of [sic] written “would have”.
You shoulda learn how to reply. Also, periods go within quotation marks…IN AMERICA.
So far as the over-taxing argument goes, I will just repeat this part of the story: “Nevada’s tax rate for licensed software is zero. Washington’s is .484%, lowered in 1998 from 1.5% by lobbying from…the software industry.” The tax was reduced by over 66 percent. It’s hard to see where the huge burden is there.
I can’t give much credence to “un-business friendly” Washington stories when Forbes magazine rates us the second best state for business, in a listing where taxes are the heaviest weighted factor.
I will happily take any bets on Microsoft moving to Nevada in my lifetime.
…you’ve got there, Audrey.
I don’t know what “think skin” is. DOWNVOTE.
The entire argument is ridiculous. Washington is a relatively friendly state to do business in, and the idea that tax breaks exclusively can be used to develop business is ridiculous. Did you see my story on the billions in special tax breaks the state is already giving out? Washington also gave Boeing tax breaks–$3 billion of them–and they moved the line to North Carolina anyway.
The problem lies in the tax nexus laws, which is precisely the issue Michael is bringing up. By allowing companies like Microsoft to skate by the tax based on a tiny Nevada office, we lose tons of revenue and create an un-friendly business environment. Large corporations can shop around their various functions for tax benefits (Amazon is a Delaware corporation, for instance), while small and medium sized businesses in the state bear an increasing burden.
I’m tired of hearing about how put upon corporations like Microsoft are, not because I don’t appreciate the need to create economic development in the state, but because so many people treat companies like MS or Boeing and the end-all, be-all. They’re not.
Healthy economic development means creating jobs at all income levels, and we need real tax reform to do that. What we do currently is carve out special exemptions for the largest corporations (who are, of course, politically connected). In many ways, this comes at the expense of smaller and mid-sized businesses, who bear a relatively larger share of the tax burden. That means fewer middle class jobs. But whenever we try to address this skewed climate, corporations cry foul and argue that this pushes them out of the state, which has ripple effects through the rest of the economy, from services to construction to restaurants, whatever.
But buying that is like cutting off your nose to spite your face–which of these companies, despite their tax breaks, hasn’t already laid off people in the region, further depressing our economy and putting extra burdens on state resources that they’re not paying into? Seriously, this is not all that complicated–people need to look at the bigger picture. What we’re doing is trying to give a small number of corporations a monopsony on the labor market, and act as though that’s a good thing.
Last year Ross Hunter ripped off WA taxpayers by secretly passing the “Microsoft Subsidy Bill”. Hunter forced WA voters to pay $10,000 per student per year for Microsoft foreign visa workers (H-1B and L-1) and their family.
Hunter duped lawmakers into passing the bill. Scary that Hunter is leads the finance committee for the house, the math in his bill literally does not add up. How can we trust this fraudster with the finances of our state? Shame on the HB 1487 “yea” voting lawmakers for not reading the bill that contains very material omissions, nor checking the facts or math. For example, lawmakers neglected to communicate that these highly paid H-1B and L-1 temporary foreign visa Microsoft workers ($92,000 per year avg) ALREADY receive Microsoft tuition reimbursement.
It should be noted that these workers are the SAME foreign visa workers who replaced 5,800 Americans laid off by Microsoft in $92,000 per year and are the exact same workers Microsoft hired to replace the 5,800 Americans they laid off in 2009. One third of the Microsoft Puget Sound workforce are these temporary visa workers. Microsoft claims they can’t find qualified talent yet refuses to look at even their own employees. The reasoning behind this is sinister (cooked up by Bill Gates and H-1B mastermind and convicted felon Jack Abramoff). Makes no sense to average laid off Microsoft workers like me why they do this – only thing I can think is the last laid of unwashed computer users or Microsoft Windows is in India. The government turns a blind eye to the acknowledged fraud (over 20%), I don’t know why, must have something to do with corporate greed payoffs and possibly national defense. Otherwise, why would politicians from our state, who attended schools in our state, sent their kids to schools in our state, and work for US companies possibly think that their own children are too stupid to take jobs in our own backyard?
NOW, Hunter artfully manipulates WA State legislature will a bill to forgive Microsoft’s tax dodge. Microsoft owes the State of Washington past due sales tax – reports show Microsoft is arrears between $110 million and past due sales tax – estimated between $110 million and $1 billion. No small change to restoring jobs for Washington State, helping people in need, and stimulating our economic recovery.
Hopefully the current debacle with Sen Jim Bunning will remind our elected officials that they are elected for the people, by the people, and NOT for Microsoft corporate greed, buy Microsoft for State and Federal legislators.
Americans are not stupid and we’re madder than hell and not going to take this any more.