Keeping Microsoft Happy 395
Jeff writes "In Citizen Microsoft, I report on Microsoft's use of Nevada corporations to avoid approximately $327 million in Washington state taxes while telling voters they need to pay more to fund education. I also contrast Microsoft's attacks on the open source community with its in-state lobbying efforts and its recent promise to get more involved in local politics. The cover has Gates in a gorilla suit."
The Article. (Score:3, Informative)
September 29 - October 5, 2004
Citizen Microsoft
It's time we stopped acquiescing to the behemoth in Redmond, because what's good for big business isn't necessarily good for Washington.
by Jeff Reifman
By any measure, Microsoft is capitalism's greatest success. In July, the company announced plans to distribute $75 billion in dividends to shareholders over the next four years. One executive, in a morale-boosting internal e-mail, recently called Windows the most successful product in history. Even Googling "corporation" returns Microsoft at the top of the search results. But what has been best for Microsoft's shareholders has not always been best for Washington taxpayers and our community.
Every time Microsoft hires someone in Washington, it creates 3.5 new jobs here. According to the company, Microsoft created an estimated 117,620 new jobs in Washington between 1990 and 2001. But while Microsoft promotes the positive impact of success, all this growth has placed a heavy burden on our schools, roads, and overall livability.
Recently, Forbes ranked Seattle as the most overpriced city in the country. Our school class sizes are the fourth largest in the nation. Washington's percentage of residents enrolled in college ranks 46th out of 50 states. Seattle teacher salaries rank 97th out of 100 major cities. Our traffic is the 17th worst in the country. And let's not forget more than 167,000 Washington children without health care and the growing ranks of homeless citizens staking out highway off-ramps in search of handouts.
Most of us accept on faith that what's good for business is good for our state. Our Legislature spends much of its time trying to make Washington a competitive choice for businesses. But it's about time we started asking hard questions about where our competitiveness is taking us and who is pushing the agenda. How is it that with one of the richest corporations in the world in our backyard, our state has become less livable?
Tax exemptions are the mantra of Washington's Legislature. As Seattle Weekly reported earlier (see "$64 Billion Falls Through the Tax Cracks," Feb. 18), the state has amassed 503 business tax breaks valued at $64 billion per biennium budget. Cheered on by corporate lobbyists, including Microsoft's, Gov. Gary Locke and lawmakers implemented $20 billion of those exemptions in just the past four years. Last year, the state granted an additional $3.2 billion in breaks over the next 20 years to entice Boeing to locate the 7E7 assembly plant in Everett instead of some other state. Meanwhile, Forbes reports, Seattle ranks in the bottom fifth of major cities in job growth, income growth, cost of living, and housing affordability. And the state is predicting a $3 billion deficit by the end of the decade. As Microsoft's shareholders begin to reap their $75 billion dividend, they leave a growing infrastructure deficit in Washington.
That's the result of good times. Until now, Microsoft has enjoyed tremendous financial success. But it's entering a new era of software competition. It won't be able to rely on the dominance of the Windows operating system to be profitable. In fact, Microsoft's dependence on revenue from Windows and its other flagship product, the Office suite of applications, makes it vulnerable to new and increasingly popular alternatives to those now-ubiquitous programs. The free market is responding to the monopoly in Redmond. It's going to get tough. Meantime, last week the company said it plans to become far more active in Washington politics than in the past, citing the business climate, education funding, and transportation as areas where the state can do better. These aren't improvements with which Microsoft wishes to help. These are areas of concern the company wants remedied at taxpayer expense. If you want to anticipate how Microsoft might approach these and other local issues as the software business becomes more challenging, you need to study the company's track record with competitors
Wake up and join the Real World... (Score:5, Informative)
Since the submitter forgot... (Score:5, Informative)
Didn't read the summary did you? (Score:4, Informative)
This is not new or news (Score:2, Informative)
Amazon Loves Nevada Taxes Too (Score:5, Informative)
There's no loophole (Score:5, Informative)
not as simple as that (Score:5, Informative)
Re:Wake up and join the Real World... (Score:5, Informative)
You generally incorporate in a different state to take advantage of their chancery courts, anonymity laws and corporate stucture statutes (allowing more flexible or customized corporate structures, like the Delaware Series LLC for example). And you want to have your corporate entities in a state that doesn't add a substantial amount of tax on top of what you'll already owe to the states where you do business and generate income (Delaware, for instance, charges only a nominal amount of tax every year based on the number of shares outstanding - but like I said, this doesn't mean I don't pay excise or corporate taxes, I still pay them in MA since that's where I do business!). Additionally Massachusetts has a foreign corporation registration fee which makes up for any money you save by registering your corporation in another state - so you literally save nothing (and we're talking about differences here of a few hundred dollars a year, not something Microsoft cares about).
If Microsoft is doing business in Nevada and attributing income to that state, then that's not really a loophole at all. If they are mis-attributing income, that's just fraud. There are tax loopholes out there, but this article doesn't really make clear what loopholes Microsoft is actually using, or if Microsoft just uses Nevada corporations for business entities and groups subsumed within Microsoft Inc. because of their flexible corporate law. Maybe Washington just isn't as anal as Massachusetts about collecting their taxes from all businesses, or just are failing to enforce the appropriate attribution of income to Washington state? This stuff is always confusing in the software world, since it's not always so clear cut to say where the work was performed and where the income came from.
Re:The Article. (Score:5, Informative)
Or...
Maybe this is the same kind of analyzing that gets done on Apple every six months saying that it will go under. Let's just be honest for a second. Microsoft isn't going to go away. They may not be THE market share holder forever, but they aren't going to go away. The beauty of software is that people have a choice. Just like you can choose to use linux (or BSD,OSX,Netware,BE, whatever floats your boat), people can, and will, choose Windows. As great as Linux is, it has quite a few shortcomings, as does Windows, as does OS X. Everybody is basically equal.
So while their desktop market share will probably go down (at 90% it's hard for it not to), this doesn't mean that Linux will automagically become world leader supreme. Let's not kid ourselves.
It's an interesting point (Score:5, Informative)
Tax law isn't something that is consistent and fair. It's a hodgepodge of well meaning laws all intended to do various things which will provide the goverment funding while not trying to destroy the economy at the same time.
That means a person may legally owe (depending on how he files) a whole range of taxes. If you choose to pay more, you're not a single bit more "legal" than if you pay the minimum. Add a few states into the mix, and some off-shore holdings, and I can mentally visualize the complexity of the problem growing.
As for the poor not paying enough taxes, well that's an opinion. But the lower taxing of the poor is a philosophical argument encoded in tax law. The argument is something along the lines of, well, if we tax them, then they'll never make it to middle class which is where we really make our money. Other arguements like, "big business is really what drives the economy, so they should get a tax break so they can do more business" are also philosophical in nature, but people tend to forget this.
As a result, you've got a lot of conflicting ideas on what is taxable, what is not, and how much. Just look at the relatively simple tax laws for food. There's literally cases where you can't know if an item is taxable until you lay down some sort of priority on which way you're going to interpert the laws.
Food is not taxable. Some snacks and candies are. Prepackaged food being consumed on the premises is. Beef jerky is a snack, yet it has a history of being a real food staple. Chewbacca lives on Endor. That means if the stop-and-go has a food court, then the beef jerky should be taxed, but if it lacks one, then no. It's not confusing because of political kick-backs, but because of political do-gooders who really tried to fix it on a case-by-case basis over the last 200 years.
Re:New Math (Score:3, Informative)
Wow - How could Microsoft be so insensitive as to create jobs.
So, because Ms creates jobs, they shouldn't have to pay income tax? On what planet does that make sense?
Re:Unfortunately... (Score:5, Informative)
So having a branch in Nevada would mean Microsoft had to pay Nevada taxes AND Washington taxes.
You effectively do. You have to pay corporation registration and filing fees in the jurisdiction your corporation is registered in, in exchange for taking advantage of their general corporate organizational laws and chancery courts. You pay corporate excise or income taxes in the state where you actually conduct business, and if you conduct business in multiple states, you essentially are supposed to divide up that income and attribute it appropriately to each state. At least, this is the way the states that I'm familiar with deal with the issue. Delaware doesn't want to charge you full excise taxes for doing business there, they make good money out of having the best, most flexible, and well tested corporate structure statutes.
In any case, a state can't really tax a corporation or individual on income that is already getting taxed at a state level elsewhere, at least not without chasing everybody out. For a national corporation, anyway, this is all particularly confusing. If you employ all your people in state A and develop your software there, then you should probably pay taxes there. But it's possible to transfer ownership of that software to a corporation in another state, for example, and have it's income attributable to a totally separate entity in that other state, making it look like operations in state A are not that profitable while the corporation as a whole is raking in lots of profits (this may be what Microsoft is doing, but it's not clear from the article at all).
Anyway, the only way to make the kind of uniform changes you describe would be to do so at the federal level and impose them on the states (not likely). What if you have a branch in Nevada, Washington and Florida? How about in every state? Well, you already have to pay taxes in all these states, but you can't expect a company to pay taxes on all their income in ALL the states they do business in, they'd owe more taxes than they have income! So you come back to the problem of attributing and assigning income - it's a sticky problem, and ultimately you have to rely on a certain degree of honesty and tools like Sarbannes-Oxley to force that honesty. Beyond that, states need to deal with corporations that are abusing tax laws when they occur - if all your employees are in Washington and the company is making 10 billion dollars a year, but only attributing a billion dollars of it to work done in Washington, they are probably abusing the definitions provided for by law and they need to be cracked down on.
Re:Microsoft: The Epitome of Corporate Pathology (Score:3, Informative)
There are much worse companies out there.
A software company that plays comtemptuous games with the court system which does nasty takeovers and may or may not have stolen its flagship product from a dentist and bought him out afterwards doesn't rate on the scale of international corporate nastyness.
Re:Wake up and join the Real World... (Score:3, Informative)
You know.. although many of us realize the US is a federation of states.. it presents itself to the world, and generally acts as any other country would. The outside world sees "THE USA", one of may countries. The internal stuff about states and their respective powers is just that, internal.
Though I realize the distinction is very important to Americans, and very real, it's not significiant to outsiders. The US acts as a single entity, globally. Policy is set globally. Military is global. The international community doesn't really give a crap who the governor of texas is, but we sure do care who the president of the US is. Perception is everything.
I don't have a beef with that. Its just... (Score:1, Informative)
They'd be stupid.
But when Balmer is ducking taxes and then has a speech that *everybody else* needs to pay more in taxes, well, then, that kinda stinks.
Typical MS/Balmer BS, really.
What MS will do to seattle... (Score:4, Informative)
the article is saying seattle has been screwed over already...what happens when MS actually has to COMPETE to make a profit?
Gorilla logic flawed (Score:3, Informative)
IBM is creating almost 20,000 jobs this year and has a booming intellectual property business, fuelled by the record 3000 patents granted yearly to Bug Blue.Yet, IBM is developping a large number of open source projects.
So the gorilla's logic is flawed.