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The Almighty Buck

Washington State Debates Taxing Software Creation 417

zzyzx writes: "An article in the Seattle PI discusses the existing tax on software creation in Seattle. The law was clarified recently to allow the taxing of the software that was created in Seattle, even if the manufacture of the discs occurred elsewhere. Some Washington state lawmakers are working to overturn these changes. The issue at the heart of the matter: Should an intellectual activity such as programming be taxed in the same way as manufacturing is?"
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Washington State Debates Taxing Software Creation

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  • by drodver ( 410899 ) on Tuesday March 12, 2002 @03:20PM (#3151125)
    Research and Development time is tax deductable.
  • You would tax the manufacture of a whole machine, but not separately tax the solid state boards that did the "thinking" for that machine.. how is software different?
  • by MarkusH ( 198450 ) on Tuesday March 12, 2002 @03:21PM (#3151137)
    For 'Hello World'?
  • non profit (Score:3, Insightful)

    by Kizzle ( 555439 ) on Tuesday March 12, 2002 @03:21PM (#3151139)
    Does this apply to non profit stuff like open source?
  • by bobdehnhardt ( 18286 ) on Tuesday March 12, 2002 @03:24PM (#3151168)
    The entire fleet of Bekins moving vans was last seen converging on Redmond, WA. A company spokesman reported that they had received "one hellacious moving order" from an undisclosed client. This report came on the heels of a sudden dip in the housing market in and around Seattle, as home prices fell 73%, while listings increased 800%....
  • Well, duh. (Score:4, Interesting)

    by cperciva ( 102828 ) on Tuesday March 12, 2002 @03:25PM (#3151179) Homepage
    Why should intellectual property be treated any differently than physical property when it comes to tax laws? If businesses are taxed based on their revenue, they should be taxed separately in each jurisdiction based on the value of goods they produce in said jurisdiction.

    I'm reminded of the Cola bottling cases, where syrup was manufactured in a low-tax locale and "sold" to bottling companies (wholely-owned subsidiaries). The syrup price was being set in order to ensure that the bottling companies never made a profit, in order that profit would only be reported in the locale where it was almost tax-free. It was ruled that the sale had to take place at market rates -- in other words, you can't hide money from the taxmen by transferring property from one jurisdiction to another. This is exactly the same issue.
    • Re:Well, duh. (Score:2, Interesting)

      why is IP different? Because IT'S NOT REAL. The physical expression of it is, but the idea behind it is not. The cola bottling cases are no different than a company like Microsoft that for all intents and purposes is a Washington state company, but is incorporated in Delaware, or the deals that companies set up all the time to rig their accounting, or the phone companies claiming that they are justified in treating 3rd party deployers of competing services differently than their own competitive services yet claiming "market rates" (or $800,000 damages for the distribution of a document available from the company for $15.00).
      • Wether IP is real or not, it has value. Or do you think what makes software (or books or CDs etc.) sell is not the programs, writing or music, but the media it is printed on? Would you pay the exact same amount for the same media if there was just semi-random information on that media? Of course you wouldn't, you just pirate it anyway.
    • Why should intellectual property be treated any differently than physical property when it comes to tax laws?

      Because it opens a pandora's box of issues.

      Can you assign a $ ammount of wealth to software in terms of property (not revenue from selling)? If so, then you could assign a value to any type of software, regardless of how much was paid for it. Thus, if you use software that didn't cost you anything, but is important to you/your company and contributes to the profits that your company generates, then the Tax Man will assign a $ ammount of value to it and tax you every year for simply owning the software.

      Of course, this begs other questions. Since almost all software is licenced (including BSD, GPL, etc) and ownership of the IP resides with the creators (or the FSF), does that mean that GPL software authors (who retain copyright, or the FSF if givn to them) will be on the hook to pay all the taxes assesed on their software?

      This is a bad, bad law.
      • Re:Well, duh. (Score:3, Interesting)

        by GSloop ( 165220 )
        Well, Microsoft sure tries!

        The (IIRC antitrust) school settlement was valued by MS at over a billion dollars. Never mind that it's cost was very minimal - it was mostly software. MS complained bitterly about having to provide hardware - claiming that providing software was the same value.

        I'm not sure I disagree with your point, but it does seem ironic that these same companies who oppose said taxation, use the "valuation" of their products to look good when they give it away, or have their copyright protections infringed.

        It's clear that when it's to their advantage to talk about the IP as a real asset with real valuation they do. When the tax man rolls by, they rush out screaming that they couldn't possibly value said IP for tax purposes!

        What hypocrites! [Sheesh!]

        I do think there are some reasons to tax IP. Since we're moving to a service and knowledge base economy, then the tax laws ought to move to tax the activity. Tying tax law to physical assets rather than IP makes this quite difficult. Lastly, said companies want the government to protect their IP, but not tax it too?

        This is a subject I would need to think about more, but I do believe that there would be a fair way to tax IP.

        • Re:Well, duh. (Score:3, Insightful)

          by FatRatBastard ( 7583 )
          Well, Microsoft sure tries!

          True, as do a lot of other companies. I remember Sun getting into a lot of stick because they claimed that Kevin Mitnick cost them "billions" (or maybe it was lots of millions). IIRC The IRS came sniffing around, basically saying "Oh really? Why haven't you reported these 'billions'?" I think Sun quickly retracted their statements.

          As for taxes, property taxes are a really squishy area. It depends all on how the gov't decides to assess your "property." Of course, they're the ones assessing and collecting, so it always smacks of a conflict of interest. I say stick to taxing the things that require no guesswork. Tax monitary transactions (sales taxes) and income if you have to tax. Maybe property in terms of real estate. But that's about it. IP is a very, very, very vague thing that would lead to a lot of abuse (both by the gov't and large corperations trying to dodge it).

          The gov't here in VA is already values my car more than the market would should I sell it now (and taxes me accordingly), I don't want some gov't accountant telling me that the software my company creates is worth $X (for very large values of X) and tax me annually on it (above and beyond the sales taxes, income taxes, SS taxes, etc that we already pay)
    • Re:Well, duh. Huh? (Score:3, Interesting)

      by Havokmon ( 89874 )
      I don't get it.
      Well, your Cola explanation does make sense, maybe I'm thinking too little.

      If I'm Amish, and I make furniture, would I be taxed while I'm building the furniture?

      R&D is not taxed, ie. Blueprints.
      But actual progamming is? The manufacturing process is taxed?

      That just doesn't seem right. I don't even have any income until the product is finished and sold, and I've already been taxed on it.

      • Well, before the change programming the software wasn't taxed, but the manufacturing (as in putting it on media) was. So a SW house making the SW in Seattle, but making the CDs somewhere else, didn't have to pay taxes in Seattle - unlike a company also printing the CDs there. And yes, if you were an Amish in Seattle (big if), you'd have to pay taxes:
        The city's business and occupation tax is 0.215 percent of gross receipts, minus credit for money spent on research and development, he said.
        And unlike the SW producers, said Amish couldn't get around paying taxes by simply shipping the furniture somewhere else to put finishing to it.
    • It's different because society doesn't have to bear the costs of manufacturing and pollution that physical processes produce.

      Creating software is not margianally different than creating a book, creating a movie, creating a song, creating a picture, or creating anything else on a computer. Until there's a finished output, for all intents and purposes, sitting in front of a PC is feeding input into the machine, letting it think, and extracting the output.

      Unless you want to see a tax on creating content in general on a PC?
    • More interestingly, why should software be treated any differently than other intellectual property when it comes to tax laws?

      If you create a tax at the point of creation of intellectual property, then the tax applies whenever you create anything of value through the expression of thought into written or electronic form. If software creation is a tax-incurring activity, then so is (or should be) the creation of the written word, music, speech, jokes, etc.

      In other words, suppose I have a conversation with a friend of mine, and we both put intellectual effort into choosing our words. Not only have we have each created intellectual property, we have also demonstrated its value by engaging in a barter transaction. Suppose we talk for two hours, and it can be claimed that a professional conversationalist would earn $20/hour. We have created $80 worth of intellectual property at prevailing market rates; and, if we are located in Washington State, we each owe the government perhaps $5 to $10.

      Note that this might already be the case under current IRS code! If intellectual property is "goods" then we have created and exchanged "goods for hire" through a barter arrangement. Imagine that over the course of a year my friend and I spend 500 hours talking to each other. We have each created "goods" worth $10,000 and exchanged them as barter - so we have to file Form 1099s on each other, pay an extra $3,000 (or so) income tax, and we will probably face legal action for our failure to withhold payroll and Social Security taxes from each other!

      The scary thing is, this is probably a valid legal argument.

  • Of course! (Score:5, Insightful)

    by macemoneta ( 154740 ) on Tuesday March 12, 2002 @03:25PM (#3151182) Homepage
    What an incredible opportunity for recovering lost revenue!

    A tax on creative thought; why is programming different than graphic design or writing or arhitecture? Tax them all!

    Once that tax is in place, any thought process not related to the obvious benefit to society (watching or reading commercials) should probably be taxed as well.

    Heck, if the tax laws are properly written so they can't be understood by anyone without national debate, the IRS can pick up anyone they choose for tax evasion (forgetting to file form 1040-1984 for a non-approved thought).

    • tax all intellectual activities. Then thought crime will quickly go the way the dodo has always been.
    • Code is speech (Score:2, Interesting)

      A tax on creative thought; why is programming different than graphic design or writing or arhitecture? Tax them all!

      Does this have a chance of passing constitutional muster? This is like the government saying, "you can speak, but we will assess how much your words are worth, and tax you for it." To me, this looks like a pretty clear violation of freedom of speech.

      On the other hand, the government could simply tax speech which retains copyright protection. If you want to speak tax-free, surrender your copyright.

  • Software creation requires mainly man-hours, and since employees already pay state income taxes I'd think the state already recieves their share and doesn't have the right to double-tax for intellectual work.
    • Software creation requires mainly man-hours, and since employees already pay state income taxes I'd think the state already recieves their share and doesn't have the right to double-tax for intellectual work.

      Washington has no state income tax. - but even if it did, slaries are generally and expense, and would not be taxed at the corporate level (since they are a deduction to revenue).
  • I loved this quote...

    "Taxing the intellectual property of software companies makes about as much sense as taxing the thought process of a university professor, said Rep. Jeff Morris, D-Anacortes".

    So, all teachers, writers, musicians and similar should be tax-exempt?
    At least nobody would think of taxing the thought process of a representative. It just wouldn't be worth it.
    • There's a difference between taxing the income based upon the property, and the property itself.

      They already have the power to tax income from intellectual property in terms of taxing corporate revenue; IP isn't special in that way.

      However, taxing IP *as an asset* is tricky because of the difficulty of assessing it. What is the fair value of the copyright of Microsoft Windows 2000, for instance? One can assign a cost of a *license*, but that's not the same thing. That particular copyright hasn't been up for grabs for a while, so establishing a fair market value would be incredibly difficult.

      In some areas, like Allegheny County (PA/USA) there's enough trouble assessing *land*, which does trade hands sufficiently often at a variety of levels so that in theory assessors could do a half-decent job of estimating how much people's property is worth. It's the source of perpetual local complaining regarding who got screwed over and who didn't.
    • So, all teachers, writers, musicians and similar should be tax-exempt?

      Teachers shouldn't be taxed for creating tomorrow's lesson, writers shouldn't be taxed for using their typewriter (or word processor), and a musician shouldn't be taxed for writing sheet music. They already pay taxes in other ways: sales tax, income tax, property tax, etc.

      I'm not sure about the specifics of the tax in the article. They call it a "business tax", but then say that they want to tax software companies as manufacturing. I say that if they're not mass producing anything physical within the city limits, they shouldn't be taxed by the city (as a manufacturer). If all they're doing is software development, then they fall under the R&D exemption. But what do I know, IANAL.

  • Given that software companies tend to provide high-end jobs and generally non-polluting production to a city, you would think that you would want MORE of this industry in a city, and would structure the tax code to encourage them to set up shop in your city. At least some of the legislators appear to be aware of this fact.
  • by slickwillie ( 34689 ) on Tuesday March 12, 2002 @03:28PM (#3151215)
    They could just add a tax on cocktail napkins, sort of like the tax on recordable media. After all, isn't most good intellectual property created on the back of a napkin, in a bar, just before last call?
    • They could just add a tax on cocktail napkins

      Why is the dividing line the form of media used? What if the software creators only published in assembly language form, in a book? Do you tax the book? Ok, what about magazine articles that contain code snippets? Do you just wait around until someone presses that code to CD and then tax them? Do you tax the CD creator or the code creator?

      Once you allow flawed, uninformed logic like this into the legal system, it has all sorts of unintended consequences. If Seattle really wants to share in software creators' profits, they need to work a little harder to come up with a reasonable taxation method that demonstrates they "get" the nature of software. Not just this hand-waving "Hey! You with the pocket protectors! Gimme your lunch money!"

  • This leads down a slippery slope. What about other engineering fields? (e.g. Airplanes designed in Seattle but built elsewhere?)

    If all service are taxed then software development should be also, otherwise it shouldn't be. I never understand why people try to make special laws for digital media (or software as this case is)

  • No big deal (Score:5, Funny)

    by r_j_prahad ( 309298 ) <`r_j_prahad' `at' `'> on Tuesday March 12, 2002 @03:30PM (#3151238)
    If they're proposing a tax on innovation, I don't think Microsoft has anything to worry about.
    • Nonsense...Microsoft has been coming up with new and innovative ways to screw over their customers since the early 80s.

      And have you heard some of the logic spouted by the lawyers in the anti-trust case? Microsoft is nothing if not creative.
  • American Companies outsource large portions of their production to companies in India and the rest of Asia. These foriegn companies do their job better and at a fraction of the salary than their American equivalent.

    Who am I talking about? Nike? Kathie Lee? Disney?

    or Microsoft?

    In many ways, Software companies are already much like manufacturing companies.

  • by 4/3PI*R^3 ( 102276 ) on Tuesday March 12, 2002 @03:31PM (#3151248)
    Quote 1:Microsoft says Commercial software pays taxes
    Quote 2:...Microsoft Corp., are pushing for an amendment to a municipal tax-reform bill to block the taxation of such intellectual property.

    Microsoft's talking out of both sides of their mouth again.
    Nothing new!!!!
    • Not at all... MS are claiming that they *already* pay taxes, and that this is above and beyond taxation already in place.

      I have to agree with Microsoft on this one. This is one bad law.

      Should Authors be taxed by the gov't for the gov't's perceived value of an Author's work? If a book is out of print and no longer being sold, should the gov't have the right to continue to tax the author simply because the gov't feels that IP has value?

      If I create a GPL'ed program, retain the copyright to it many folks the world over find it to be an incredibly useful bit of code (one that helps lots of companies save money / generate revenue) should I (as the owner of the IP) be taxed year after year because the gov't determines that bit of code has value?
      • If a book is out of print and no longer being sold, should the gov't have the right to continue to tax the author simply because the gov't feels that IP has value?

        Yes. This is called a "copyright renewal." It was a feature of the Copyright Act of 1909, abolished for new works in 1976 and for all post-1964 works in 1992.

        If I create a GPL'ed program, retain the copyright to it many folks the world over find it to be an incredibly useful bit of code (one that helps lots of companies save money / generate revenue) should I (as the owner of the IP) be taxed year after year because the gov't determines that bit of code has value?

        After ten years, how much value do you still perceive in that code? You could just donate the code to the PD and stop paying the renewal fees.

        Lawrence Lessig [], a law professor and author of popular books about thought monopolies, has advocated a return to copyright renewal []. Here's my slightly modified version of his system: Make copyrights on new works last 10 years. Then every 5 years, you have to file an extension to keep your monopoly, you can only file an extension a small number of times (I'd say 13 times, for a maximum term of 75 years), and after 25 years have expired, compulsory licensing under RAND terms for both verbatim copies and derivative works comes into effect.

        • This is called a "copyright renewal." It was a feature of the Copyright Act of 1909, abolished for new works in 1976 and for all post-1964 works in 1992.

          Was this a fee that was paid for renewal, or a tax on the percieved value of the copyright? (I'm asking because I honestly don't know). From the sound of it it sounds like the former, and that's different than a property tax.

          After ten years, how much value do you still perceive in that code? You could just donate the code to the PD and stop paying the renewal fees.

          Linux is 10 years old (I think NT is close, if not already 10). I still see lots of value in both products.

          Taxes are different than fees. Paying a fixed fee for a copyright is different than paying taxes on a percieved value of said copyrighted material.

  • In House? (Score:2, Insightful)

    by DickPhallus ( 472621 )
    How would in-house software be classified? Would this apply to only software made for public sale?

    The city's business and occupation tax is 0.215 percent of gross receipts, minus credit for money spent on research and development, he said

    This seems contradictory doesn't it? I mean I would consider software development R&D too... I don't really think that is going to be effective at all. But governments have a wierd way of making the most hair-brained schemes appear to work.

    So, if all your software development costs are actually R&D, this is worthless... they'd have to tax something else, like publishing software. But that can all be done out of state.
  • There is a difference between taxing thought and the income made from the result. IMHO, evelopment should not be taxed, but the money made from the sale of the product should. Otherwise the danger is that of reducing development simply because it costs too much to think - programming after all is more about thought than creation.

    Heck, why not tax students for going to school!? (Hmm, maybe that is already being done? - that's why we see more money in the detention system than in the edutcation system).
  • This is just reductio ad absurdum of the concept of taxing labor at all.

    Writing software or digging ditches or making Beanie Babies with your own labor and the people you employ is a right, not a privilege. You shouldn't have to pay the government for exercising your natural rights.

    Obviously, when you tax something people will do less of it. Does Seattle really want less software to be written there? Fewer widgets built? Fewer ditches dug or Beanie Babies made?

    We should be taxing pollution, use of resources, taking up space, and all other forms of Privilege.

    Tax bads, not goods.

  • by sam_handelman ( 519767 ) <> on Tuesday March 12, 2002 @03:35PM (#3151284) Homepage Journal
    A software company makes use of community services - Fire Departments, Public Transportation and so forth. It should pay to support them, just like any other business should support the infrastructure of the economy in which it operates.

    Software companies may be more or less subject to the various pressures imposed by such taxation on other forms of manufacturing activity - including the tendency to move their operations overseas. However, software shouldn't be any-more-exempt for these reasons than any other business.
    • Software companies DO pay for the services you just mentioned, in the form of property taxes. Unless the company in question rents their facilities, they pay direct taxes on owning the land, as well as the appraised value of the facilities on that land. Even if they DO rent the building, those taxes (If the landlord has any brainpower) are integrated into the rent. While it is true that they likely don't pay taxes directly for pressing CD's and such, the facility that does is paying those property taxes, and again (with sufficient brainpower) should include those taxes in the price they charge the software house to press those CDs.

    • Don't be absurd (Score:2, Insightful)

      by Magnusite ( 526038 )
      A software company pays taxes to support the municipality and state. It does so as a company. All companies pay taxes to support the services you speak of. This is not a matter of software companies not wanting to pay any taxes, just not more than their fair share. Why would WA state be considering such a mandate? Hmm... is it because one the most wealthy companies in the world resides in their domain? Could it be they are trying to find a fast way to increase the golden coffers of the tax base?

      This is as repugnant as the 'bit tax' proposed in the early nineties. If you don't remember, legislators were considering taxing every digital transmission that related to business. That's right, every fax transmission, every X-Y-ZModem upload and download, every corporate communication on CompuServe or Delphi. It never made it into law because everyone realized how insidious it was.

      Or, if you prefer, consider the continuing debates about whether or not to tax commerce via the internet. If we allow this, we open the door to taxing everyone who purveys the internet, in order to assure the state that they will recieve the required money not provided by rogue internet brokerages.

      From a human rights point of view, this law is about as nasty as you can get. What's next, taxing mathematics! Remember, software is just controlled mathematics.

      Okay, okay, end rant

  • A mass exodus of software comapnies was detected departing Seattle. Collapse of the local economy predicted!

    This appears to only pertain to Seattle at the moment, though Microsoft is gunning for it. Probably don't want other cities to think they can do the same thing. Lawmakers occasionally push a little too hard when trying to tax stuff. Usually after the affected company or companies threaten to leave, the lawmakers rethink their strategy and everything goes back to normal.

    But... think about it for a second here... an "Intellectual Property Tax..." I'd love to see the companies represented by the RIAA assesed for the value of their property and handed a tax bill for several billion dollars. Never happen since they own the lawmakers, of course, but it'd be mighty amusing...

  • Base it on how much money the thing being written or created it worth and tax the person(s) who wrote it.

    Then, since laws raising taxes like this bring money into the state coffers, they should impose taxes on legislators who raise taxes...because the result of their "intellectual" activity is increased revenues for their organization.

    Well, I can at least dream, can't I?
  • by talks_to_birds ( 2488 ) on Tuesday March 12, 2002 @03:37PM (#3151299) Homepage Journal
    ...modest knowledge of basic American geography, but with a quick opinion as to what this all means:

    Micro$oft is based in Redmond, WA -- which is not, I repeat, not, Seattle, WA

    (Thank god...)

    Who's in Seattle?


    I think Real (Audio..) is, and Adobe is still...


  • by coyote-san ( 38515 ) on Tuesday March 12, 2002 @03:40PM (#3151319)
    What's that old saying - what's good enough for the goose is good enough for the gander? (That's gander - male goose - not gandolf, you goof!)

    If they want to claim Intellectual Property is the equal of Real Property in terms of legal protections, etc., then they should carry the same tax burdens. Property tax, creation tax, whatever. It's time for that corporate free ride to end.

    My only concern is that a poorly-written law that targets predatory monopolies could also affect sites that just provide Linux or BSD mirrors (if there's a tax fee per download), or worse would cover the "lone wolf programmer" who just wants to write a better widget for some OSS application.

    More generally, there's the issue of whether other services are also taxed. I know some states charge sales tax on *everything* - including the hourly charge for the car mechanic and plumber, for the lawyer, etc. Again, this law should be fair - only tax programmer time if lawyers and accountants are also taxed. Only tax volunteer services if other volunteer services are taxed.

    But on this particular issue, if the producer gets as pissed off at you sharing a copy of their software as they would if you set up a family picnic on their campus headquarters, then the IP and RP should either both be taxed or neither be taxed.
  • I have a feeling that any such tax will be thrown out under the interstate commerce clause of the constitution. Knowledge is fungible anyway. While it is obvious if a widget is assembled or created in a specific location, knowledge and other ip sort of stuff can move their creation over state lines by the simple claim the Fred in the state of ___ had the basic underlying idea. Going to patent it? Then move Fred there first.

    Overall one of the dumbest things I have ever herd of.
  • ...if they also implement taxes on making ridiculous laws!

  • What a joke! An incredible shortsighted move, really... As American firms compete to keep programming jobs in the country, a state tax is going to drive firms not only out of the state, but may drive them overseas (i.e., "if we have to move, we might as well make sure we only have to move once").

    The question of whether it is appropriate to tax software creation like manufactoring is another matter, but simply from a competitive standpoint, this is a really, really dumb move.

    I bet it made tech leaders in countries like India happy!
  • ... consider the following partial-prohibition legislations. The Brady Bill and the Clean Air Act. Like them or hate them, their effectiveness is limited because determined manufacterers found loopholes. In the case of fire arms, the manufacterers made some cosemetic and title changes, essentially selling the same weapon under a different name or classification. Same is true with emissions standards, where the auto makers created an entirely new vernacular to get around the law.

    Obviously this bill is aimed at MSFT. Like them or hate them, I would think their lawyers might employ similar tactics to get around the letter of the law. They're selling "services" ... perhaphs via an offshore offshoot names PatchSoft [] ... only they're not kiddng around.

    Once again, only penalizing those of us who can't afford big-bad lawyers with even larger price tags.
  • Should an intellectual activity such as programming be taxed in the same way as manufacturing is?

    You cannot draw a parallel here. Manufacturing operations don't have to pay taxes on the materials they need to make finished products. Software operations, however, DO have to pay taxes on the materials they need to make software; Development tools and the like. Sure, there are people out there making money using nothing but free tools, but those aren't the organizations we're worried about anyway.

    The solution is just to tax all the finished products in the same way. There's no room to complain, there. As for providing services; Isn't that what property taxes are supposed to be for? Income taxes pay for personal services, and property taxes pay for services to establishments or businesses. At least, this is how it's supposed to work, right?

    In other words, if you own property, you want it to be protected by police and fire. You want the paramedics to come if someone is in trouble on your property. I dunno why they decided to get school money out of property taxes, except that a school in your neighborhood (a loosely defined term if ever there was one) is supposed to raise property values. On a personal level, some of your taxes go to pay for police, fire, and schools et cetera as well - This is to cover you, personally (or can be seen this way.)

    So if you own a house and live in it, you are paying for both your coverage and your house's coverage between your personal income taxes and the property taxes on your dwelling. If you just rent, then your property owner is expected to take care of their share of things, and then you pay for yours. It's not complicated, conceptually.

    One of the problems is that cities court tech companies by giving them tax breaks to convince them to move into the area, and then they discover that, shock amazement, the tax break inhibits their ability to provide services that those taxes would ordinarily pay for. You can have your cake right up until the point where it is eaten, and then you don't have it any more. Seattle has discovered this, and they want to make up new rules that allow them to basically steal the ingredients they need to bake another cake by changing the rules.

    This is of course the risk any company runs and must weigh before opening their establishment - How likely are these people to actually end up screwing themselves over and then pass the screwing on to me? But it's still immoral. They made the bed, and now they want someone else to lie in it with them.

  • I've read some comments about taxing software the same way that physical stuff is taxed.

    I've also read comments saying that some taxes are base on the perceived value of a good.

    I believe that we cannot apply the same rules to software that to physical goods. Why? It's very simple, physical goods requires money to produce (I'm talking about construction and assembly of physical goods, not the creation - as in R&D - of physical goods). However, software don't cost anything to produce (ok, if you produce physical package to distribute your software it does cost something). Because it's only information, you can reproduce it at no cost.

    How is value of a good determined. In general, R&D is not a big factor (it is but only when the product is introduced), the cost of producing the good vs demand is the way to fix the value of a product. Because software cost 0 to produce, even if there is strong demand, you can fulfill it at virtually no cost. So how does one one calculate the value of software... You can't (based on current economic principle).

    As we transition in a new kind of economy (note that we will, probably, never completly leave the current economy behind), new laws and new economic rules should be created. The current way of trying to apply the same concept to software (and intellectual property for that matter) will never work. At some point, the system will collapse and new rules will be built.

    I don't know the timeframe for this, but I'm sure it will be a lot sooner that we think.

  • For the case where software creation is regarded as a typical industry, their efforts could be seen as a form of Value Added Tax, about which, I believe, our colleagues in the U.K. could comment further.

    The interesting part is where in the equation free or open source software enters.

    While I believe that much of the free software I use on a day to day basis provides me with much "value", does it really possess value, if I haven't paid for it?

    And, if free software does have value even if it is given away for zero money, if it is to be taxed, then one might well argue that other similar creations would be subject to taxation, such as artwork, literature, acting, music and scientific research that is openly published.

  • Hello, Morons: (Score:4, Informative)

    by Rick the Red ( 307103 ) <> on Tuesday March 12, 2002 @04:00PM (#3151485) Journal

    To the morons here in /. who think this affects Microsoft: Microsoft is located in Redmond, not Seattle. The only effect on Microsoft would be rising real estate prices on the eastside as Seattle's high-tech firms (Adobe and Watchguard come to mind) relocate.

    To the morons in Seattle who thought this was a good idea: That sucking sound you hear is hundreds of high-tech businesses leaving your city.

    • Re:Hello, Morons: (Score:3, Informative)

      by Perdo ( 151843 )
      All of Washington state, not just Seattle. Other states tax oil revenues, Washington should tax it's prime industry too. As it stands, Microsoft pays NO taxes to any agency and in fact graciously waives the 1 billion dollar a year tax refund owed to them by the IRS because of our fucked up tax laws. Tax the unholy crap out of them, they pay no dividends or taxes. Money NEVER leaves Microsoft.
  • software as service (Score:2, Interesting)

    by Anonymous Coward
    I'll definitely have to look up the law as I'm in Seattle and do some independent development on the side. It seems to me like I don't have much to worry about because this relies on traditional notions of software and selling it. I don't think it takes into account the notion of giving software for free but doing things like selling support for the software or possibly even selling support for the software but bundling it with the "free" software and only selling the bundled version. In a store, this latter idea - free software, charge for support and bundle them together, would seem ridiculous but for software downloads it makes as much sense as companies who charge $30 for their "free" memory upgrades to your new computer. I don't see how this law could be enforced in a systematic way and I question the value of it.

    Seattle misuses so much of its funds (mass transit, anyone?) that I guess the politicians are desperate to get more money even though it will certainly hurt its future. Remember a few years ago when every city was boasting about its incentives for software companies and coming up with moronic names like "Tech Alley" to get companies to move there? Now they're apparently trying to get rid of them.

  • a general one in Washington State.

    Politicians here, at every level, are trying anything they can think of to maintain their revenue streams.

    Government at all levels here in Washington is under a tremendous pressure to reduce taxation thanks to several populist initiatives written by Tim (I'm a liar) Eyman, and passed for the most part very succesfully by the voters each time one has come up for a vote.

    The State legislature has just passed a $0.09 per gallon gas tax increase, and they are down in Olympia squabbling at this very moment about whether they dare let the voters have the final say-so on the tax increase by voting for it in a referendum some time this spring.

    Most of the career politicians don't have the backbone to let the public vote, because they know people will vote it down.

    So it's not surprising Seattle is going to tax thinking.

    They tax just about everything else...


    • Washington State crim^H^H^H^HPoliticians don't care about the public. We have passed numerous tax breaks just to have them over turned in court, because they infringe on the states rights to tax. They would love it if we just shut up and let the do whatever they want.

      The politics are just as bad as any other state, they will screw you over any way they can to make a buck.
  • by loosenut ( 116184 ) on Tuesday March 12, 2002 @04:16PM (#3151592) Homepage Journal
    The question boils down to whether Seattle should apply the business tax to the development of software -- essentially a thinking process -- as it does to the manufacturing of off-the-shelf software products, software lobbyists say.

    "The business tax"? Shouldn't the tax be applied to the business's profits, and be dependent on where the business is headquarted?

    If I own ABC Software, and I'm located in Seattle, I can contract programmers in India, and contract a manufacturer in Taiwain, and sell the software all over the world. But the profits are going to be recorded in my ledgers in Seattle, and are therefore subject to any local, state, and national taxes. Am I missing something?
  • Programming is an art, everybody knows that.
  • Go ahead, Washington State, tax those jobs right outta there!

    Why, I think I here something... sounds like a phone ringing. Hello, Chicago?

  • by Hooya ( 518216 ) on Tuesday March 12, 2002 @04:33PM (#3151759) Homepage
    <sarcasm>...because they're talking about taxing software that's 'created' in seattle/Washington. As we all know, some (if not all) software in windows was written elsewhere (BSD?, CPM, OS/2 etc..) so this tax doesn't apply to them!</sarcasm>

    This could very well change if they extend the tax to include innovation. oh, I forgot, we're talking about MS.

  • Washington Taxes (Score:2, Insightful)

    by Tempelherr ( 559964 )
    Well, as a Washingtonian, I'm glad to see that they're at least actually delving into other options than those already on the table.

    With Washington having the second highest unemployment rate in the country, 7.5%, with oregon being the highest, 8.0%(Current Data Jan 2002, Bureau of Labor Statistics), the situation here is beginning to get downright nasty.

    Coupled with all the layoffs in the hard hit sectors(Boeing, etc) and the anti-tax inititiatives by Tim Eyman that have been passed, such as the ones that limited car tabs to $30, or the one last year limiting property tax increases to 1%, the state legislators have been forced to seek other sources of revenue. Granted, they always find loopholes to nullify the anti-tax initiatives, or to get at least a portion of the tax from the areas.

    Anyway, to get back to the point, many of the people of Washington really enjoy the services the government provides, yet due to the way taxes have been handled in the past few years (Especially in King County, the largest country) people are rather stoicly opposed to any new taxes. So, the government is forced to try and find additional sources of revenue. Right now, they're working on cutting any extras from the budget, borrowing against Tobacco settlements, and implementing a gas tax. These won't be enough to cover the projected deficit should it actually turn out as projected, so at least legislators are looking somewhere(instead of the infamous bickering they're known for), though I don't believe Software is the best solution.
  • only if you are from redmond :-)
  • by Voltara ( 6334 )
    I find it amusing that the companies that argue intellectual property is the same as physical property for control issues (eg. copying is theft), are the same companies that now say IP and physical property are completely different when the issue is taxes.
  • businesses don't just pay taxes. They COLLECT taxes.

    I dependant upon every level of government to either raise money or close up shop. The only means that government has to do this is to take it from constituents (by force). How to do that fairly is an extremely subjective area. Taxing manufacturers who export goods has the effect of passing the tax burden onto people not voting for the current people in power. Hence, the popularity of hotel and restaurant taxes. The locals are happy, since their property taxes aren't raised, but what they don't realize is that the manufacturer passes the losses onto the employees by forgoing hiring, raises and benefits. This is one more case of politicians looking for more money without being up front about it.

  • Obviously, Washington lawmakers have their heads up their asses. Most governments try to encourage these kinds of businesses, rather than tax them. Ireland, for instance, allows writers, musicians, and artists to live there tax free- knowing that building a tax haven for creative tycoons pumps billions of pounds into their economy. And it creates good jobs- high paying service jobs, which most people would prefer to logging or fishing. All Washington will accomplish with this is to hasten Microsoft's migration to India.

    Plus, as if the highest sales and gasoline taxes in the nation aren't enough already...

    • Obviously, Washington lawmakers have their heads up their asses. Most governments try to encourage these kinds of businesses, rather than tax them. [more blather] All Washington will accomplish with this is to hasten Microsoft's migration to India.

      This is Seattle. We have Adobe []. We make Utilikilts [].

      The dark land of Redmond is home to Microsoft. There, across the many miles of lake, the dark lord Bill G reigns over all his minions.

      And here we have had our State, which is suing us over this, force us to build two stadiums we the city voted down, and force us to pay taxes for them. One for the dark prince Paul Allen who lives partway across the lake in his tower on Mercer Island.

      Cry no tears for the dark minions of these two masters - they reside not here in our fair emerald city of Seattle.
  • If you ask "should the creation of software be taxed", that sounds just weird. If you ask, "should a company like Microsoft pay a small part of their revenue stream, however generated, into the local economy where the revenue is generated", I think the answer is pretty clear. How you calculate that tax is another question. Talking about "taxing software" may not be the right way of doing it. Maybe they should simply stick with business real estate taxes and tax proportionally to the number of employees (because that's what creates the costs for the city).
  • It's a great idea! I think that all software companies based in the state of Washington should be taxed 3000% or more on everything they create, acquire, sell, think about, or come within 100 feet of. If the federal government can't rein in those monopolists, perhaps the Washington state government can. (grin)
  • Most European countries have a VAT (Value Added Tax) or GST (Good and Services Tax) so development of software is taxed. This is in addition to other taxes such as income taxes, forced retirement contributions and a mess of other taxes that would never go over in the US such as dog taxes, tv taxes, taxes on putting money into a bank account.

    Australia just killed about 20 of the silly little taxes and put in a 10% GST (one of the lowest in the world outside of the US) an claimed they would be getting rid of other taxes soon. Now everything has 10% added to the prices and there is a long chain of paying and claiming taxes that is much more complex than a typical US state's sales tax. The resulting paperwork is causing some small businesses lots of problems.
  • by serutan ( 259622 ) <(moc.nozakeeg) (ta) (guodpoons)> on Wednesday March 13, 2002 @05:18AM (#3155342) Homepage
    Does anybody really still not understand this? Companies do not PAY taxes, they COLLECT taxes. Business tax of any kind is just another expense that has to be built into the price of the product. Any legislator whose version of tax relief for us peasants is to tax those big old evil corporations is lying, plain and simple.

    If we completely did away with all corporate taxation and replaced it with a national sales tax, properly calculated, the net cost of living would be the same. The differende would be that we would KNOW how much tax we were paying. Congress wouldn't like that at all. Educated citizens (oops, sorry, I meant "consumers") are the last thing they want.

Vitamin C deficiency is apauling.