“Microsoft is being accused of finding a loophole that has thus far saved it from paying some $707 million in software licensing taxes, according to a blog entry from Seattle-based technologist and writer Jeff Reifman,” Electronista reports.
“The software giant is based in Redmond, Washington, but it records its software licensing revenue from an office in Reno, Nevada,” Electronista reports. “Microsoft does this to save on taxes because of different laws in the two states, Reifman says, and so would have saved hundreds of millions of dollars over the past 13 years.”
Electronista reports, “The majority of its software development is performed in Washington State, Reifman says, but Microsoft records its estimated $18 billion in licensing revenue per year through the Reno corporate office… While Microsoft is not technically breaking the law, Reifman and others like him believe the company is morally wrong in hurting its own state for the alleged discounts. Washington is currently operating on a $430 million deficit in its biennial budget, which is believed to be shortchanging residents in the state, including Microsoft’s own employees.”
Full article here.
MacDailyNews Take: Aw, come on, everybody knows Microsoft has no ethics or morals. Their flagship product is an upside-down and backwards knock-off of a superior competitor’s product, for crying out loud.
That said, the state of Washington should look into why corporations based there feel the need to establish offices in less confiscatory states. Besides the fact that the loophole exists in the first place, that’s the actual root of the issue. You think Microsoft or any corporation or its shareholders are going to authorize paying hundreds of millions in taxes that they do not legally have to pay out of the goodness of their hearts? If so, welcome to Fantasy Island. If you don’t like it, work to close the loophole(s). Obviously, while this practice might be legal, it doesn’t sound like it should be; tens of thousands of employees doing all the work, but a relative handful claiming the income in a tax-free state? Who paid for that loophole?
Here’s another thing to consider: Microsoft’s tens of thousands of Washington State employees are presumably paying sales taxes, gas taxes, tolls, and many other taxes out their wazoos that benefit the state of Washington immensely. How much is all of that worth? Jeff Reifman should write a blog entry about what would happen to the state of Washington if Microsoft moved all of their offices to Nevada.
707 million? that’s couch change for Bill.
I hope Washington state loves to pay for infrastructure support for MS while in its gratitude to the state and the taxpayers of the state, MS gives it their thanks but not their cash.
Ballmer needs it to support his ventures in Zuneland.
707 mill ? ..
Ballmer must need the money for more chairs !
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If I, as an individual, were to reside in 2 different states, I believe that I am responsible for paying taxes in the state that I reside the longest in. Perhaps corporations should be required to do the same. They should determine where that corporation is mainly based by looking at headcounts. The largest headcount for Microshit is in Washington State, so they should have to pay their taxes there.
b-b-b-b-but giving huge companies tax breaks is g-g-g-g-good for our economy! THIS IS GOOD NEWS!
“…..b-b-b-b-but giving huge companies tax breaks is g-g-g-g-good for our economy! THIS IS GOOD NEWS!……”
Yeah.. right ..
How do ya think Ballmer got ..His Raise .. .. (while M$ tanked about 17% )
How many talented Microsoft designers will move their families from Seattle to Reno?
Microsoft should pay its taxes, and if not, its executives should go to jail just like what would happen to you or me if we didn’t pay our taxes.
Why Reno? Is there something wrong with moving to India or maybe some other 3rd world country? If the Fed and my state of NJ don’t stop taking what is not their, I may have to leave too.
Why do you think Apple is setting up that billion server farm in NC? Better local food? Wanted to be in the Bible belt now? California is sinking in their laws and taxes. No one should stay until the idiots are kicked out of office.
Thanks for yet another libertarian rant, MDN. It’s getting really tiresome. I thought this was a site for Apple/Mac news, not a soapbox for your political beliefs, but I guess I was wrong.
The loopholes were made for corporations by our friendly representatives who were bought and paid for by corporations — it’s the capitalist way!
And please don’t confuse ethical, moral, and legal — those are entirely different concepts. M$ skirts the fringe of legality (when not stepping over the line), but they never worry about ethics unless it adversely affects revenue.
@ Buster
We do not love this. =(
Come on folks – the argument about where they are selling licenses from and how much MicroSnot is/should be paying is all for the stupid masses. Companies do not, never have, and never will pay taxes. They serve as a tax collector for the government to quietly get taxes from ignorant people who do not see through this scam. The cost of doing business – salaries, capital expenses, energy, taxes, EVERYTHING is built into the price of the product/service and the taxes are passed on. If you think businesses pay taxes then you should go burn your voter registration card right now because you are too dumb to participate in the process.
This is the business version of registering one’s yacht in Delaware. It’s an obvious tax-dodge, and an obvious loophole that should be closed.
Damn I may move to Vegas for sure now! Cha Ching!
What? The paragon of ethical fairness & purity? Impossible, I say…Impossible!!
(…getting popcorn, propping up feet to watch what happens next…)
At least they kept it in the U.S. and didn’t go offshore.
Besides, the money saved was well spent on developing the Zune HD and that booklet thingy. Innovation like this can’t be achieved without huge monetary investments. Wake up and smell the coffee MDN.
Hey, I’m not a M$ fan but I am not opposed to taking advantage of the rules they did not write. Who wants to pay more taxes???? I don’t see people lining up to do so. Just people looking for handouts!!!!
If Microsoft moved all their offices to Nevada it would only be a matter of days before employees got their salary by pulling a lever.
I don’t say this very often so take heed young ones. When credit is due, give it.
Good job Microsoft, that is $707 million that you didn’t have to tack onto the price tag of your crappy product. If Warshington tries to ding you for this pack up the rest of HQ and truck it all down Hwy 95 into Reno. If you did that now you might be able to match Apples current OS price of $169 for Snow Leopard, iLife and iWork.
In terms of taxes, if it’s not technically illegal, then it’s ok in my book. There’s plenty of other things to criticise MS about; I’d hate to complain about any company that’s trying to pay the least amount of tax it can get away with legally.
How many MS employees would trade Seattle for Reno? Not the smart ones, if there are any.
As a die hard republican, I have faith that Ballmer will pass on these millions on his own accord to the middle class. HAVE FAITH.
While not a fan of MS I have to say this is not news. Tons of companies incorporate this way to avoid taxes and it’s legal. What should be up for debate is whether Washington state should pay for anything for MS’ campus with taxpayer money if they are going to skirt taxes this way. Since it is legal to pay taxes this way then fine, but the state should not be funding anything on that campus in Redmond.
As someone who lives within miles of M$, I am ashamed they would not pay taxes willingly
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Besides, I thought the collectivism-Social intent of Bill Gates and other M$ Execs where that we all should pay more taxes.
Looks like their political rhetoric doesn’t match their actions.
@ Jimbo von Winskinheimer – well said. They either need to work toward getting this loophole closed, or get rid of whatever law allowed for such an easy loophole in the first place.
Microsoft is taking advantage of more favorable taxes in another state in which it has a physical presence. Nothing wrong there.
I know many, many people who move to another state but keep their vehicles licensed in their former state because it is less expensive. I know many people who choose where they want to retire based on two primary factor: weather and income taxes (or lack thereof).
Pretty hypocritical of MDN and everyone complaining against this. Notice how the article makes no effort to find out how much money Microsoft does pay Washington State in taxes, the author just complains about a different state getting taxes instead.
Does anyone think Apple would do anything different? Not I.
A good portion of the money that residents and corporations pay to the State of Washington goes to creating a university system that is probably second to only California in the west. That university system is the primary reason the Seattle area is home to so much high tech and research.
What is low-tax Nevada home to? Oh yeah, gambling and warehousing.
So maybe MS should move to Reno and drag all their employees kicking and screaming with them. Hell, the University of Nevada at Reno is as good as UW, right.
The bottom line is, if you want government services you have to pay taxes. If you want to pay no taxes, you get Nevada.
Yes but if everyone does it then why isn’t Apple doing it?
I guess there is a diference between the two.
Washington state provides exemptions for Research & Development. It also does not collect a state income tax, but charges a B&O;tax on business sales. Also, it will tag its income tax on any sales made in the state, so all MS sales would take the hit if they based distribution out of in WA.
MDN is correct in pointing out the inefficiencies in public finance, but unfortunately MDN is not savvy enough to understand how or why. Public support of business infrastructure–roads, communications, utilities, etc etc–is critical to successful business culture. Just go to a civilized country like Germany, the Netherlands, Switzerland, Sweden, Finland, et al, to see how important a smooth running infrastructure is for business development and growth. The Republican mantra of no government is good government (except in the military-industrial complex) has been progressively destroying this for decades, and we are now reaping the benefits. Unfortunately it appears that folks like MDN buy into this destructive rhetoric.
Oh please, Washington State is nowhere near the most highly taxed state. According the The Tax Foundation, it ranked the 35th state in overall tax burden in 2008:
http://www.taxfoundation.org/taxdata/show/336.html
Friends of mine tell me that when Boeing moved its headquarters from Seattle to Chicago (so the CEO’s girlfriend could shop the Miracle Mile?), Boeing was playing hardball with Washington state, claiming they would close its facilities and relocate or outsource everything unless they got a cut rate on their business taxes. They did get tax breaks, then they decided to outsource most of the engineering and manufacturing of their new Model 787 airliner anyway. This is much like Chrysler started doing over a decade ago. Well, thanks to that boneheaded move, the 787 is over 2 years late, Boeing hasn’t saved any money whatsoever, and we all know where Chrysler ended up. Megacorporations often waste more money on their supply chain management attempting to avoid taxes than they would spend if they concentrated on quality and efficiency in-house.
It’s one thing to set up a non-critical part of the business in the slums to save money. Dodging taxes is the capitalistic way, and always has been, it’s the system we’ve set up. But the idiot multimillionaire CEOs in charge of U.S. industry have screwed themselves and us when they offshore the knowledgeable staff that brought these companies success in the first place. Don’t think that setting up ship in Cheap Taxville will garner better profits.
You right wing neocons loved when George W. Bush gave record breaking tax cuts to huge business like Microsoft, yet now you’re whining when they take advantage of a loop hole so they don’t have to pay their taxes?
What about the jobs it will cost if MS has to pay this outrageous amount of money? Everyone knows that huge tax cuts for big business are the only way to to stimulate this economy.
(That was sarcasm, neocons, in case you didn’t recognize it)
Good for M$.
I encourage all individuals and businesses to take advantage of every legal tax loophole.
Any entity that doesn’t must be stupid or is not careful with their finances.
Perhaps if the tax code wasn’t so complex we wouldn’t have so many- ‘opportunities’.
Word of caution, Apple actually does invest through a Reno based investment corporation, I would speculate that it does so to avoid some taxes.
The Microsoft scam has been going on for years and the 18 billion was from several years ago so I’d presume it is a whole lot more that gets laundered this way.
Apple moves it’s investments through Reno too like lots of other corporations. What Microsoft does though is move it’s oversea profits into the Caymans and avoids paying huge taxes to the federal government – and then we subsidize the bridge between their campuses in Redmond
Is that why partly our infrastructure and economic backbone is so decrepit?
http://www.asce.org/reportcard/2005/page.cfm?id=103
Excellent comments by MDN.
Idiots, fanbois, and hacks eschew the presumption of innocence.
I find it interesting how many people think it’s okay for corporations to dodge paying taxes, while the Supreme Court upholds lobbying as free speech for business interests. Therefore, businesses have a bigger say in our government than common citizens due to the access their lobbyists have, yet get away with paying little or no taxes. More and more, this is harming the United States as laws tilt toward business interests and away from citizens’ interests. Derivatives, anyone?
@Paul Johnson:
“How many talented Microsoft designers will move their families from Seattle to Reno?”
ummm, this is one of those trick questions? We’re supposed to assume that “talented Microsoft designers” isn’t an oxymoron? So, I’d go with “All of them”. Right?
State of Washington should tell Balmer and to pack his chair and move along to Reno. The company should pay taxes based on the percentage of employees based in that state.
But isn’t tax dodging a good thing because taxes are baaaaaaaaad?
This time, Microsoft is right. If the state of Washington wants Microsoft to book their sails in Washington, they should fix their tax code so that there’s no advantage to having a Nevada subsidiary. If they coughed up 700 million bucks of their shareholders’ money to the state when they don’t have to, it would be a breach of their fiduciary duty.
-jcr
this site would be better if MDN didn’t comment on any of the articles. MDN’s opinions are usually pretty lame. This is capitalism, son. The goal is to make the most money.