“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 $430 million deficit in its biennial budget, which is believed to be shortchanging residents in the state, including Microsoft’s own employees.”
Full article here.
MacDailyNews Take: Aw, come on, everybody knows Microsoft has no ethics or morals. Their flagship product is an upside-down and backwards knock-off of a superior competitor’s product, for crying out loud.
That said, the state of Washington should look into why corporations based there feel the need to establish offices in less confiscatory states. Besides the fact that the loophole exists in the first place, that’s the actual root of the issue. You think Microsoft or any corporation or its shareholders are going to authorize paying hundreds of millions in taxes that they do not legally have to pay out of the goodness of their hearts? If so, welcome to Fantasy Island. If you don’t like it, work to close the loophole(s). Obviously, while this practice might be legal, it doesn’t sound like it should be; tens of thousands of employees doing all the work, but a relative handful claiming the income in a tax-free state? Who paid for that loophole?
Here’s another thing to consider: Microsoft’s tens of thousands of Washington State employees are presumably paying sales taxes, gas taxes, tolls, and many other taxes out their wazoos that benefit the state of Washington immensely. How much is all of that worth? Jeff Reifman should write a blog entry about what would happen to the state of Washington if Microsoft moved all of their offices to Nevada.
As someone who lives within miles of M$, 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.