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Microsoft The Almighty Buck

Creative Capitalism Gets Microsoft $528M Tax Break 545

Posted by CmdrTaco
from the well-good-for-them dept.
NewsCloud writes "Microsoft makes products in Washington but records software sales to PC makers and high-volume customers through an operation in Nevada, where there is no corporate tax. So Washington has missed out on more than half a billion in taxes; revenue it could use for badly needed infrastructure needs — such as the needed replacement of the 520 bridge which connects Seattle ... to Microsoft. Reported by Slashdot in 2004, the numbers have increased with the company's growth to approx. $76M in savings last year alone. The author questions the legality of the practice given Microsoft's 35,500+ employees and 11.2 million square feet of real estate in Washington state."
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Creative Capitalism Gets Microsoft $528M Tax Break

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  • "small government" (Score:4, Insightful)

    by Anonymous Coward on Monday February 04, 2008 @10:59AM (#22292072)
    Do I hear someone call for "Small government" ? This is what happens when the sheeple are being led by corporate hacks calling for small government: no checks on the corporations, while people are starving on the streets.
    • This is what you get when a bunch of hippies convince small-minded people that corporations have more power and are more evil than the government.

      It is your beloved cure-all government that is the source of the problem. Microsoft cannot imprison you. The government can.

      Corporations only have the power to buy government that you socialist sheeple demand.

      See, we can both play this clever game of calling people 'sheeple'. It's almost as clever as calling Microsoft M$.
    • Small Government People know that you can not have small government with corporations. Corporations are not natural entities but protected entities created by government regulations. A small government would eliminate the corporation. Not the business, just the protected status. Corporations only enjoy their protected status by the largess of government.

      Look at your city, your county, your state. Almost all corporations.

      People like you need to realize that it isn't the "big business" mentality, it is the fa
  • So... (Score:4, Insightful)

    by EastCoastSurfer (310758) on Monday February 04, 2008 @10:59AM (#22292084)
    Would Washington rather MS move their operations to Nevada and lose the tax base of all the employees? This situation is actually a good argument for getting rid of corporate taxes. Corps wouldn't just sit on the money they saved. They would invest it by hiring more people and spending more money where they are actually based.
    • by Calinous (985536)
      Why would Microsoft keep its headquarters and workforce in Washington and not move them to Nevada if being in Nevada is so good for them?
    • Re:So... (Score:4, Insightful)

      by shma (863063) on Monday February 04, 2008 @11:52AM (#22293184)
      Corps wouldn't just sit on the money they saved. They would invest it by hiring more people and spending more money where they are actually based.

      Or they would move the money offshore. Or they would move to give their top executives raises and stock options. Or they would throw it on the big pile of money they're offering to buy Yahoo. Or they would pass that money on to shareholders at the end of the quarter. Or any one of a hundred other things they could do which takes the money out of the state.

      All moves which deprive the residents of Washington money they need for social services. Do you think that Microsoft is required to spend money in their home state? That they will do it out of the goodness of their hearts? Their job is to make money for the shareholders, and unless you specifically tax them, then there is no guarantee that any money Washington gives them will be reinvested back in the state.
    • Re:So... (Score:5, Insightful)

      by downix (84795) on Monday February 04, 2008 @12:24PM (#22293558) Homepage
      Paper tiger arguement.

      They are in Redmond because it has the infastructure to support them. The telecommunications, roadways and educational system to supply those tens of thousands of employees. Nevada, by contrast, cannot supply these (sorry nevada, you're a great state, but your infastructure is horrid). For microsoft to do such a move would be to cut off its nose to spite its face.

      There is a reason why the top performing companies are found in areas with the highest tax brackets. Those territories, which tax for the needed infastructure, are the ones which can support businesses of Microsofts size.
      • Re:So... (Score:5, Informative)

        by LynnwoodRooster (966895) on Monday February 04, 2008 @01:25PM (#22294548) Journal
        Obviously you don't live in Washington... Microsoft (and Boeing) each PAY millions of dollars when expanding their campuses FOR things like increased roads, transit, power, and the such. They PAY those costs right up front, before or during construction (with the requirement that the infrastructure be built and completed prior to signoff of the new construction).

        Additionally, because of "community needs" and "environmental impact" and "public awareness" campaigns, Microsoft and Boeing pay MILLIONS to build parks, schools, and other government-specific projects MILES away from the construction, just to get their permits approved.

        Microsoft PAID for the overpass across 520 when it wanted to join its two campuses. It PAID for the Metro transit center in front of the Redmond campus. It PAID for widening 40th Street. It PAID for the rework that's happening on 150th. Cash up front.

        This is a case of a State out of control. Washington's budget has increased 33% in the last 3 years alone. Not promised outlays, actual CASH BEING SPENT. We're going from a $1.5 billion dollar surplus and $2 billion dollar rainy day fund to $600 million dollar deficits and no rainy day fund.

        We have the HIGHEST GAS TAX in the nation. That gas tax is supposed to be dedicated to roads. Yet we still have floating bridges that are at risk of sinking with each storm, and a viaduct that carries half the North/South transit through the city of Seattle yet is in danger of imminent collapse PER THE STATE'S OWN EXPERTS.

        Yet neither of these infrastructure problems - which were to be addressed by the latest 9 cent per gallon tax - has been started. We're still arguing about whether to just tear them down and not replace them (where did the money go?) or replace them with structures that carry FEWER vehicles, when our population is increasing.

        We have an out-of-control L&I system. Woe be to you if you have a warehouse or shop and the State knows about it - EVERYONE that can walk into the warehouse can be considered "high risk" for your L&I costs, regardless of their position or the use of that warehouse.

        Unemployment? I ran a business for 10 years in this State, and never ONCE had an unemployment claim. Not one. Employed over 80 people over the years, never ONE claim. Yet every year my unemployment tax rates would increase by 6-8%.

        We mandate HUGE income to the State by having the highest minimum wage in the nation. And of course, that means the State gets more income because their income is based on spending, gross receipts by businesses (which must increase when the mandatory wages increase), and those same L&I costs (which are a percentage of your wages).

        No, taxation is not the problem - the State's budget is growing faster than the wealth or income of the State's residences. Record budgets are being pushed through with taxation growing 2-3 times that of the wealth of the State... Well what's going on?

        Spending - it's up 33% in just 3 years. Oh, and that doesn't include the UNDERFUNDING of the State's pension plan. Or the spending of the rainy day fund. Both of those are "off book" items...

        We're spending over a billion dollars a MILE for a light rail system that runs at grade. And cannot climb the hills of Seattle. And originally wasn't even going to go to the airport, but changed because of overwhelming public outcry. The existing example spur - the South Lake Union Trolley (yes, it is actually called the SLUT) - has had 3 train-car accidents in just 3 months, bringing it to a standstill for hours.

        This State has seen property taxes rise on average at 15% per year for the last 5 years. And now that it's looking to slow down to only 3-4% per year, the State is figuring out how to increase the taxation rates to bump their revenue intake up.

        This State is all about take-take-take, and what YOU can do to contribute to it. Competition is not allowed - no school vouchers, private tollways are illegal, private ferries ar

  • by huckamania (533052) on Monday February 04, 2008 @10:59AM (#22292096) Journal
    The 35k plus employees pay taxes in state and Washington State is certainly aware of that fact. If they make too much of a grumble about the corporate loop hole, they could lose the much larger 35k plus employee tax base. Those 35k are probably just the people who work for M$. There are probably lots and lots of other Washington residents whose primary income derives from Redmund.
    • by necro81 (917438) on Monday February 04, 2008 @11:10AM (#22292358) Journal
      Microsoft isn't going to leave Redmond - just accept it. Consider what it would take to relocate to someplace else: you'd have to build an entirely new campus for 35k+ employees, then you'd have to convince them all to come with you sight unseen, then you'd have to hire thousands of new employees to replace the ones who didn't come with you.

      If taxation and cost of doing business were the deciding factor of where a company locates, Silicon Valley would not exist, and the World Trade Center would be in rural Idaho.
      • Ahh, but they wouldn't have to move 35k+ jobs, only (Total/2) + 1, depending on what the formula is going to be for determining where a corporation gets to put its headquarters.

        Still, I don't think it is workable to have the states determine where a companies HQ is. What if two states both claim the HQ? What if the employee count goes up and down each year? I'm sure Texas, California and New York would have no problem telling company X that they now pay state corporate taxes. Although I don't think
      • by LynnwoodRooster (966895) on Monday February 04, 2008 @01:34PM (#22294710) Journal
        I'd argue that businesses locate in low-tax areas, and as those areas attract and grow new businesses, they increase the taxation, assuming that if they keep the rate of increase low enough, the business will simply suck it up and pay the higher rate than pick up and move.

        Check out Idaho - businesses are relocating there like mad. Likewise Nevada and Wyoming. High tax areas like California, Massachuessets, and Michigan are leaking businesses because the taxation has gotten too high.

        Washington is unfortunately following the CA/MS/MI model, not the ID/NV/WY model. It's already caused Boeing to relocate their headquarters (taking with it a substantial chunk of change)...

        Looking at the Microsoft employment opportunities/open recs, there's no question in my mind why growth out-of-Redmond is much greater than in-Redmond. Cost of doing business - hire your employees in other areas where it's more affordable and let the local employment stagnate or fade away. That's how you move a massive high-tech information company.

        Boeing is in a tougher place - they have physical plants and tools that are expensive to relocate. But Microsoft? Give it 10 years and you'll find the majority of Microsoft employees will be OUT of the State of Washington. Bet on it.

    • Re: (Score:3, Informative)

      by Mr2001 (90979)

      The 35k plus employees pay taxes in state and Washington State is certainly aware of that fact. If they make too much of a grumble about the corporate loop hole, they could lose the much larger 35k plus employee tax base.

      Washington has no personal income tax, so the state would only stand to lose sales and property taxes. If MS is avoiding $76 million in annual corporate taxes, that's $2171 for each of their 35,000 employees. How much sales and property tax are those guys actually paying?

  • by RightSaidFred99 (874576) on Monday February 04, 2008 @11:00AM (#22292114)
    A corporation has a financial duty to avoid paying unnecessary taxes. If you don't like the way those "fat cats" (I notice rabble rousers use that term a lot) get out of paying taxes, talk to the government and have them close the loopholes. More importantly, not that every dollar Microsoft pulls in is taxed _multiple_ times by the time it makes it into the shareholders' pockets. The fact is that it's a myth that corporations are pulling one over on the government, corporate taxes are a little silly since the money _is_ taxed before it goes into any individual's pocket.
    • by SuperBanana (662181) on Monday February 04, 2008 @11:57AM (#22293254)

      The fact is that it's a myth that corporations are pulling one over on the government

      They're not pulling one over on the government- they're pulling one over on us.

      In the 1950's, the corporate share of taxes was about 50%. Citizens paid half, corporations paid half.

      Now? it is about 2%. And why is that?

      Corporate lobbying. Corporate lobbying pays for all the toys and the re-election campaigns.

      • Re: (Score:3, Informative)

        by cfulmer (3166)
        First of all, page 4 of http://www.cbo.gov/ftpdocs/66xx/doc6609/08-15-Slides.pdf [cbo.gov] shows the 2005 revenues -- corporate income taxes were 13%, individual income taxes were 43%.

        The main reason that corporate income taxes are relatively low is because corporations are taxed on their profit, whereas individuals are taxed on their earnings. A company can easily bring in $100M in revenues, but only make $5M profit, which is then taxed at ~35%, yielding $1.75M in taxes. The other $95M is also taxed, just not dir
  • by RichMan (8097) on Monday February 04, 2008 @11:01AM (#22292142)
    Microsoft has effectively paid its employees with your tax dollars for years.

    http://www.fool.com/portfolios/rulemaker/2000/rulemaker000217.htm [fool.com]

    --
    Basically, Microsoft receives cash by issuing employee stock options, after which the company then receives billions of dollars in tax deductions from the IRS for doing so. Add in the warrants it sells on its own stock, and the company made over $5 billion off the stock market last year (fiscal year ended July 1999), tax-free. For comparison, its after-tax net income was only $7.8 billion. Microsoft may not be much in the programming department, but its accountants are impressive.
    --
    Corporations pay taxes on their own income (generally 35%), but money they pay out in salaries to employees is deductible from the corporation's income. Since granting options to employees results in taxable income to those employees, Microsoft gets to deduct that taxable employee income from its own taxable corporate income, and that's where Microsoft got a tax-free $3.1 billion in cash in fiscal 1999: "Stock option income tax benefits."
    --

    • by kylben (1008989) on Monday February 04, 2008 @11:07AM (#22292278) Homepage
      Just so you know, while you were at work today, I broke into your house and stole everything except your widescreen plasma TV. I'll expect a thank you note for the free TV you got from me.
    • Add up the actual amounts involved and account for the dilution in share value and you'll realize that no one is cheating anyone else.

      Employees exercising stock options pay taxes on the value of the benefit they receive just as if it were income through wages. The employer deducts the value of the benefit just as if it were income through wages and the net value of the corporation is reduced by the same amount just as if it were income through wages. Stock options allow you to tie that income to the stock p
  • So? (Score:5, Insightful)

    by roggg (1184871) on Monday February 04, 2008 @11:05AM (#22292214)
    I hate Microsoft as much as the next guy (okay, maybe not around here, but I really really hate them!), but why shouldn't they structure their corporation to reduce the tax burden? Just be glad it's Nevada and not Belize.
    • by mwvdlee (775178)
      Because at the end of the day, each state is going to get the same amount of tax money.
      If MS isn't paying it's share, guess who has to cough up what's missing?
      You.
  • Stop the Presses! (Score:4, Insightful)

    by jandrese (485) <kensama@vt.edu> on Monday February 04, 2008 @11:06AM (#22292228) Homepage Journal
    Large corporations exploit tax loopholes? Who would have thought?
    • Re: (Score:2, Informative)

      by snehoej (1162671)
      Aye. The Danish branches of Coca-cola and McDonalds for example continuously post negative turnovers even though they're doing _quite_ well here. As for Coca-cola, they simply purchase syrup from the US corp. at extremely inflated prices to avoid taxation.
  • Capitalism (Score:3, Insightful)

    by Arthur B. (806360) on Monday February 04, 2008 @11:08AM (#22292310)
    is generally defined as the use of private mean of production on a free market. Regardless of one's opinion on the news, the title of the news is inaccurate, and let's say it stupid.

    I for one cheer for anyone protecting money from the prying hands of the State.
    • I hope that you and Microsoft are equally cheerful about all this when the 520 bridge capsizes with a ton of Microsoft employees on it. Or will that then be the state's fault somehow?

      I tend towards libertarianism myself, but the article makes an excellent point. The 520 bridge is a crucial piece of infrastructure that Microsoft and its employees benefits greatly from the existence of. Do you have a reasonable proposal for how to pay for it? If you think it should be a privately owned toll bridge, I wil

    • by EmbeddedJanitor (597831) on Monday February 04, 2008 @11:42AM (#22292988)
      Remember that statement next time you drive along a road. Where TF did that road come from?
    • Re: (Score:3, Insightful)

      I for one cheer for anyone protecting money from the prying hands of the State.

      Ah, the refrain of all Libertarians. Never mind that there are legitimate responsibilities for both tax payer and government. Does Microsoft build and maintain the roads to-and-from their employee's homes and their distributors. Does Microsoft pay for the infrastructure that pushes electricity, cable, and water lines for them? Does Microsoft provide police and fire protection for them? Nope, that's what your taxes are for

  • Good for Microsoft! If I could do the same to avoid paying the portion of my taxes that go for welfare-state bullshit (which is pretty much EVERYTHING except for the Military and Law Enforcement budgets), I would. In a heartbeat.

    If Washington state makes a move to try to get this income, MS should pick up and move it's entire operation to Nevada. What would Washington State do then?
  • REALLY bad title (Score:3, Interesting)

    by dada21 (163177) <adam.dada@gmail.com> on Monday February 04, 2008 @11:12AM (#22292410) Homepage Journal
    No, it didn't net Microsoft anything. The proper title should be "Restrictive socialism costs Microsoft competitors billions."

    When I had my retail store, we moved literally 3 miles across a State line because of a sales tax differential of nearly 4%. That's significant, when many of our items were $500-$1000, meaning a savings to the consumer of $20-$40 in taxes. Even funnier, the county/state with the lower tax rate had BETTER public facilities and police attention (the store in the old State had regular robberies and theft), and my customers had a 5 minute longer hop to get there.

    We've talked repeatedly about moving out of our State and leaving some customers behind if our State decides to start a labor sales tax. It's a terrible idea, as more taxes don't mean more income (and neither do less taxes necessarily) for the State. It's a VERY complicated "invisible hand" situation.

    I appreciate when companies find loopholes, because it gives me hope that I can use them, too. I hate W2s, as 1099s offer many more tax benefits. I've seen many friends give up their stable W2 jobs to move into 1099 contracting, and see their income double, but their tax share not move up as much. When I heard Haliburton was moving offshore, I investigated it and found that there are tons of savings to do so, even if your primary business is still in the States. It makes sense.

    Yeah, Microsoft will take heat for this, but the reality is that small and medium sized business owners should do everything in their power to find the least-regulated economies to operate out of. I love seeing companies move out of California, employees and all, and hitting States that so far have not shut down the engine of business, thinking that the State can help the poor when in fact it is jobs, not entitlements, that help the poor.
  • Basically, the dispute is whether the "product" you purchase is a chunk of software hand-crafted for you in Redmond or a license generated for you in Nevada. Seems like the "its not stealing its copywrite infringment" crowd ought to be 100% on Microsoft's side on this one, no?
  • Don't hate the player, hate the game. MS is fulfilling their duty to their shareholders.

    -jcr
  • I guess how shady the accounting is depends, in part, on how large a presence Microsoft has in Nevada. Is MS shipping DVDs of Windows and Office from some warehouse in the desert? Do they have servers based there that distribute authorized soft copies to OEMs? Are their sales and volume-customer relations based there?
  • How about Boeing? (Score:5, Interesting)

    by Exp315 (851386) on Monday February 04, 2008 @11:20AM (#22292576)
    The other major business of Washington state - Boeing - flies their planes just outside the U.S. territorial limit offshore to sign the transfer papers with international customers so that they won't have to pay tax. Should we complain about them too?
  • by cenonce (597067) <anthony_t@m[ ]com ['ac.' in gap]> on Monday February 04, 2008 @11:25AM (#22292670)

    It is not like Washington isn't getting a cut out of MS. With 11.2 Million square feet or real estate, think of the property taxes? With 35,000+ employees, think of the payroll taxes?

    Seriously, please don't tell me everybody on Slashdot is naive enough to think that companies like Red Hat, SUSE and Ubuntu aren't working the tax system either! Companies from a one man show to an MNC use this system to pay the least amount of tax they can. Nevada and Delaware have long maintained favorable tax treatment of corporations exactly for this purpose. If Washington wants in on this action, they can offer the same incentives to encourage MS to claim those profit in WA.

    • Re: (Score:3, Informative)

      by hkfczrqj (671146)

      With 35,000+ employees, think of the payroll taxes?
      There's no income tax in Washington.
  • by asphaltjesus (978804) on Monday February 04, 2008 @11:27AM (#22292702)
    That Microsoft's behavior isn't unique in any way, shape or form. That what microsoft does is standard operating procedure for all mega-corporations.

    Paying taxes in the state with the lowest corporate tax rate and forming corporations in Delaware is done for the same reason. It's the best deal.

    If this is outrageous to the submitter, then I hope he never discovers how most electronics firms with an office in the U.S. work.

    As an FYI, they are set up as subsidiaries that "buy" their product from the most attractive exporting/manufacturing office from some other part of the world of the same corporation. The U.S. office then operates at a perpetual loss (paying less tax) by hiding the income generated as the cost paid to "buy" the goods from some other part of the world.

    Minimize tax, maximize profit!
  • Bridges are here to allow people to travel, and people pay taxes. Tens of thousands of people spend comfortable incomes in Washington and lots of sales tax on their spending thanks to Microsoft, that should be enough to keep the infrastructures that support these people.
  • by LynnwoodRooster (966895) on Monday February 04, 2008 @11:29AM (#22292740) Journal
    Note that this is a complaint from the State of Washington (where I reside when in the US), the ONLY State that has the completely regressive and oppressive Business and Occupation Tax. A State tax on GROSS receipts. Yep, have $1,000 in revenue, but because you're a startup, or have a bad quarter or whatever, you lose $1,200 but STILL get the "luxury" of paying tax on that $1,000!

    Ignore this story - Washington is taxing itself into oblivion. Boeing moved their corporate headquarters - and most of their taxable profit - to Chicago over the taxation and treatment of business in this State. The ONLY things that is keeping Washington alive right now are:

    1. Agriculture. Hard to move a farm, so they're stuck. Of course, our State wants to breach all the dams and eliminate the irrigation systems, which would kill these businesses.

    2. Boeing. Already moved their corp headquarters, and unfortunately for Boeing, the physical assets here - buildings, equipment, and people - are so huge that you can't afford to move them. But more and more work is shifted outside the State...

    3. Microsoft. Faces the similar situation with Boeing, because of the size of the campus and people. Stuck for now, but does more and more outside the State.

    Washington is screwed. It has the highest gas tax in the nation, and still hasn't repaired road damage from the 2001 Nisqually Earthquake. The legislature and governor raised the State budget by 33% in 3 years, and now projects deficits left and right, yet it's also decreased MANDATORY funding of the State employee's pension fund. And now it wants to put the screws to Microsoft...

    Washington is dead, it just doesn't know it yet...

  • Textbook Tax Case (Score:5, Insightful)

    by sarlos (903082) on Monday February 04, 2008 @11:38AM (#22292902)
    This is a textbook case of high taxation modifying the behavior of the taxed. If Washington's tax rates weren't punitive for these sales, there wouldn't be any incentive for the company to be incorporated in Nevada. This is a common corporate practice, and demonstrates the necessity of small laboratories of democracy, aka, states. Washington is seeing how Nevada's tax code is modifying the behavior of Microsoft, and Washington has the choice to modify their tax code or continue pursuing their own version of it. It's not Microsoft's fault for playing by the rules to maximize profit.
    • Re: (Score:3, Insightful)

      by shdragon (1797)
      This is a textbook case of high taxation modifying the behavior of the taxed. If Washington's tax rates weren't punitive for these sales, there wouldn't be any incentive for the company to be incorporated in Nevada. This is a common corporate practice, and demonstrates the necessity of small laboratories of democracy, aka, states. Washington is seeing how Nevada's tax code is modifying the behavior of Microsoft, and Washington has the choice to modify their tax code or continue pursuing their own version of

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