Creative Capitalism Gets Microsoft $528M Tax Break 545
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."
This is rabble rousing. (Score:5, Informative)
Forget the non-payment of taxes (Score:5, Informative)
http://www.fool.com/portfolios/rulemaker/2000/rulemaker000217.htm [fool.com]
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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.
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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 $3.1 billion in cash in fiscal 1999: "Stock option income tax benefits."
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Hippie socialist sheeple (Score:2, Informative)
It is your beloved cure-all government that is the source of the problem. Microsoft cannot imprison you. The government can.
Corporations only have the power to buy government that you socialist sheeple demand.
See, we can both play this clever game of calling people 'sheeple'. It's almost as clever as calling Microsoft M$.
Re:"small government" (Score:3, Informative)
What I do claim is that they own their profit, regardless of "effort". If I build something with someone's help, I don't owe him anything just because he helped me, but because we agreed on compensation beforehand. There is no valid contract between the State and Microsoft.
Re:Stop the Presses! (Score:2, Informative)
Re:Rock and a hard place (Score:3, Informative)
Re:So what? (Score:5, Informative)
Re:You eat the food, you pay the bill (Score:5, Informative)
I see things like this written all of the time on Slashdot. It usually doesn't come up in stories about tax, but usually ones about EULAs.
When you place an order for food, there is actually a contract. A valid contract requires: offer, acceptance, consideration and assent. Absent some extraordinary situation, the moment the restaurant starts making the food you've ordered, there's a contract. You're obligated to pay. Dine and dash is a sort of breach of contract. It's also conversion.
An "implied contract" is somewhat of a different beast. It's more of a legal fiction that prevents someone from knowingly obtaining the benefit of another's mistake. E.g. a court might imply a contract if you eat the $1000 meal meant for another table and then try to say that you're not going to pay for it because you only ordered a diet soda.
And, as it relates to taxes, a contract analogy is not a very good one. Lots of people don't pay taxes and yet get the benefits of the tax system. Moreover, a number of people pay more taxes than the value of the actual benefit received from them. There's also no way to reject the benefit since moving elsewhere is not usually a viable option--in a contract, this might be an example of duress.
I have a perpetual motion machine for sale (Score:3, Informative)
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 performance but apart from that there is no difference taxwise between providing the income as stock options as opposed to wages. The article is either written by someone who is completely ignorant of basic accounting or is preying on an audience he expects to be ignorant of it.
Consider a hypothetical company with 1 million outstanding shares valued at $100 each. Now consider an employee exercising a 1000 shares with a strike price of $10. The employee receives a benefit of $90,000. The employee pays the company $10,000 for the options. The company now has two options:
Option A: Buy back an equivalent amount of stock to provide the employee. This would cost $100,000. Subtract the $10,000 the employee paid and you see the company is faced with a cash outlay of $90,000 - exactly as if the amount were provided as wages.
Option B: Don't buy the stock back. The total number of outstanding shares are now 1,001,000. Maintain the market cap of $100 million as before and the value of the 1 million shares held by the previous stockholders is now $100 million minus $90,000.
There is a real loss of $90,000 that the company experiences and a real profit of $90,000 that the employee experiences. The employee pays income tax on the $90,000 and the employer gets to deduct the $90,000.
Re:Consider for a Moment (Score:2, Informative)
At least Ford, GM, and Chrysler avoid paying taxes the old-fashioned way: they don't make a profit.
Re:Public Trough (Score:3, Informative)
21.7% is _not_ the majority of the federal budget by any stretch. Even if you don't sort out the entitlements from the "everything else" category, Social Security and Medicare are a hefty enough chunk of the budget.
Re:personal vs. corporate tax share (Score:3, Informative)
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 directly to the corporation. Instead, it shows up as, for example, employee income taxes. It's possible to shift that back to the company, but the employees would end up getting a pay cut.
Re:There are other taxes to pay to WA state (Score:3, Informative)
Re:from whom does the benefit come? (Score:5, Informative)
People who purchase MS software or services have to pay sales tax on those transactions and anything that MS sells online is also subjected to WA tax for anybody that lives in the state. I don't believe that MS is required or really should be paying more taxes than they are presently to my state.
I haven't seen the figures themselves, but it doesn't matter where the sales are recorded, the amount of taxes that corporations can be taxed here are extremely low compared with the money that MS products bring in through sales tax. We're talking 6.5% base sales tax compared with corporate taxes of 0.00484% for gross manufacturing receipts, 0.00471% for retailing and 0.015% for other services.
The money just isn't that large compared with the additional sales tax, gas tax, property tax and the taxes paid to the state by their employees.
Re:So... (Score:5, Informative)
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
Re:from whom does the benefit come? (Score:3, Informative)
you should know that the United States is the only prominent country to have a corporate tax. Your socialist friends do not, and for good reason.
Exactly which socialist countries are you talking about? Just about every major country I can think of has Corporation Tax. See this page at Wikipedia [wikipedia.org].