Update: The Guardian UK has written an excellent analysis of this post - it's a must read: Is Microsoft a Tax Dodger? Thanks also to Slashdot, TechFlash, PI & macnn!
Microsoft's Cumulative Tax Evasion Now Exceeds Washington State's Biennial Deficit
Last week, the Seattle Times reported that Washington State's tax revenue is expected to decline by $238 million creating a $430 million shortfall in the biennial budget. The deficit is expected to grow further as a result of "rising demand for state services and other factors". Luckily, there is an easy way to shore up our finances - ask Attorney General Rob McKenna to begin enforcing the state's existing tax law on software licensing.
Over the past thirteen years, I estimate that Microsoft has avoided paying more than $707 million in B & O taxes on sales of its corporate software licenses (see Citizen Microsoft and Microsoft's $528 million Washington tax break ). Although the majority of its software development is performed in Washington State, Microsoft records its estimated $18 billion in licensing revenue per year through a corporate office in Reno, Nevada where there is no licensing tax.
Under the state's .484 percent software royalty tax(lowered from 1.5 percent in 1998 after industry lobbying), I estimate that Microsoft should have paid more than $90 million in 2008 and $87 million in 2009 in state taxes.
Just by enforcing the state's existing tax law from 2008 onwards, we could reduce Washington's revenue shortfall by more than 70 percent. Alternately, we could pursue the entire $707 million from Microsoft's thirteen years of tax dodging and cover most of the expected deficit going forward - perhaps more if damages are awarded through litigation.
Since Microsoft began operations in Reno in 1997, it has enjoyed record-setting revenue of more than $446 billion and profit of more than $124 billion. If it paid its actual tax bill in full today, it would still have more than $24 billion in cash holdings.
Readers love to make excuses for why Microsoft should be exempt from state tax law but all I'm asking for is uniform enforcement of existing state tax law. If we're not going to enforce the tax, why have it?
Given the number of Washington state residents out of work as a result of the recession, I call on Governor Gregoire and Legislature to enforce existing tax laws before trying to cut benefits to our most vulnerable citizens. How dare they even consider reducing access to health care and unemployment benefits before addressing this long-ignored issue!
Before you comment - please see the "Note to Commenters" below...
Notes1. If the Washington State Legislature hadn't bowed to industry lobbyists and cut the tax rate by more than 2/3, Microsoft would owe $2.08 billion.
2. I single out Microsoft because it's, by far, one of the biggest offenders, but I would like to see the uniform enforcement of state tax law to all corporations using out of state facilities to minimize tax payments.
Related links
- Microsoft's $528 million Washington tax break (Crosscut)
- Top Reader Excuses for Microsoft's Tax Avoidance (Idealog)
- Horrible ten years for Microsoft shareholders (Idealog)
- Citizen Microsoft (Seattle Weekly) and Follow up (Idealog)
- More budget cuts loom for Washington state government (Seattle Times)
- Wash. expected to lose about $238M in tax revenue (Seattle Times)
Note to Commenters
A lot of the arguments made below were already addressed in this piece. Please read it before you comment.
Secondly, please review Washington State's B&O tax before you comment:
RCW 82.04.2907Tax on royalties from granting intangible rights. |
Upon every person engaging within this state in the business of receiving income from royalties or charges in the nature of royalties for the granting of intangible rights, such as copyrights, licenses, patents, or franchise fees, the amount of tax with respect to such business shall be equal to the gross income from royalties or charges in the nature of royalties from the business multiplied by the rate of 0.484 percent.
"Royalties" means compensation for the use of intangible property, such as copyrights, patents, licenses, franchises, trademarks, trade names, and similar items. It does not include compensation for any natural resource or licensing of canned software to the end user.
[2001 c 320 § 3; 1998 c 331 § 1.]
* Canned software to the end user = retail software sales in boxes with end user licenses, not mass license sales to corporations
* The law does not distinguish between license sales intrastate, interstate or international
* By transferring it's software to Reno for sale from Nevada, Microsoft is accomplishing a "sleight of hand" which probably would not pass muster in Washington State court.
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