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Microsoft accused of dodging $707m in taxes

updated 03:30 pm EDT, Wed September 23, 2009

Microsoft has saved $707m in taxes over 13 years?

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. The software giant is based in Redmond, Washington, but it records its software licensing revenue from an office in Reno, Nevada. 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.

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. In 2009, Microsoft should have paid more than $87 million in Washington state software royalty taxes, with $90 million in 2008. This is based on the lower 0.484 percent tax, but it would have been 1.5 percent before 1998.

Microsoft employs software engineers in Redmond and Issaquah, both in Washington state, where they create software such as Windows Vista, Windows Server, SQL Server, and Office. Sales of these products are made from a License and Operations office in Reno, Nevada, where there is no corporate income tax.

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. [via Guardian]



By Electronista Staff
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  1. localnet

    Fresh-Faced Recruit

    Joined: Feb 2005

    -3

    Well, I guess

    MicroSoft could pull up stakes and head to Reno, or just leave the U.S. entirely for a friendlier business climate. It's not like MS does not pay taxes, so when is enough, enough?

  1. Parky

    Mac Elite

    Joined: Oct 1999

    +2

    Disgrace

    It is a disgrace that MS should punish their home state like this.

  1. climacs

    Forum Regular

    Joined: Sep 2001

    +3

    it's not dodging

    if it's legal.

    While Microsoft is not technically breaking the law

    And I am not 'technically' the King of England. If it is legal for Microsoft to record their software sales out of Nevada, why shouldn't they do it? I would.

    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.

    boo hoo hoo, Microsoft is not a charity. If Microsoft has indeed saved ~$55 million a year for the last 13 years by doing this, I'd say either Washington's legislature needs to re-consider their taxes on software licensing, or else they need to talk to Nevada about why their taxes on it are so low.

    I am anything but a libertarian, I know I am sounding like one here... but I also believe in rational behavior. Microsoft is acting rationally and legally. If this were an illegal tax dodge, that would be another story. Just be grateful those jobs in Nevada are still in the USA.

  1. malax

    Fresh-Faced Recruit

    Joined: Aug 2006

    +4

    close the loophole

    Sounds like someone in WA should have figured this out years ago and changed the laws. Obviously the hundreds of millions of dollars being generated is not based on the sales guys or accountants in Reno; they are a product of the work done in Washington state. I wonder how this applies to revenue from other corporations. For example, does Apple pay corporate tax to California for sales of iPods (made in China and sold in other states)? Probably, right? Could Apple set up an office in Nevada and funnel the money through there to save a mint? If so, maybe they should. Or perhaps California has better written tax laws to prevent this sort of thing.

  1. pairof9s

    Mac Enthusiast

    Joined: Jan 2008

    +5

    And who hasn't?!

    I mean what company with the means hasn't or wouldn't do the same thing? It's good business practice.

    The flip is that many states know their tax laws are stringent on corporate growth and thusly adjust their rates for incentives to companies to locate there. We did it in S.C. for BMW and N.C. just did it to get the Apple server farm. Washington should stop whining and follow suit.

    /

  1. bjojade

    Fresh-Faced Recruit

    Joined: Jun 2007

    +1

    Not illegal, but just BS.

    Big companies do this sort of thing all the time. They have a tiny little shop in Reno with one guy sitting there playing solitaire, and they 'say' that's where all of the sales happen. When you look at it rationally, it's obvious that it's a loophole to avoid taxes, even though it's not breaking the law.

  1. Flying Meat

    Dedicated MacNNer

    Joined: Jan 2007

    0

    Taxes? Who needs taxes?

    I think some perspective on the subject might help.
    http://taxprof.typepad.com/taxprof_blog/2004/09/red_states_feed.html

  1. dpicardi

    Forum Regular

    Joined: Sep 2006

    +3

    I bet you 1/3

    of the futune 100 are guilty of something similar. If it is not illegal why would you fault them for it? The only people they truly need to answer to are shareholders. Saving on taxes is good for shareholder value. Nuff said. This is a non-story.

  1. ADeweyan

    Fresh-Faced Recruit

    Joined: Mar 2004

    +4

    Is it possible...

    ...that the infrastructure and resources paid for by Washington State taxes are part of what make Washington State the best place for Microsoft to do its work?

    I certainly understand the business motivation for this sort of move (and, of course, I'm sure the majority of businesses that can take advantage of it, do take advantage of it), but I also believe that if you use and benefit from something, you should pay your fair share.

    I know nothing about Washington state politics or budget, but have class rooms been closed or teachers fired because money was spent on infrastructure that supports Microsoft's success rather than on education?

    That's one of things I find so frustrating about the anti-tax wealthy (and corporations). They seem to believe their success and wealth grows out of their talent and strength of character alone, forgetting that they could achieve nothing without the support of the state -- everything from safe roads and law and order, to educated employees and regulated commerce. For example, how long could a business survive without the protection of legally enforceable of contracts?

    Sorry, that's a bit off topic...

  1. testudo

    Forum Regular

    Joined: Aug 2001

    +2

    And...

    How many banks are 'located' in Delaware, for no other reason except they have the loosest lending laws in the country?

    And how many companies have moved their 'headquarters' off shore to claim they are a foreign company and not subject to some US taxes or the like.

    The truth is all companies, large and small, do all they can to minimize their tax liability, just as individuals do the same (and let's see that show of hands of people who buy computers and other large items off the internet and still make sure they pay their local sales taxes!).

    And maybe MS started doing this when Washington decided "Hey, MS is making a ton of money on software contracts. Let's make sure we add a tax on that particular service so we can rake in some easy cash!"

    And I'm sure if CA announced a tax on all revenues from digital music sales, Apple would suddenly move their sales points to some other state too.

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