Microsoft Freeloading In Washington State Courts 395
reifman writes "For tax purposes, Microsoft reports that it's earned its estimated $143 billion in software licensing revenue in Nevada, where there is no licensing tax, as we discussed a few weeks ago. However, for legal purposes, Microsoft relies on Washington law and its underfunded courts to defend its contracts as it did in Microsoft Licensing GP vs. TSR Silicon. Application of common legal doctrines such as nexus, the step doctrine, and alter ego theory may lead to findings that Microsoft owes the state more than $1 billion in taxes, interest, and penalties."
Re:What a Troll! (Score:5, Insightful)
It's not that anyone cares that MSFT booked the revenue in Nevada.
BUT, That means the Laws of Nevada are dominant, not Washington. Microsoft needed to make one choice, but they seem to want the best of both worlds.
Re:What a Troll! (Score:5, Insightful)
I don't have an axe to grind with Microsoft, and I like and use many of their products every day.
That said, I hope they do get nailed to the wall. The Slashdot community often rails against patent trolls venue shopping for their stupid lawsuits, because it's the best chance for a settlement in their favor.
Microsoft is doing nothing different; venue shopping to lessen their tax liability. It's dishonest, immoral, and it should be stopped. If Nevada is such a nice place to operate, then maybe they should have more of their operations there. As it stand, any corporation in the US could open a branch office there, then report whatever in that state, and whatever funds their actual home state would have received vanish.
This looks like a pretty transparent shell game, and I hope the regulators take steps to make sure it won't happen again.
Re:What a Troll! (Score:5, Insightful)
Further there is no down side to moving HQ offshore, to avoid taxes. Becoming a Panama flag flying ship or any such thing. When Somali pirates pirate ships, it is the US Navy that does the rescue even if the ship is registered in Panama. When there is no down side all the corporations will just go where the taxes are low.
Now that we have brain washed most Americans to vicereally hate taxes, whether it makes sense or not, the corporations have no down side at all. And we wonder why there are 40 million Americans without healthcare, why our infrastructure is crumbling and why there is no real wage growth in USA.
Re:What a Troll! (Score:5, Insightful)
Do you go out of your way to find the way in which you can legally give the government the most possible tax revenue?
It is absurd to suggest that any public company not do the maximum they can to minimize their tax liability. You obviously have an ax to grind with MS, and that's fine, but digging up this kind of garbage is ridiculous. The same statements that you have made about MS can probably be made about 95% of the Fortune 500.
I think the point here was that the system is broken. Not that MS takes advantage of it.
Re:What a Troll! (Score:2, Insightful)
If Microsoft were paying this 775M+ in taxes they are avoiding with a loophole that is 775M less in taxes that need to be assessed elsewhere.
You will never be able to find a tax reduction you can attribute to the government collecting this. That's not how it works, it just means the government is taking more. That doesn't mean I think the government should tolerate tax evasion. It will make MS a little less profitable/competitive, because they either have to absorb the higher tax from their profits or raise their prices/sales.
Re:What a Troll! (Score:5, Insightful)
Really? I'll best most people in Washington (state) do.
Re:Buy your MS licenses in China (Score:3, Insightful)
You've gotta love this entitlement mentality (Score:2, Insightful)
.
I have a mutual fund that includes MS stock and I expect them to use all legal means possible to reduce their expenses. One way is to minimize taxes.
I would also point out that MS does not really pay taxes. This is just another expense that gets passed to the consumer.
Re:Buy your MS licenses in China (Score:3, Insightful)
So then Microsoft would have no problem with me buying my MS licenses in China and using them in the US, right?
Yeah, riiiiiight.
Contract law and tax law strike me as very different kinds of things. Microsoft is capitalizing on its (possible) freedoms afforded under tax law. You're suggesting that the arguments carry over into contract law (and possibly copyright law). I think you need to do more work to establish that that's reasonable.
Re:What a Troll! (Score:5, Insightful)
It's not that anyone cares that MSFT booked the revenue in Nevada.
BUT, That means the Laws of Nevada are dominant, not Washington. Microsoft needed to make one choice, but they seem to want the best of both worlds.
I know. Unfortunately, a law passed in 2004 [worldlawdirect.com] bars companies from going offshore to get around the most Byzantine tax system in the World that we have here in the US. Does it cross anyone's mind to change our tax system? Nope. We just keep piling shit on shit, causing this jockeying.
Hate MS all you want, but what they're doing is nothing.
Re:What a Troll! (Score:3, Insightful)
You will never be able to find a tax reduction you can attribute to the government collecting this. That's not how it works, it just means the government is taking more. That doesn't mean I think the government should tolerate tax evasion. It will make MS a little less profitable/competitive, because they either have to absorb the higher tax from their profits or raise their prices/sales.
The negative to this unfortunately unprovable. 775M might mean that the parking costs for using the state parks did not go up by $2/car, or that a school grant program was not reduced in funding, or that school funding was increased instead of holding steady. Just because taxes were not reduced does not mean it won't have an effect.
Re:Will not matter. (Score:4, Insightful)
They buy stuff in Washington so they pay sales tax. They buy homes in Washington so they pay property taxes.
They buy stuff so people have jobs selling stuff and those people buy more stuff paying sales and property taxes....
If a state doesn't have personal income tax then they make the money from sales and property taxes. a lack of a personal income tax doesn't mean tax free.
Then you have the other companies that are in Washington because Microsoft was there. If Microsoft pulled out of Washington it would cost the state a lot more than that one billion dollars in additional taxes they may or may not manage to get from Microsoft.
Re:What a Troll! (Score:5, Insightful)
Re:What a Troll! (Score:5, Insightful)
The tax system should be pretty simple. Whenever you earn money you pay a percentage to the government. The reason it is so complex almost everywhere is precisely because companies like Microsoft lobby to get little exceptions. Look at the percentage mentioned in this article. 1Billion in 143Billion? You try to find a civilised place (where anybody sane wants to live; I'm looking at you Bridge to Nowhere Land) where you can pay 0.6% tax.
Why do you think Nevada has such strange taxes? Because they want to attract companies like Microsoft who only do anything at all there because of this. Large amounts of the "intellectual property" "economy" are basically a tax dodge to shift earnings from places where people do work to offshore companies which own trademarks. Again; who's lobbying for "intellectual property" protection and why?
uh...no (Score:4, Insightful)
Microsoft doesn't owe Washington jack crap, because what's it's doing with this Nevada thing is entirely legal. If Washington wants a piece of the pie then they need to change their state law to prohibit this practice by entities incorporated in Washington.
Re:What a Troll! (Score:5, Insightful)
There are a couple of phrases that are pet peeves of mine because people throw them around without really understanding them.
"Correlation does not imply causation" is, strictly speaking, true, but is often used to refute an argument rather than point out a possible questionable premise of an argument (if you don't understand the difference, don't use this phrase). Correlation by itself does not imply causation, but if the correlation is not a statistical anomaly, it implies either (a) causation or (b) common cause. Therefore it does not refute the argument so much as it says that "maybe the conclusion is wrong, but I can't say for sure without further information".
My other pet peeve phrase is "Absence of evidence is not evidence of absence" which is misleading at best. A more correct statement would be "Absence of evidence before reasonable investigation is not evidence of absence". Once a reasonable search for evidence has been made, especially if said evidence should be reasonably detectable by currently available methods, then an absence of evidence IS evidence of absence.
I've given up being peeved by "begs the question". People are going to use that phrase wrong and no amount of education will help this.
Re:What a Troll! (Score:5, Insightful)
Do you go out of your way to find the way in which you can legally give the government the most possible tax revenue?
No... I don't make much money, and I've got a couple dependents... So I'm not really trying very hard to pay more than they ask me to... But I also don't put much time and effort into paying less than they ask me to either. I know most people try to find as many loopholes and deductions as they can, which is maybe what you're aiming for... But I don't think most people report their income in an entirely different state to avoid paying taxes.
It is absurd to suggest that any public company not do the maximum they can to minimize their tax liability.
Ehhh... I guess it is true that a public company's first responsibility is to maximize the investment of its stockholders... Which minimizing tax liability will help accomplish... But you really think it is absurd to be surprised that a company would go this far?
The court system is funded by tax dollars. Microsoft uses the court system in Washington. But they don't like the prices that Washington courts charge (their taxes) so they decide to pay the courts in Nevada instead. Fine, maybe you can find enough loopholes and technicalities to make that legal... But how does that make sense?
You know, I like Apple's OS upgrade pricing much better than Microsoft's... When I upgrade to Windows 7 I'm going to pay Apple instead.
You obviously have an ax to grind with MS, and that's fine, but digging up this kind of garbage is ridiculous.
I don't personally have an axe to grind with Microsoft. I use their products every day and am reasonably happy with them. They get the job done, at least. And their products keep me employed. So, no, no axe to grind.
The same statements that you have made about MS can probably be made about 95% of the Fortune 500.
And if your friends jumped off a bridge, would you jump too?
Since when is everybody else does it an acceptable argument?
The problem is that the system is being abused - not that Microsoft is committing the abuse. Of course if Fisher Price were dodging taxes we probably wouldn't see the story here on Slashdot, but that wouldn't make it a non-story or an ok thing to do.
Re:What a Troll! (Score:4, Insightful)
It is absurd to suggest that any public company should be permitted to evade the law.
So? One criminal at a time.
Taxation is a Game (Score:2, Insightful)
Good for them. This is what they pay their lawyers and bean counters for. If they weren't working the system like this I would be disappointed.
All businesses and individuals should reduce their tax burden any way they can. If uncle sugar didn't want it to happen he would change the rules.
Re:What a Troll! (Score:5, Insightful)
It is absurd to suggest that any public company not do the maximum they can to minimize their tax liability.
It is absurd to suggest that I, the alternative taxpayer, should not castigate them leaving the tax burden to me. If we're all just rationally self-interested parties, then I should be doing everything I can to get Microsoft to pay as much of the tax burden as possible, for exactly the same reasons that you assert that they should attempt to shift the burden onto me.
Re:What a Troll! (Score:2, Insightful)
Re:What a Troll! (Score:5, Insightful)
Exactly.
Nobody thinks picking a good meal over a bad one is unethical.
But most people agree that picking the best parts off a buffet is at least questionable. Yes, it is economically rational, but it violates basic senses of fairness and cooperation that humans (as social animals) have. Corporations do not have such instincts, and that's why they constantly violate what us humans "feel" is right.
This is just one example. Picking up the best parts, maximizing your own profit. Most of us humans somehow "feel" that you have an obligation with a choice. Yet rational argument will lead us to "it's legal, they're a profit-oriented entity, so they should do it". And yet we can't shake the feeling that it's not ok.
Because it isn't. We've just not managed to write good laws that really express what we think society should be about. That's mostly because we let lawyers write laws, but that's a different discussion for a different time.
Is there really anything wrong here? (Score:2, Insightful)
Microsoft is doing what everyone else does: (Score:5, Insightful)
Trying to minimize their tax liability in a grotesquely complex and arbitrary system. Quit being righteously indignant. You do it too. Taxes are not voluntary. Everybody pays what they have to and no more.
Re:What a Troll! (Score:5, Insightful)
I'm not a corporation, so I have to claim the income as being earned right here in the US.
And there's the problem. You hear the claim that a corporation is legally a "person" and therefore needs all the rights and privileges we guarantee to people, but really they're not treated like people. They're not bound by the same rules as people. They don't have the responsibilities people have. They have more rights and more freedoms than people have. And if a corporation gets itself into enough trouble, the people running it can essentially close up shop and walk away without consequences.
Re:What a Troll! (Score:3, Insightful)
Really? Bonuses for individual employees that do great work are more important to you than the greater social good that is potentially created by a fair and balanced taxation system? Universal medicare for example?
I'm not opposed to the concept of bonuses, but to argue that they're "more important" than taxes is to ignore any history of benefits that you may have gained or may in the future gain from the common social contract.
There's a reason we organize into political structures, the common good is one of the key ones. When the individual becomes MORE important than the collective you're standing on the precipice of a slippery slope.
There is of course a flip side, but don't give me some bullshit Soviet Union/Cuba/China communism argument. In all of these cases an elite group of individuals *espoused* the importance of the collective good, while simultaneously protecting their own selfish interests.
So...maybe you think your taxes are already fair, but it *seems* like Microsoft is trying to have their cake and eat it too, and Washington state is being left on the hook.
Re:What a Troll! (Score:5, Insightful)
Exactly.
But most people agree that picking the best parts off a buffet is at least questionable.
I think "most people" would agree that the whole idea of a buffet is picking the bits you like best.
Re:What a Troll! (Score:3, Insightful)
If a corporation uses local infrastructure but dodges local taxes, it's me who ends up paying to support them (more welfare for the rich, YEAH!)
I would rather have the option to save by buying less consumer goods than have cheap consumer goods where they get to pick my pocket to make up the difference.
Nothing unique about that (Score:2, Insightful)
If you think this is news, you may want to look into what's special about Zug (Switzerland).
Re:You've gotta love this entitlement mentality (Score:2, Insightful)
I am so unbelievably tired of hearing this fallacy repeated over and over again, when it is just not true. I mean, it's trivially true, in that the money used to pay the taxes will ultimately come from consumers, because that's where all the company's income comes from. But it is absolutely positively not true that the price must rise dollar for dollar with increased taxation. In fact, price has almost nothing whatever to do with unit cost, especially when a company has an artificial monopoly on a product, as they do with software, and double especially when a company has an actual monopoly on a product, as Windows does with desktop operating systems.
Price is concerned with one thing and one thing only: Supply and demand. And when you have an artificial monopoly, you control supply entirely. If Microsoft decides to produce only 1,000 copies of Windows 7, the price will be astronomical... Well above the marginal cost to produce it. If they decide to produce 10,000,000,000 copies, the price will dive to the basement and end up at pennies per copy, and they may need to open up a new landfill next to where they buried all those copies of E.T. for the Atari 2600.
If Microsoft raises the price of the product to account for this additional taxation, and they sell exactly as many copies as they would have otherwise, that only means that the price they were charging is too low. If that taxation suddenly disappears, I can guarantee that the price won't decline by even a single penny. Don't believe me? Gas is much cheaper now than it was a few years ago, but have the airlines eliminated those fuel surcharges and baggage fees?
If you don't think that corporations should pay taxes, that's one thing. But don't try to scare people into supporting tax dodges for huge, profitable coprorations for fear that the cost of their product will increase dollar-for-dollar.
Re:You've gotta love this entitlement mentality (Score:1, Insightful)
I would also point out that MS does not really pay taxes. This is just another expense that gets passed to the consumer.
I would also point out that you do not really pay taxes. This is just another expense that gets passed to your employer.
Re:uh...no (Score:1, Insightful)
You're right that "Microsoft doesn't owe Washington jack crap", but since Microsoft is trying to run a software licensing case between itself and a company from New York, Washington doesn't owe Microsoft jack crap. Microsoft's software licensing business is in Nevada and the other company is in New York. A Washington court has no jurisdiction, according to Microsoft anyway.
Missing the point. (Score:2, Insightful)
I find this conversation and others about state taxes interesting because people rarely bring up the real problem.
Federal taxes.
I pay far, far more in Federal taxes than state taxes. And what do those assholes do with it? Send it to another state? Force the states to implement federal laws which the federal govt. has no jurisdiction over by holding back highway money to improve the road system I actually use? Use it to buy votes from old people and poor people? Pay assholes $8k to buy a house or $4.5k to buy a car? Seriously, wtf?
The Federal govt should be doing things like funding the military, cross-state law enforcement, food and drug safety, diplomacy, etc.. not bullshit vote pandering and wealth redistribution. I have no control over how the federal govt spends my money, I have 50-200X the control over my local state.
So quit whining about the big mean evil corporations and look at the real problem here.
Re:What a Troll! (Score:3, Insightful)
It's not wrong. You're tying two arbitrary and unrelated concepts together and claiming they are related when they're not. You're also just making a statement that it's wrong with no real backing other than the statement.
Microsoft has a net positive impact on Washington and they do pay taxes in Washington. They are entitled to services. If Washington doesn't like it they can change the laws. Microsoft has a responsibility to its shareholders and its employees.
Further, you assume the Washington tax is "fair". What if it's not? Should Microsoft be beholden to pay an unfair tax? What is a fair tax and who gets to decide?
Finally, the "rules" allow what Microsoft is doing. If they don't then they will be smacked down in court. So you've falsely concluded there are two sets of rules when there is only one set of rules - Washington state laws. And they appear to allow this.
Re:Corporations don't pay taxes, not news (Score:3, Insightful)
Well they do pay withholding and payroll taxes. Payroll taxes are 6.25% on top of the 6.25% the comes out of the employee side of the paycheck for a total of 12.5%. Its been 12.5% since the early 80's. Most of todays seniors paid almost no payroll taxes working prior to 1980 though they are reaping a huge windfall from Medicare and Social Security as they often live 20 and 30 years in retirement now. They are pretty much living on the backs of younger workers who will be lucky to get any Medicare or Social Security in another 20 years unless they jack up the taxes on the young again to even more obscene levels. Social Security was running huge surpluses for most of the years since 1980 but all of that surplus disappeared in to funding Federal deficits never to be seen again. To put it another way workers since pretty much 1980 have been fleeced in a truly spectacular way. It was pretty much organized crime between politically potent seniors and politicians.
There is irony that corporations usually duck most of their taxes, their top executives duck most of their taxes, and the capital gains for shareholders are taxed at 15%. A hedge fund manager making billions is also taxed 15% on most of it and they tax their customer 20% on profits and 2% on their capital. Meanwhile ordinary working people are almost always taxed at least a third of their income and those taxes are very nearly inescapable, often more if you count state income taxes and sales taxes (sales tax being regressive and hitting wage earners much harder than the wealthy). Kind of tells you who this tax system was design by and for. The wealthy like to complain about their taxes but after the Bush tax cuts and you factor in payroll taxes which hammer wage earners, wage earners are paying pretty much the same tax rate as the very rich, often more by the time the rich get done exploiting loopholes and offshore shelters. Former Senator Phil Graham who was a key architect of the deregulation that recently destroyed the global economy was a senior exec at UBS a leading architect of Swiss tax shelters for tens of thousands of wealthy Americans.
Obama ran on a campaign to roll back the tax cuts for the wealthy but talk of those roll backs have largely disappeared, "you can't raise taxes during a recession", though our deficits are now going to be over 1 trillion a year from now on. Only big change in taxes are the ones on employer insurance programs and penalties on the uninsured which are going to hammer middle income workers.
Re:It's not taxes that push them out of the US (Score:2, Insightful)
Mike, I think you have some wrong information. The legal environment in places like China is a lot fuzzier than in the U.S. The difference has to do with corruption and lack of worker protection. In China, if you kill a couple of workers or permanently maim them, there may be NO consequences, depending on the connections of the factory owner. The People's Liberation Army is one of the biggest business owners in China, so if they hold a stake in the factory, probably no consequences. If the factory owner has paid off the local authorities (also quite common), then probably no consequences. You have to kill a lot of people in China AND it needs to be publicized, before you're held accountable. Like the factory that dumped so much pollution into a river that a city of 1 million people had to have all their drinking water trucked in for several weeks or the construction company that bribed the inspectors to pass substandard concrete on school building and high rise apartments in an earthquake zone. Some of those guys were held accountable, but only because victims relatives made waves (and suffered the consequences).
I found an 2006 article online from Business Week suggesting that a labor shortage was increasing factory wages in China. At that time, the work week was 12 hours/day, 7 days per week, with housing provided in dorms with 8 to a room for a wage of $160 per month. The United States hasn't been that "business-friendly" since the days of company towns and Pinkertons who shot anyone who whispered anything about unions or trying to change labor conditions. Maybe you'd like to try working under those conditions....
There aren't any UAW workers making MULTIPLES of what Honda pays. You need to ask for specific details. Further, the only way someone working for the UAW makes more than the senior software engineers you work with is if the UAW guys are working an awful lot of overtime, at night and on weekends. I'm a senior software engineer with 26 years experience, and I make more than the guys in the car factories do in general, I think.
It doesn't help things that many of the largest American corporations are run by people who think that management doesn't require knowledge of the business, only of "management science" or by accountants or finance guys who think that what the balance sheet says is more important than what's coming out of the factory or the condition of a company's plant and equipment. Don't blame it all on workers at the bottom. There are plenty of recent college graduates in finance, investment banking or with an MBA that EXPECT the salary of a UAW guy with 20 years on the factory floor FROM THEIR FIRST JOB OUT OF COLLEGE (not including bonuses, of course). It doesn't work that way at Honda or Toyota, maybe, but check out what investment bankers get...
Something else you might think about. The largest corporations in the U.S. are bigger than many countries. Wal-Mart, the largest U.S. corporation had gross sales of 378 billion dollars. According to the CIA World Fact Book, Greece, the worlds 28th largest economy, had a GDP of 373 billion dollars. Greece may have a socialist government, but Wal-Mart (and Exxon-Mobile, Conoco, GM et al) are all CENTRALLY PLANNED ECONOMIES. Money is allocated at the top for all spending down to the department level. If it doesn't work for governments this size, how can anyone argue that it works for corporations with inefficiency, bad decisions, corruption, etc.?
Re:uh...no (Score:3, Insightful)
We forgot the East India company.
Re:What a Troll! (Score:3, Insightful)
As an Australian I am here to call your spade a bloody small shovel. Wrong is wrong, no matter how many weasels you have to chorus that what you're doing is legal - and if we RTFA, even that's unlikely (yeah, IMO, IANAL, etc). And law makers have the responsibility to make a practice illegal only if somebody flouts their own responsibility to be a good citizen - there's no need to make laws about something if nobody is doing it!
Crap like this - and there's a lot of it going on - undermines the social contract. I know it, you better know it, and I damn well hope your government figures it out. Because falling doesn't hurt near as much as the sharp sudden stop at the end, and I don't want to find out the hard way if America's blast radius is big enough to take my country with it.