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Comments: 395 +- Your Rights Online: Microsoft Freeloading In Washington State Courts on Monday October 26, @08:36AM
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by
kdawson
on Monday October 26, @08:36AM
from the having-it-both-ways dept.
from the having-it-both-ways dept.
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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."
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Will not matter. (Score:5, Interesting)
How much revenue does Washington State get from Microsoft? Not just in direct taxes but on all the taxes that the employees pay? Odds are that one billion is a drop in the bucket and Washington state will not risk ticking off Microsoft.
Microsoft is a money pump for Washington State. How many billions of dollars a year does it bring into the state from other states and even countries?
Not that I say it is right but Washington State will not go after Microsoft for this because it just isn't worth the effort or the risk.
Re:Will not matter. (Score:5, Informative)
How much revenue does Washington State get from Microsoft? Not just in direct taxes but on all the taxes that the employees pay?
Washington has no state personal income tax, so it may not be as big as you surmise.
Parent
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.
Parent
Re: (Score:3, Interesting)
They pay some (Score:5, Informative)
I live here in Seattle, and this has been discussed in the newspapers before. Actually Microsoft does sell software here in Washington, just not very much. However, I think the state is just as happy to have all the high paying jobs. Technically Boeing is the largest single employer here in Seattle and they have sold planes out of Delaware for many years. It's nothing new.
Washington state has sales tax in place of income tax in other states. Currently it is 6.5% state wide, with an added 2.5% here in King county. So MS, Boeing, Motorola, Adobe, etc. all have sales outlets outside the state.
Buy your MS licenses in China (Score:5, Interesting)
So then Microsoft would have no problem with me buying my MS licenses in China and using them in the US, right?
Yeah, riiiiiight.
Re: (Score:3, Insightful)
Re: (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.
Corporations don't pay taxes, not news (Score:3, Interesting)
Re: (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 Soc
UK (Score:5, Interesting)
Was reading an article from the BBC on corporations in the UK claiming other countries as their headquarters to save tax dollars.
Evidently if you do this in the UK, they check see that the heads of the company are ACTUALLY operating in that country.
Why don't we do that here in the US? It seems like a fair standard to me.
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.
Legal doctrines? (Score:5, Funny)
Application of common legal doctrines such as nexus, the step doctrine, and alter ego theory
Those don't sound like legal doctrines. They sound like sci-fi movie titles.
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)
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.
Parent
Re:What a Troll! (Score:5, Insightful)
Really? I'll best most people in Washington (state) do.
Parent
Re: (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
Re: (Score:3, Interesting)
I'm thinking of starting my own business, and I would love to pay less in taxes
But you still want good roads and schools, right? If you want to have your tax locus in nevada, then move there. There are plenty of startups in seattle, so we don't need vultures like you skipping out on their obligations.
Re: (Score:3, Informative)
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.
Parent
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?
Parent
Re:What a Troll! (Score:4, Informative)
I understand the problem with taxing revenues or, for that matter, gross profits. Technically, Washington State's tax is on Gross Income, which can be slightly different from the usual legal definition of revenues, but probably isn't in Microsoft's case. Most of MS's income would fall under either Manufacture or Wholesaling, with a tax rate of .00484 in either case.
Microsoft certainly also could get the High Technology credit against this base, and while I won't bother to look up enough of their public records to be sure, I would say, offhand, they could probably qualify for some of the community empowerment credits and related in a way that would be quite advantageous. I'm not one of Microsoft's accountants, and I wouldn't venture to guess whether their research costs would make a significant dent in that total rate or not - The total rate is still trivial, But I agree, the principle of taxing gross instead of an honestly figured net is neither moral, nor pragmatically the most functional method.
But the whole argument against double taxation of corporations is itself a fallacy. A "C" corporation exists under law as a separate person in itself. It gets taxed once. In exchange, it gets benefits such as legal person-hood, and perhaps more significantly, shareholder's limited liability. Any stockholders get taxed on their income, not the corporation's. Those stockholders could vote to convert the "C" corp to one or more Partnerships, "S" corporations or other pass-throughs. While there are some limits on this, it's generally doable even for a company the size of Microsoft any time they sufficiently don't like the "burden of double taxation".
With its vast number of stockholders, Microsoft would have to restructure as multiple "S" corps and particularly as a structure of parellel holding companies and other fairly complex systems, and they would have to do some special shuffling of options to move foreign investors out of some sub-corps, but any divisions they split off this way could exist without taxation, and some of their divisions are small enough the conversion becomes rather simple, yet MS has no interest in avoiding this 'double taxation' even in those cases.
That's certainly understandable, both because a voluntary split up still feels just like being busted up under anti-trust to many investors, and because the independent sub-corps would become direct competitors in some cases, but if the taxes involved really hurt the way some corporations claim, they'd be willing to pay such prices.
The chief reason not to is the owners of "S"'s and other pass through entities can't take an active role in managing the company without also having full liability for what their company does.
Incidentally, Washington state fully recognises the usual federal tax entities such as Sole Proprietorships and Partnerships. It allows all major non-C structures - Limited Partnerships, Limited Liability Partnerships, Limited Liability Corporations. And it allows for the use of the Massachusetts Trust structure.
Parent
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.
Parent
Re:What a Troll! (Score:5, Interesting)
Parent
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.
Parent
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.
Parent
Re:What a Troll! (Score:4, Funny)
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.
You're related to that bad analogy guy, aren't you?
Parent
Re: (Score:3, Informative)
The State of Washington can do many many things to sue just about anyone it wants.
Check this out:
The State of Washington can bring up a case under any of the above.
Re: (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 "
Re: (Score:3, Informative)
I'll make it easy, the reason it's done is the entire tax burden for a corp registering it's revenues solely in Nevada is total tax on them regardless of how many or how little revenue there is is exactly $200. The reason in Washington Law your looking for is that the tax burden will be greater than $200.
It's simply a play to avoid taxes in Washington State while still taking advantage of the services Washington State offers.
Well that and Nevada doesn't have an information sharing agreement with the IRS s
Did you see the story icon? (Score:3, Funny)
Did you see the Borg icon next to the story? Anything less than scathing villinization of the MacroHard Collective is blasphemy!
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.
Parent
Re:What a Troll! (Score:5, Informative)
"Do you go out of your way to find the way in which you can legally give the government the most possible tax revenue?"
Fair enough - but if that's the case, then let Microsoft lodge its licensing lawsuits and etc. in Nevada as well... where the laws are not as strongly in its favor.
Incidentally, my employer's corp headquarters is in the EU. Can I therefore claim the first $95k of my income as tax-exempt because it was earned "overseas", taking advantage of a wee tax loophole in spite of living in the US? Of course not - I'm not a corporation, so I have to claim the income as being earned right here in the US.
Parent
Re:What a Troll! (Score:5, Funny)
Yeah great example. You'd rather pay taxes on that first $95k in that famously low tax haven known as Europe...
Parent
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.
Parent
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.
Parent
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.
Parent
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.
Parent
The legality of taxation (Score:5, Informative)
Do you go out of your way to find the way in which you can legally give the government the most possible tax revenue?
""Anyone may arrange his affairs so that his taxes shall be as low as
possible; he is not bound to choose that pattern which best pays the
treasury. There is not even a patriotic duty to increase one's taxes.
Over and over again the Courts have said that there is nothing sinister
in so arranging affairs as to keep taxes as low as possible. Everyone
does it, rich and poor alike and all do right, for nobody owes any
public duty to pay more than the law demands."" - US Federal Court judge Learned Hand
Parent
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.
Parent
It's not taxes that push them out of the US (Score:4, Interesting)
In the last 20-25 years, the US has become far less business-friendly than it once was. A lot more regulations, an increasingly litigious society coupled with a legal code that is often vague, more expectations on benefits, etc.
It also doesn't help things that the expectations of the American people haven't changed. My boss' cousin works for Honda as an assembly line worker. He makes a fair wage; the UAW guys practically down the street from their plant expect a few times that pay and benefits for the same job which puts their combined income at a level higher than most of the senior software engineers I work with! They act like it's still 1950 and the American car manufacturers face no serious competition from cheaper, more reasonable Japanese and Korean labor and products.
Parent
Re: (Score:3, Interesting)
Manufacturing isn't the only game in town, though it might be more profitable if unions didn't stand in the way of more automation. Thankfully a relatively free market has kept us from trying too desperately to remain in a market space where we are simply no longer competitive. Iron
Re: (Score:3, Informative)
I don't like most George W. Bush's policies much either, but he is not the grand scapegoat that so many people have made him out to be.
Re:What a Troll! (Score:5, Insightful)
Parent
Re: (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.
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.
Parent
Re: (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:You've gotta love this entitlement mentality (Score:5, Informative)
Parent
Re: (Score:3, Interesting)
Where the hell do you think the money comes from to pay the corporate taxes? The tooth fairy? Of course it comes from the consumer, and of course prices will rise to accomodate them.
Where the hell do you think the money comes from to pay income taxes? Santa Claus? Of course it comes from the employer, and of courses salaries will rise to accommodate them.
Re: (Score:3, Interesting)
The State of Washington has had motive to allow Microsoft to do this for years and year, because it isn't like Microsoft generates zero tax revenue in Washington. Far from it, their payroll taxes must be a significant figure on the States revenue books.
The last thing they want is for Microsoft to move out. They have been satisfied with their share of this pie for many years, not wanting to disrupt the status quo and risk a real restructuring of