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Microsoft The Courts The Almighty Buck

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."
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Microsoft Freeloading In Washington State Courts

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  • They pay some (Score:5, Informative)

    by deathguppie ( 768263 ) on Monday October 26, 2009 @09:52AM (#29871781)

    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.

  • Re:What a Troll! (Score:5, Informative)

    by Penguinisto ( 415985 ) on Monday October 26, 2009 @10:00AM (#29871869) Journal

    "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.

  • Re:Will not matter. (Score:5, Informative)

    by Penguinisto ( 415985 ) on Monday October 26, 2009 @10:10AM (#29871983) Journal

    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.

    /P (who lives next door, in Oregon, where folks ask the sames things vis-a-vis Intel).

  • Re:What a Troll! (Score:2, Informative)

    by Flowstone ( 1638793 ) on Monday October 26, 2009 @10:35AM (#29872273)
    Last time i checked, the government takes a nice big chunk out of my bread and butter. which is what microsoft is essentially avoiding, and then turning around and having the laws of a state they barely pay taxes to protect the assets they never sold in that state to begin with.
  • Astroturfing (Score:2, Informative)

    by Anonymous Coward on Monday October 26, 2009 @11:03AM (#29872651)

    -= According to Wikipedia =-

    Astroturfing is an English-language euphemism referring to political, advertising, or public relations campaigns that are formally planned by an organization, but designed to mask its origins to create the impression of being spontaneous, popular "grassroots" behavior. The term refers to AstroTurf, a brand of synthetic carpeting designed to look like natural grass.

    Thus, submitting a story to your own blog is probably Astroturfing.

  • Re:What a Troll! (Score:3, Informative)

    by jmauro ( 32523 ) on Monday October 26, 2009 @11:06AM (#29872691)

    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 so they're completely out of the loop on how much tax you actual owe based on your revenues. It helps on avoiding Federal taxes as well.

  • by canajin56 ( 660655 ) on Monday October 26, 2009 @11:17AM (#29872801)
    Microsoft is the one who feels entitled. They are HQd in Washington State. They feel entitled to declaring another state as their "real HQ" and that "everything we sell is sold from this tiny one room office in Nevada!" This is akin to getting a PO box in Washington State to avoid paying income tax in your home state. "No, this is my secondary residence, my primary is a PO box in Seattle, so I'm an out of state worker!" On top of that, they feel entitled to say "Even though we have legally declared that we are NOT a Washington based company, we deserve free access to the Washington courts, to settle a dispute over a legal contract bewteen a Nevada based company and a New York based company." Not the correct venue. The judge should throw their asses out and hand them a fine for wasting his time. Why on EARTH should a WASHINGTON judge settle a dispute between two out of state corporations? It doesn't involve Washington State at all, except that the Nevada based corporation has a branch office in Washington.
  • by DesScorp ( 410532 ) <DesScorp.Gmail@com> on Monday October 26, 2009 @11:23AM (#29872875) Homepage Journal

    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

  • by porsche922 ( 868700 ) on Monday October 26, 2009 @11:45AM (#29873137)
    What M$ is doing in not right but is not illegal apparently. so for any thing to happen the law needs to be changed. and I believe this guy has been trying to do this for years for this story has been posted several times on slashdot, with hundreds of comments on each post with same gist. [] (Sept 22, 09) [] (Feb 04, 08) and [] (Oct 01, 04)
  • Re:What a Troll! (Score:4, Informative)

    by Artifakt ( 700173 ) on Monday October 26, 2009 @12:53PM (#29873971)

    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.

  • Re:What a Troll! (Score:3, Informative)

    by eleuthero ( 812560 ) on Monday October 26, 2009 @01:18PM (#29874309)
    To a certain extent true - but you are forgetting that the whole reason MSFT registered (or whatever the word is) in Nevada is because (at least according to the article), there is no tax at all in that state. Also, is this not the third or fourth time this has been in the news lately?
  • Re:What a Troll! (Score:3, Informative)

    by ElectricTurtle ( 1171201 ) on Monday October 26, 2009 @01:59PM (#29874867)
    Nevermind the fact that credit default swaps were made possible by the Clinton administration's passage of the Commodity Futures Modernization Act. Of course everything is Bush's fault.

    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:3, Informative)

    by tyrr ( 306852 ) on Monday October 26, 2009 @03:23PM (#29875935)

    The State of Washington can do many many things to sue just about anyone it wants.
    Check this out:

    1. Long arm jurisdiction [],
    2. Territorial jurisdiction, []
    3. Jurisdiction in personam, []
    4. Jurisdiction in Rem, []

    The State of Washington can bring up a case under any of the above.

  • by reifman ( 786887 ) * on Monday October 26, 2009 @04:21PM (#29876679) Homepage
    Just want to clarify things for a few of the commenters: Although offensive, it's completely legal for Microsoft to sue in Washington courts on its Nevada-based contracts. However, it's record of doing so further erodes its tax argument that it isn't in the software licensing business in Washington. The article, if you take the time to read it, explains why Microsoft's tax practices may constitute illegal tax evasion. It's really up to the Department of Revenue to explain why it's as yet chosen not to contest Microsoft's returns - and they are preparing to respond again soon.

All laws are simulations of reality. -- John C. Lilly