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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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  • I wonder how much of an impact would be, for MS, to pay that amount.

    I also wonder how much did they expect this to happen but did it anyway, just in case it works.

    • Trying to reply myself, in case someone is interested:

      MS Annual report []

    • ...all it would take is for a sharp judge in Washington State to tell Microsoft: "sorry - not our jurisdiction. Go to Vegas or Reno to get it taken care of".

  • Will not matter. (Score:5, Interesting)

    by LWATCDR ( 28044 ) on Monday October 26, 2009 @09:49AM (#29871731) Homepage Journal

    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: (Score:2, Interesting)

      I think that if you dig deeper there are a lot of free rides being given to Microsoft. The money, except for taxes, is being brought in to -Microsoft-. Washington is probably no taxing them, and may even be subsidizing their property costs. Microsoft employees may live in Washington, or they may also claim residence elsewhere. So, if all the facts are brought ot light, I wonder just how much Washington is really making off of Microsoft. I don't wonder in an active fashion, like actually finding out.

    • 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).

      • by LWATCDR ( 28044 ) on Monday October 26, 2009 @10:21AM (#29872109) Homepage Journal

        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.

      • The indirect benefits of a large employer within the state was precisely the basis behind Washington States pandering to Boeing to bring the original 787 production line into the state:
        • Business and Occupation tax - reduced from 0.484% to 0.2904% of gross revenues
        • Exempted tooling and machinery from taxation
        • Increased the lower rate of tax for Boeings suppliers

        All of which will cost Washington State in the order of $3.4billion over 20 years, and has cost them $278million between 2003 and 2008.

        So maybe the sta

    • I wouldn't say it "pumps billions", but it does keep a lot of educated people employed. Microsoft can pickup and leave for anywhere. I suppose our legislators figure it's better they stay here at least contributing something than leaving.

      I do not agree with this necessarily, but if it's a choice between being cheated but still coming out ahead or loosing it all...

      There are much bigger questions regarding corporations that need to be resolved at a national level before Washington can really do anything produ

    • One of the many reasons I say, we get rid of the corporate tax.

      It is just plain stupid. Corporations do not make money. People do.

      Rich CEOs and investors make money... and they are taxed.
      Workers make money and they are taxed.
      Suppliers make money and they are taxed.

      The corporate tax is a needless abstraction imply you are taxing a corporation, but not taxing people.
      EVIL CORPORATION is the mantra. It is silly politics and especially bad reality.
      Hint, Microsoft employs tens of thousands of employees.
      Hint, w

      • Re: (Score:3, Interesting)

        Amen. It's hard for me to think in a way that makes corporate taxes logical. Tax the money when it comes out of the corporation. Increase dividend and capital gains taxes. Institute taxes on asshole CEO's who use corporate assets like jets and travel money for personal use. Taxing corporations only appeals to dimwitted hippies and other assorted anti-corporatist dipshits.
  • 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.

    • I'm sure all the small business owners in Washington feel super happy about it every time they pay the taxes MS get's a free pass on.

    • by afidel ( 530433 )
      Wow, combined 9% sales tax and no income tax, nice area. I pay 7.75% sales tax AND state income AND local income tax both where I work and where I reside AND about 6% property tax.
  • And it couldn't happen to a nicer guy!
  • by Toe, The ( 545098 ) on Monday October 26, 2009 @09:57AM (#29871841)

    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)

      by DavMz ( 1652411 )
      If you don't mind having your OS in Chinese, I am sure it is ok.
      • It's fine for me; I just keep hitting enter!

      • by gutnor ( 872759 )
        Yeah - you can have in English *and* Chinese (you get to chose at install time) for cheaper than the English-only in the US ... I wonder how much Microsoft would pay me to "buy" Windows in all languages. I don't mind the extra configuration step :-)
    • 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.

  • If Washingtonians don't like it they can change the laws. Then watch as MS moves jobs overseas or to other states.

    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.

    • 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 GodfatherofSoul ( 174979 ) on Monday October 26, 2009 @10:17AM (#29872053)
    I think it was during their anti-monopoly case that it came out they hadn't paid taxes in something like 3 of 4 years.
    • Re: (Score:3, Insightful)

      by demachina ( 71715 )

      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

  • Why does the name of Michael J. Fox appears at the top of the contract []?
  • UK (Score:5, Interesting)

    by ( 745855 ) on Monday October 26, 2009 @10:23AM (#29872125) Homepage

    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.

  • (Score:4, Insightful)

    by buddyglass ( 925859 ) on Monday October 26, 2009 @10:48AM (#29872481)

    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.

    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.

  • by Hatta ( 162192 ) on Monday October 26, 2009 @10:50AM (#29872507) Journal

    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.

  • Astroturfing (Score:2, Informative)

    by Anonymous Coward

    -= 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.

  • Taxation is a Game (Score:2, Insightful)

    by Anonymous Coward

    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.

  • by John Hasler ( 414242 ) on Monday October 26, 2009 @11:51AM (#29873229) Homepage

    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.

  • 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.

"If you lived today as if it were your last, you'd buy up a box of rockets and fire them all off, wouldn't you?" -- Garrison Keillor