Washington State to Microsoft: why aren't you paying your taxes?

Jeff sez,

Last week, Microsoft told Seattle's KUOW: 'We pay all our tax obligations everywhere we are, properly.' Today, Microsoft Tax Dodge, a new website focused on the company's royalty tax dodge, challenged CEO Steve Ballmer today to live up to his spoken commitment to transparent business practices: 'At this point, I think it's reasonable to ask Microsoft to back up that claim with a public explanation of the company's licensing operations. In that spirit, will you tell the public how it is that Microsoft has avoided paying Washington State's B&O Royalty Tax for the past 12 years?' Washington State currently faces a projected $2.6 billion deficit. In addition to the ethical and public relations issues that crumbling bridges and overcrowded schools (Seattle recently considered making D a passing grade) present to the state's most profitable company, the compa ny also faces deeper scrutiny of the legality of its tax practice.
An Open Letter to Microsoft CEO Steve Ballmer: Quit Dodging Washington Taxes (Thanks, Jeff!)

(Image: WEB DEVELOPERS!, a Creative Commons Attribution photo from Nick, Programmerman's photostream)


  1. perhaps Microsoft should just do as Boeing just did, find a more biz friendly location….South Carolina.

  2. Licensing of prewritten software is exempt from the Washington B&O tax (Note item 2):

    RCW 82.04.2907
    Tax on royalties from granting intangible rights.

    (1) Upon every person engaging within this state in the business of receiving income from royalties or charges in the nature of royalties for the granting of intangible rights, such as copyrights, licenses, patents, or franchise fees, the amount of tax with respect to such business shall be equal to the gross income from royalties or charges in the nature of royalties from the business multiplied by the rate of 0.484 percent.

    (2) For the purposes of this section, “royalties” means compensation for the use of intangible property, such as copyrights, patents, licenses, franchises, trademarks, trade names, and similar items. It does not include compensation for any natural resource, the licensing of prewritten computer software to the end user, or the licensing or use of digital goods, digital codes, or digital automated services.

    [2009 c 535 § 407; 2001 c 320 § 3; 1998 c 331 § 1.]

  3. middleclass, since Microsoft is one of the state’s most active lobbyists – I argue that it is Microsoft’s fault that pols aren’t properly enforcing tax law:

    “When it’s not dodging taxes, Microsoft lobbies the Legislature on its behalf. In the last five years, Microsoft has spent more than $1.54 million enforcing the status quo. For every dollar it spent lobbying, it managed to dodge $260 in state taxes.”
    – excerpted from

  4. Also, recently on Slashdot: Microsoft Freeloading In Washington State Courts – the majority of Microsoft’s Nevada-based licensing contracts are governed by Washington law and Microsoft’s Washington-based attorneys:

    “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…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.”

  5. Microsoft does ALL their business in Washington State but has incorporated in Nevada to avoid taxes. They list themselves as a Washington State business, they list their home as Washington State but they contribute NOTHING back to Washington state.

    They even manage to dodge giving jobs by making 50% of their workforce temp workers even though they are hired fulltime year round. They just lay them off for 6 months then rehire them all over again. They play this evil shuffle with their temp employees to avoid having to pay benefits.

  6. I recently found out that Washington State doesn’t have personal income tax. That would explain part of the deficit, no?

  7. LB, Wa. doesn’t have a personal income tax – Microsoft saves a tremendous amount on wages for its 40,224 state employees because it can pay them less knowing they don’t pay income tax here.

    So the B&O Royalty Tax (at a tiny .484 percent) is one way the state collects revenue for vital services. Microsoft’s dodge of this tax is therefore having an even more negative impact.

    And, Wa. has the most regressive tax system in the nation. So, Microsoft’s 10,000+ millionaires and wealthy staff benefit from this too:
    “People earning less than $20,000 annually pay 17.3 percent of family income toward sales and excise taxes and property taxes, the report said. People making between $99,000 and $198,000 each year pay 7.6 percent toward their tax bill. Meanwhile, people in the top 1 percent of earners – those making more than $537,000 a year – pay just 2.9 percent, the report said.” see

  8. Xeno, Microsoft is actually incorporated in Delaware – but also have corporate registrations in Washington State and Nevada. The tax dodging entity in Nevada is organized as a partnership Microsoft Licensing GP – controlled by Microsoft Corp of Washington State and Microsoft Management LLC in Nevada – but 8 of 12 registered officers are Washington-based employees of Microsoft Corp of Washington. This is known as alter ego – in other words, Microsoft Licensing GP is just an alter ego or sham front for Microsoft Corp. The State of Washington might prevail if they went to court on this point. More here

  9. Man, I totally missed that D was no longer a passing grade. I knew it was a bad grade, but didn’t know that it was flunking now.

    Is A still tops? Or is there like “alpha” or something above it?

  10. D a passing grade! Hey come to Canada in certain provinces you are not allowed to fail. Yep, everybody gets the useless diploma.

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