Broke-ass Washington state set to give MSFT $100M annual tax cut and amnesty for $1B in evasion

Jeff sez:

Facing a $2.8 billion deficit and pending insolvency, Washington State's House Bill 3176 proposes changes to its B&O Royalty tax that would give Microsoft an estimated $100 million tax cut annually and possible amnesty for more than a billion dollars in past tax evasion.

Under current law, all of Microsoft's worldwide licensing revenues of approximately $20.7 billion annually are taxable at .484 percent or ~$100.1 million. Under the new law, only the portion of software licenses sold to Washington state customers would be taxable - perhaps resulting in less than a million annually in royalty tax from the company.

The lead sponsor of HB3176 is Democratic Representative Ross Hunter, who represents Medina, home to Bill Gates and a number of current and former Microsoft billionaires and multi-millionaires, and other areas around Microsoft's corporate campus.

Washington to Give Microsoft a $100 Million Annual Tax Cut...and Possible Amnesty on Past Tax Evasion

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


  1. Washington earns billions of dollars in state income tax and municipal property tax from the employees, and sales & excise taxes from Microsoft employee purchases, and probably many other taxes that they earn from Microsoft, one of the largest and most successful companies in the world. Microsoft deals in software, and there is nothing too special about Washington that Microsoft can start migrating to sunnier (literally) tax climates if it starts raining a little bit too hard.

    Saying they lost a billion dollars is a bit like the RIAA saying that every pirated song is actual lost revenue, while it really only practically a fraction of it. Taxes have a dead weight loss and there is only so much value you can extract out a person before they move to a better place.

    1. Washington State does not have an income tax, and never has, so it doesn’t get any income taxes from employees.

  2. I guess this is interesting because it is Microsoft and we all hate Microsoft. Still, this same story is played out every day for hundreds of large companies across the U.S. Imagine how happy it makes the politicians to have sites like the one you linked to focusing on the evil of corporations when the real problem is the politicians who are being bought and paid for. Corporations exist for the sole purpose of maximizing profit. Acting surprised when they act that way is silly. Politicians, on the other hand, are at least SUPPOSED to represent us.

  3. @#1 – Washington state doesn’t have an income tax. There is no payroll tax. There are sales taxes of about 9.5% in King and Snohomish Counties (where the majority of MS employees live) and property taxes that may not exceed $10 per assessed $1000 of value, most cities are much lower than that. Businesses are required to pay a B&O tax based on their industry and type of employees. Software companies have scooted in under definitions of “engineer” that were established for Boeing – very low rates.

    Businesses have lots of incentive to do work in Washington. MS is welcome to relocate their headquarters to another state in order to avoid licensing fees, etc. (they’ve basically done this already), but they won’t move their actual operations. It’s too expensive to do so.

  4. say what you will about the royalties tax thing, but absolvence of one billion in tax evasion? for fuck’s sake, anon#1, you’re gonna just roll that under “expected behavior” and give it a pass? what, out of apathy?

  5. You wanna get 1 billion of tax “evasion” (probably tax avoidance “gone wrong”)?

    Next year you get zero cause Micro$oft moved to India…

  6. The $100 million annual tax cut would have been better given to small businesses, which would have spurred more innovation and employment, thus enlarging the tax base and increasing tax revenue. That’s what I wish we’d do here in California.

    1. I really wish people would stop believing the Republican line that tax cuts to businesses lead to hiring. The only thing that leads to hiring is sales, and the only thing that leads to sales is the majority (ie. the middle class) spending. You want to jump kick the economy? Give the working-class people a break for a change.

  7. There is no Billion dollars in taxes owed to forgive. What Microsoft did to avoid paying taxes was shady, but legal under the laws at the time. The new bill that folks are yelling about int he article CHANGES that and closes the loophole that allowed Microsoft to avoid the taxes.

    This proposal establishes nexus standards in statute for the B&O tax. Under the bill, a person has nexus if:
    – The person is an individual who is a resident or domiciliary of this state,
    – The person is a business entity that is organized or commercially domiciled in this state, or
    – The person is a nonresident individual or a business entity that is organized or commercially domiciled outside of this state
    and in any tax year the business has:
    – More than $50,000 dollars of property in this state,
    – More than $50,000 of payroll in this state,
    – More than $500,000 of receipts from this state, or
    – At least 25 percent of the business’s total property, total payroll, or total receipts are in this state.

    I suppose most folks just aren’t used to reading tax law. There is a difference between tax avoidance and tax evasion. Microsoft has been engaged in tax avoidance (which is legal). The law is now being changed and their avoidance technique will no longer work.

    1. Oh I’m well versed in tax law. My issue, as stated above, if this was you or me not claiming even a small percentage of what we owed we’d be hung out to dry but somehow corporations aren’t held to the same (sub)standards individuals are.

      If you step back from it you can’t help but get that sickening feeling money talks, and politicians, who almost 70% are in fact also lawyers, hence write the same laws that give themselves gaping loopholes to get out of paying taxes, tend to just give reacharounds to their rich buddies.

      Who actually loses? The individual tax payers. You seem to think it’s fair M$ gets away with not paying taxes, now please tell me how fair it may be if I, or you, or an individual could be to get away with it. You can do that, you win the prize.

      1. This isn’t a matter of not claiming income, this isn’t the case of a tax amnesty. This is the case of a sensationally entitled article, that fails to grasp even the basics of the law it is discussing.

        Microsoft set up another corporation, out of state, to handle the licensing portion of its business. This was a completely LEGAL tax avoidance technique that the State of Washington is seeking to outlaw.

        If Anonymous actually understood tax law and read the article, they’d know this.

        As for how this is fair to you and I?

        Who do you think the money for these taxes comes from? It comes from… you and I. Corporate taxes are passed along to the consumer in pricing.

        And, when it comes to not paying income taxes? Hire a good tax professional and follow his advice. Half the tax loopholes out there aren’t intentional, they are simply because Congress thinks that being able to write tax law means that they understand it.

        They don’t. That tends to hold true on a state level also.

        To put things into perspective, the US Internal Revenue Code of 2006 (the one on my desk at the moment) is over 5500 pages.

        Flat out, there is no amnesty.
        Flat out, Microsoft has not been under-reporting its income (At least in this case).
        Flat out, Microsoft does not owe a billion in back taxes.
        Flat out, the headline to this article has no basis in reality.

  8. I say, catch the accountants and hang them on a tree next to the lawyers, executives and corrupt politicians.

    Problem solved.

  9. I am not normally against taxing business. But this is a very bad law. The basic idea is that Washington state would rather not pay taxes itself so they are instead going to try to levy taxes on the rest of us.

    Clue: Microsoft pays no taxes. No company pays taxes. Only the customers and shareholders of a company pay taxes.

    The idea behind this tax is to tax Microsoft’s global sales. Only some of which is due to work performed in Redmond. Should New York be able to tax IBM global sales? Or California tax Google on global sales?

    These taxes are easy to evade because they are nonsense.

    Let us imagine that Google is thinking about setting up shop in WA. Are they going to open an office there if WA will then attempt to tax them on global sales? Of course not.

    If states lack money they can raise taxes on their own citizens. No part of the US suffers from high rates of taxation. If there is a deficit states should either raise taxes or explain why this is likely to be a temporary situation and draw on reserves.

    All states have taxes. Even New Hampshire has taxes. The difference is whether the taxes are honest or dishonest. Anti-tax campaigners should be doubly angered by attempts to create stealth taxation, taxation that avoids accountability.

    1. hallam, Google already has a large office in the Seattle area. So far, Washington State tax policy hasn’t caused them to close up shop, or driven away Microsoft or Amazon. In fact, Microsoft intentionally centralizes all U.S. software development in the Seattle metro area. When they acquire a company with offices elsewhere they eventually ask people to move or move on. Microsoft also doesn’t use offshore contractors for things they consider “key development work.”

      Microsoft has a huge investment in their Redmond, WA main campus. In this economic climate I can’t see anyone else wanting to take on a huge office park with room for tens of thousands of workers. Say what you want about their use of contractors and the corporate culture (which sucks in some ways), but Microsoft has very competitive salaries and some of the best benefits I’ve heard of anywhere. They do invest financially in their full time employees. Basically everyone in the Puget Sound area who works in the software industry has worked there at some point, but there are strong reasons from both the state and the business to keep them there.

  10. Indeed, corporate taxes are a fallacy. What is even worse are the corporations that moved their “Headquarters” to small, off-shore, post office boxes to avoid paying taxes and just merged the taxes that they had been collecting from consumers into their regular price-point.

  11. “The lead sponsor of HB3176 is Democratic Representative Ross Hunter, who represents Medina, home to Bill Gates and a number of current and former Microsoft billionaires and multi-millionaires, and other areas around Microsoft’s corporate campus.”

    What I see is that the sponsor is doing what he was elected to do, promote the interests and vote as his electorate desires.

  12. One law for the rich,

    another for the poor.

    It’s hourly wages that should be exempted from income tax, not collecting royalties on somebody else’s work!

  13. Looks like its time to call Ross Hunter (who I voted for) and explain why giving amnesty for a billion dollars in possible tax evasion is a idiotic idea.

    Maybe I can also educate Ross on how Microsoft abuses contracting, placing themselves firmly in a legal grey area for the purpose of tax avoidance/evasion.

    1. Delt664 – The thing about Tax Avoidance is, it is legal…until the loophole is changed by new legislation (such as this case). Bill Gates has been a master of Tax Avoidance (well, his tax attorney’s anyhow) for decades and several portions of the Federal code have been changed as a result of his filings.

  14. Inventorjack…if you live in Washington State than you should know full well that this state is definitely “broke ass” and diving further everyday! Not an insult to the State as I see it but a indictment of the idiots running this place.

    1. Well, I don’t live there right now, but I do keep up with the local news and events, so I will have to concede to your point about the people running things :( It makes me sad, because I personally consider WA to be the preeminent state in the US for natural beauty and interesting culture, but things are, indeed, going downhill.

  15. Doesn’t this violate the Federal constitutional prohibition on states laying tariffs on interstate sales?

  16. I’ve read through some of the comments and I’m floored. Person after person sticking up for Microsoft. They got got caught cheating and get a gift. Something is Fishy.

  17. Some of the posters here must have OD-ed on Ayn Rand books.

    Let me quote from an author I respect Robert Heinlein:
    There Ain’t No Such Thing As A Free Lunch.

    It takes taxes for a government to pay for:

    free public schools
    free public roads
    free police & firemen
    free libraries
    water & sewage
    environmental protection

    All of these are things supplied by government because it has been discovered this is the cheapest & best way to do it. In the old days, there used to be competing fire companies & police departments. Go rent GANGS OF NEW YORK. They would fight each other to see who would get business. Private corporations like to profit. That’s why government services are cheaper than for-profit. They just have to cover overhead & not worry about making profits. Adam Smith pushed the free market, but he still believed there were things the government should do.

  18. So why does Bill Gates senior have a State Income Tax proposed on the Voters pamphlet? Once that is in, the rest of us under $200,000.00 will follow. If only we could follow Texas lead. No huge deficit, no income tax and doing ok for the business climate.

  19. Bill Gates Sr. is pushing for a state income tax in WA while Microsoft is getting huge B&O tax breaks. Hypocrisy!

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