Microsoft makes its home in Redmond, Washington. It has 40,224 employees and 79 physical sites here. Since 1997, Microsoft has dodged $728.8 million in taxes by recording its software licensing revenue in Nevada. If this practice is proven to be illegal, the company could owe as much as $1.24 billion with interest and penalties.
About one third of Microsoft’s revenue comes from selling software licenses to large corporations and PC manufacturers. Washington State has no income tax but requires businesses to pay what are called Business and Occupation or B&O taxes.
Microsoft is one of the richest, most successful corporations in American history. In the past twelve years, Microsoft earned $127 billion in profit from $460 billion in revenue and currently has $36 billion in cash on hand.
Microsoft is supposed to pay a .484 percent tax on its revenue from software licensing. However, since 1997, the company has claimed it’s exempt from this tax because it accounts for this income from Nevada.
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.
While it’s tax dodge seemed small at first, it’s grown with the company’s success – now averaging $80 – $90 million annually.
Washington’s Infrastructure is Literally Crumbling
Currently, Washington State faces a $2.6 billion budget deficit. Our schools are overcrowded. Our teachers are underpaid. Seattle recently considered making “D” a passing grade to increase graduation rates.
The state is planning to tear down an elevated highway crumbling so fast that officials fear it may collapse in the event of an earthquake. It also must soon replace the longest floating bridge in the world which many Microsoft employees use to commute to and from work.
The Ethical Case is Clear
A company as wealthy as Microsoft should not be engaging in tax dodges to the degree that they endanger the public safety and welfare of the residents in which it makes its home.
The legal case is disputed but becoming more clear that Microsoft is in violation of Washington State law.
The best interests of shareholders are no longer served when Microsoft’s employees are at risk at home and the good will of Washington residents turns against the company.
About This Site
This site is a project of Citizens for Fair Tax Enforcement, a nonprofit organization founded by former Microsoft Group Program Manager Jeff Reifman (@reifman). The goal of this particular website is to help call attention to the ethical and legal issues surrounding Microsoft’s tax practices and Washington’s projected $2.6 billion state budget deficit. Follow @microsofttaxes on Twitter to stay informed.