It’s not unusual to see banners in the public square at the busy intersection of Market Street, 22nd Ave. N.W. and Leary Ave. in Seattle’s Ballard neighborhood, touting traditions such as Norwegian Constitution Day and the annual Seafood Fest.
But it was a bit of a surprise to see this banner there on Friday afternoon: “MICROSOFT PAYS NO WASHINGTON STATE SOFTWARE LICENSING TAX.”
It’s certainly eye-catching, but there’s one problem: Even the most outspoken critic of Microsoft’s tax tactics says the banner is inaccurate, or at least behind the times, even though he’s glad to see the overall issue getting attention.
To be strictly accurate, the sign would need to say Microsoft “dodged $6.1 billion in Washington State taxes before it lobbied the legislature to rewrite the law to eliminate the tax,” wrote Jeff Reifman on the Microsoft Tax Dodge site this afternoon, after GeekWire sent him the picture above.
Somehow that’s not quite as catchy.
The background: Washington state previously taxed royalty income on worldwide sales of software licenses and other intangible goods according to whether or not the selling company had a “physical nexus” in the state, regardless of where the sales took place.
Although Microsoft is based in Redmond, it records large portions of its licensing revenue through an office in Nevada. That’s the basis for Reifman’s calculation that Microsoft dodged more than $6 billion in Washington state taxes. Reifman, a former Microsoft employee, believes that the state should have gone after Microsoft for back taxes, particularly in light of Washington state’s severe budget shortfall.
Last year, the state changed the rules to levy the tax based on sales to Washington customers, no matter where the selling company is based. That’s where the sign goes astray, as Reifman points out. Microsoft is now required to pay the royalty tax, regardless of its Nevada licensing office, albeit on a much smaller slice of its revenue than if the tax applied to its worldwide sales.
We’ve asked a Microsoft representative if the company wants to comment on the Ballard banner.
Who put the banner there? That appears to be a mystery. But Microsoft isn’t the only subject. Here’s what the other side says.