Scrutiny of Apple’s tax tactics renews focus on Microsoft

Over the weekend, the New York Times published an extensive report on Apple’s use of creative strategies to reduce the taxes it pays on the sale of digital goods.

Apple’s giant profits were the peg for the story, but as the reporters noted, the company is far from the only one that engages in these practices. An excerpt from the piece …

“Apple serves as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy. Some profits at companies like Apple, Google, Amazon, Hewlett-Packard and Microsoft derive not from physical goods but from royalties on intellectual property, like the patents on software that makes devices work. Other times, the products themselves are digital, like downloaded songs. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is, say, for grocery stores or automakers.”

Jeff Reifman, a former Microsoft employee who has been campaigning for years against the company’s use of its Nevada licensing office, says in a blog post that the New York Times piece has resulted in a new wave of interest in his site, Microsoft Tax Dodge.

He’s written up a primer for people new to the issue, making the case that Microsoft has improperly sidestepped billions in Washington state taxes, a contention that Microsoft disputes.

Whatever the case, it’s clear that this is not just an Apple story. Roger Kay, a longtime industry analyst, writes on Forbes about the NYT piece …

“Of note in the piece is that a number of former Apple executives spoke on the record — using their actual names.  This unusual behavior must be the result of one or both of the following circumstances: either they’re “airborne” or, now that Steve Jobs has passed on, they’re no longer afraid of the Apple vendetta machine. … Behind the article’s facade, though, is a cheap trick, which is even somewhat sheepishly revealed soon after the lead.  The writers used Apple at the top of the story for the same reason we all do: to sell newspapers.”

  • synthmeister

     As noted by Forbes, The New York Times is reporting an incorrect calculation of Apple’s effective tax rate for 2011 of 9.8%, simply reusing numbers released several weeks earlier by the Greenlining Institute. Forbes points out that Apple’s $3.3 billion in taxes paid during 2011 come from its quarterly estimated tax payments made during the year, but that federal tax guidelines instruct taxpayers to base their calculations on the previous year’s earnings. Consequently, Apple’s 2011 quarterly tax payments are actually based on 2010′s earnings, with the correct amount of tax for 2011 not being settled Apple files its final taxes in 2012. And given Apple’s strong growth rate, the incorrect assumption that Apple’s 2011 tax payments were based on 2011′s earnings grossly understates Apple’s tax rate. As outlined in his previous piece debunking the Greenlining Institute’s claim, Tim Worstall notes that Apple reports its effective tax rate in its annual 10-K filings with the Securities and Exchange Commission, and that rate came in at 24.2% for 2011, much more in line with industry norms.

  • Aellingsonmlms

    Hey, a Chinese manufacturer of the iphones, platstations, and Xbox’s has some workers protesting. Headline “Apple supplier has workforce woes”. Hey, all tech companies use available tax loop holes to pay the minimum tax liability. Headline, “Apple avoids taxes”. Hey, over a thousand companies have protesters outside their doors every day. Headline, “Apple sees protest mob in sidney”. Memo to all journalists world wide, “No matter what the story, get Apple in the headline, cuz Apple is the number one word searched for on Google”.

  • Guest

    If Jeff is right, who is to blame?

    Microsoft, for following the laws of the states in which it does business?

    Nevada, for attracting business with low tax rates?

    The United States, for allowing interstate commerce to be largely unregulated?

    Please, Jeff, speak.

    • http://www.facebook.com/jreifman Jeff Reifman

      Guest, one of my main concerns is that state officials are figuratively and literally in bed with Microsoft. Delbene who ran the tax department is married to Microsoft President Kurt Delbene. Ross Hunter who is Chair of the Finance committee in the legislature is a 17 year ex-Microsoftee. Gregoire praises the company for it’s $5 million annual contribution to tech scholarships at the UW but signs the bill granting the company $100 million annually in tax savings and amnesty on its Nevada tax dodge … 

      This is one of the big issues that concerns me. 

      Washington has the most regressive tax system in the country. Microsoft has $580 billion in revenue during this period. The whole Nevada issue is essentially a .75% drain on their accounts. Our system’s tax fairness is completely out of balance and Washington taxpayers are getting ******.

      • Guest

        I see.

        You haven’t answered my question, though, so I’ll rephrase it. If Microsoft is merely following (and writing) the tax law, what would you like to change? Would you like to write a Federal law to change interstate commerce? Would you like Nevada to ban Microsoft from doing business there?

        I can see you’re mad, Jeff. Let’s say that you were literally in bed with a state official and that you could write all the laws you wanted. What would make you happy?

        • http://www.facebook.com/jreifman Jeff Reifman

          I just had hoped the Wa. Legislature would enforce the Royalty Tax … rather than grant the company amnesty and redefine the royalty tax, shrinking it to have no effect.

      • Guest

        You’re an ex-Microsoftie too. Yet we’re meant to believe that your motivations are pure while theirs aren’t? Even though you’re the fired and clearly disgruntled ex-employee?

        I’ve been reading your drivel for about a decade so far. You started off saying MS was guilty of “tax evasion” because the Nevada operation was just a sham. When both of those accusations were throughly debunked, you re cast is as tax avoidance, but again implying it was somehow illegal. Nobody charges with looking at it for the Government has agreed, despite your repeated efforts. So now in your desperation you just do drive-by character assassinations of serving officials who just happen to have an -ex-MS pedigree?

        I find you and your tactics disgusting. And have no idea why Todd and others continue to give you media coverage without pointing out what I just did and much, much more.

        • http://www.facebook.com/jreifman Jeff Reifman

          As an anonymous person, you’re claiming I was fired and saying I’m spreading misinformation. Why don’t you identify yourself and provide some facts to back up what you are saying?

          I left Microsoft voluntarily in Apr ’99 to become CEO at GiftSpot.com. I think John Cook interviewed me back then – but the article is no longer 

          http://microsofttaxdodge.com/response-to-common-criticisms-of-microsoft-tax-dodge-.html

          I’d welcome you actually documenting your accusations or identifying yourself. It would help make your case.

          • Guest

            Claiming you were fired? Your own “friend” Jon Stahl stated it as fact.

          • Jon Stahl

             Hi “Guest” — Jon Stahl here.  Obviously I don’t know who you are, and I doubt that you actually know me, but what I do know is that I’ve never said such a thing to anyone.  Time to stop your cowardly ad-hominem attacks. 

  • http://www.facebook.com/jreifman Jeff Reifman

    Todd, thanks for posting it locally … the Slashdot post has driven a ton of traffic globally but one thing that concerns me is why The Seattle Times has been silent on Microsoft’s Nevada operation.

    The Slashdot post highlights The Seattle Times presenting an editorial by Microsoft’s General Counsel and Nevada tax architect complaining about the state’s failure to address public education due to dwindling revenue … but the paper is silent on the hypocrisy, silent on the impact of Microsoft’s long term actions, silent even on Smith’s own role in this.
    http://apple.slashdot.org/story/12/04/29/2152230/not-just-apple-how-microsoft-sidestepped-billions-in-state-taxes

    Smith has also appeared in house ads in the paper and is on The Seattle Times’ Luminary website. http://www.seattletimescompany.com/luminaries/prof_brad.html

    What is going on with The Seattle Times?

    • Guest

      jeff..you need to get a better handle on the facts….brad smith wasn’t the MSFT GC or involved in any aspect of the companys US tax operations at the time MSFT initiated the consolidation of its WW licensing business in Nevada in the mid-90s

      • Guest

        At this point i think it’s best for us to simply go back to ignoring Jeff. His arguments rely on his own emotions, he offers no ideas for rectification, and he simply disengages when others ask questions.

        If we stop listening to and replying to Jeff, he will simply disappear. Let’s watch.

        • http://www.facebook.com/jreifman Jeff Reifman

          Again, please point out any specific facts you think I’ve gotten wrong. 

      • Guest

        Don’t let a small thing like facts get in the way of Jeff’s jihad. He doesn’t.

      • http://www.facebook.com/jreifman Jeff Reifman

        He’s been running the operation since I interviewed him in 2004. But, you can see him on the Nv. registration docs going back to 2002. That’s ten years… http://www.scribd.com/doc/21627554/Microsoft-Corp-Secretary-of-State-Nevada

  • Dave

    Neither Microsoft nor Apple have been accused of doing anything illegal. Neither built the complex, inconsistent US State tax systems or the complex, inconsistent international tax systems. Tax planning, if legal, is legitimate. A compnany’s obligation is to pay every dollar of tax owed and not one dollar more.  Both appear to be doing so. 

    Without the Nevada structure, Microsoft would pay an insanely high amount of taxes in Washington due to the nutty B&O tax structure in Washington.  Microsoft’s approach is a very common one for technology companies in Washington and Apple’s planning approach internationally is fairly standard.

    If someone does not like the results, they should go about trying to change the tax laws not get mad at the companies.

    • http://www.facebook.com/jreifman Jeff Reifman

      Dave, $4.37 billion in tax savings is about .75% of Microsoft’s gross revenue of $580 billion during this time period. Is that really an undue burden on the company?

      • Guest

        Was their tax savings contrary to what is allowed by law? If it wasn’t, I’m not sure I understand your point…?

        • http://www.facebook.com/jreifman Jeff Reifman

          Yes, the Royalty Tax was a tax on worldwide sales. The Department of Revenue chose not to enforce the tax on Microsoft.

    • Guest

       This tells you everything you need to know about Jeff and his accusations:

      http://www.scribd.com/doc/23216769/Washington-State-Department-of-Revenue-Response-on-Microsoft-Royalty-Tax

      • http://www.facebook.com/jreifman Jeff Reifman

        Anonymous Guest … not sure what your point is in presenting this document. Can you clarify if you have a specific fact that you are trying to refute?

        The document you shared shows that the Dept. of Revenue:

        a) won’t release Microsoft’s royalty tax payments in the years 1998-2010 because it treats corporations are persons and grants them privacy – when confronted with this, Microsoft also has repeatedly refused to release their royalty tax payments http://newscloud.net/K2d28f

        b) the DoR has chosen not to enforce the royalty tax against microsoft and take on legal pursuit of MS’ Nevada taxes… this is an administrative decision – but govt’s often make bad decisions, just because they made it, doesn’t mean it’s right

        c) it says that the DoR audits large companies regularly …the language Ross Hunter inserted language into 6143 reads “(2) Section 201 [which enacts strict enforcement against abusive tax transactions] of this act  does not apply to any tax periods ending before May 1, 2010, that were included in a completed field audit conducted by the department.”  granting Microsoft amnesty on its back taxes. http://newscloud.net/K2dhjr

        And, of course, nothing in the post you shared refutes that Microsoft has saved $4.37 billion in taxes from 1998-2010 by lobbying to reduce the royalty tax rate and then dodging the tax with its Nevada office, money that has indirectly led to $4 billion in cuts to K-12 and Higher Ed.
        http://newscloud.net/K2dnb4

        Please be specific if you want to refute anything in the future. It would also add credibility to your arguments if you would identify yourself.

  • http://www.facebook.com/jreifman Jeff Reifman

    Crosscut has a story on Microsoft’s Nevada tax dodge today as well: http://crosscut.com/2012/05/02/business/8251/microsoft-taxes-amazon–tech-companies-washington/