A last-minute provision, inserted into Washington state’s hard-fought new budget, ends a major tax exemption for a certain “affiliated group.” Here’s how that group is described in the text of the legislation, SB 6138.
(i) At least one member of the affiliated group was registered with the department to do business in Washington state on or before 21 July 1, 1981;
(ii) As of the effective date of this section, the combined employment in this state of the affiliated group exceeds forty thousand full-time and part-time employees, based on data reported to the employment security department by the affiliated group; and
(iii) The business activities of the affiliated group primarily include development, sales, and licensing of computer software and 28 services.
Yes, it’s a “group” of one: Microsoft. The Seattle Times has all the details, including state estimates that this will result in an additional $57 million tax payment from the company over the course of the next two years. The company — which has separately been criticized for routing software licensing revenue through Nevada to reduce its tax bill in its home stage — went along with the change.
In another twist, two of the legislators who negotiated the budget, Rep. Ross Hunter and Sen. Andy Hill, are former Microsoft employees.
The move comes as the state struggles to fund education and transportation, two key issues for Microsoft in its home state.
Update: Microsoft issued this statement on the provision, from DeLee Shoemaker, Microsoft Senior Director of Government Affairs.
“Assuming the change is enacted, as of August 1, 2015, Microsoft will no longer be eligible for the sales tax exemption on the purchase of equipment under the Manufacturer’s Machinery & Equipment Sales and Use Tax Exemption Program. It could result in an estimated $57 million more in sales taxes paid by Microsoft in the coming biennium. At the request of the Washington State Department of Revenue, Microsoft signed a waiver regarding the tax.”
The company has been boosting its investment in education in the Seattle region with a pledge of $40 million to the planned Global Innovation Exchange tech graduate school in Bellevue; and a commitment of $10 million for a new University of Washington computer science building.
The UW computer science building didn’t receive the requested level of funding in the state budget, a setback for a project designed to significantly increase the capacity of the program.