Last month, we reported Microsoft's local representative Rep. Ross Hunter was lead sponsoring a bill which essentially gives the company a $100 million annual tax cut and possibly amnesty on its long term Nevada tax dodge.
Recently, a concerned Washington resident named Eric forwarded a note he received from his representative, Democrat Larry Seaquist, of the 26th District:
From: "Seaquist, Rep. Larry"
Date: February 25, 2010 12:42:21 PM PST
To: 'Eric REDACTED'
Cc: "Futrell, Oriana"
Subject: RE: Microsoft Tax Dodge
Eric, we did some checking both with our staff and DOR.
Your reference to a tax dodge refers to Microsoft's subsidiary in Arizona which handles their big purchases. Current Washington State tax policy does not tax out of state companies. Rep. Hunter's bill HB 3176 seeks to address this by taxing companies who have a large customer base in Washington State. Rep. Hunter's proposal is aimed at credit card companies however, it appears that it would cover certain aspects of Microsoft - as well as a number of other companies.
Please note that HB 3176 is not a tax cut, it actually seeks to extend the taxing ability of Washington State.
I understand the Department of Revenue sent you a letter essentially stating that Microsoft is following the law without directly mentioning Microsoft due to privacy protections.
Very best wishes,
Larry Rep. Larry Seaquist
26th Legislative District
Oriana Futrell, Legislative Assistant
360.786-7802 Legislative Office, Olympia
seaquist.larry@leg.wa.gov
First of all, Microsoft's tax dodge is based in Nevada, not Arizona. Just ask its General Legal Council Brad Smith, like I did in 2004 or read the Office of Financial Management's Fiscal Note on HB 3176: "This has led some Washington-domiciled taxpayers to transfer their intangible assets to wholly-owned subsidiaries whose sole place of business is outside of Washington. Sometimes these subsidiaries are domiciled in states, such as Nevada, that do not tax income from the use of intangibles."
But, Rep. Seaquist is clearly in error when he says, "HB 3176 is not a tax cut". Just make a phone call to Mike Gowrylow, Communications Director at the Department of Revenue. He explained to me that HB 3176 changes the definition of the Royalty tax so that worldwide sales of intangible properties would no longer be taxable, only sales to Washington State residents. This is explained in more technical terms in the House Bill Analysis for HB 3176: "Establishes a gross receipts single-factor apportionment formula for allocating service and royalty income to Washington."
However, Rep. Seaquist may have been making a more nuanced statement because as he acknowledges Microsoft isn't paying the royalty tax: "I understand the Department of Revenue sent you a letter essentially stating that Microsoft is following the law without directly mentioning Microsoft due to privacy protections." So, maybe, if a company dodges a tax, then has its local representative change the law to minimize their taxable revenue from approximately $20.7 billion annually to less than a hundred million, it's not a tax cut. It's only a tax cut if you were paying the tax.
Does the Department of Revenue think Microsoft is following the law? Well, we've recently received a more detailed response from the department about this issue and will post more shortly. All I'll say for now is that HB3176 labels this kind of out of state tax dodge an "abusive tax practice".
As for Rep. Seaquist, when I wrote him to be sure he understood the problems with the bill (and to ask him for a public statement for the blog), he replied, "Gents, please direct your continuing concerns to Rep. Hunter. Very best wishes, Larry"
As his constituent wrote me, "My representative says see the fox at the henhouse (Ross Hunter)".
I've already made a public records request for all of the materials related to HB3176, Rep. Hunter, Microsoft and its lobbyists. We're one step ahead ahead of you Rep. Seaquist, or several.
