According to my latest estimates, Washington State's growing deficit is entirely the result of Microsoft's lobbying efforts in the state legislature and its thirteen year Nevada royalty tax dodge. In other words, if Microsoft had just paid Washington State's royalty tax in full since 1997, there would be a budget surplus.
Last week, The Seattle Times reported the two year budget deficit gap is expected to exceed $3.3 billion and Governor Gregoire is not only considering which agencies need to cut back but also which need to be completely eliminated: "I'm asking, should agencies be gone?" said Gregoire.
A recently discovered job listing for Microsoft's licensing entity in Nevada reads: "Are you interested in leading the vision and strategy of an organization which processes in excess of $30B annually?" Until now, I'd estimated that Microsoft's licensing entity only processed about $18 billion annually. In other words, my estimates of the magnitude of Microsoft's tax dodge may have been about 40 percent too low. Note - the job was listed here ... but the listing has been removed from their website: http://www.mslijobs.com/careers/job_detail.asp?JobID=2025452
Previously, I estimated that Microsoft's cumulative Nevada tax dodge with interest and penalties was approximately $1.33 billion through the end of FY10. However, if Microsoft's Nevada licensing entity is processing $30 billion annually (about half of the companies overall revenue), then Microsoft's cumulative Nevada tax dodge would be $2.21 billion.
But back in 1997, Washington's software industry (commonly led by Microsoft) persuaded the Legislature to cut the state's royalty tax on worldwide licensing revenue by more than 2/3 from 1.5% to .484%.
Note: the tax rate that most businesses pay in Washington remained at 1.5% until this year, when the Legislature, led by Rep. Ross Hunter, raised it to 1.8% - in part to cover the gap created by the elimination of the worldwide royalty tax - what we called Microsoft's $100 million annual tax cut.
Even using my old estimates, if Microsoft had not lobbied the legislature to cut the royalty tax and begun dodging the tax via its Nevada office, it would have paid $3.08 billion (left image) more in taxes. However, using the estimate based on the Nevada licensing job listing, Microsoft would have paid $5.10 billion more (right image) in taxes.
Instead of a projected $3.3 billion deficit, Washington State would today have a $1.8 billion surplus.
So, while Microsoft's been publicly lobbying the legislature to spend more on transportation and education, its behind the scenes lobbying to cut its tax bill and its Nevada tax dodge have actually helped make Washington State insolvent, siphoning the coffers that might have otherwise invested in our state's infrastructure.
I read today that the Gates Foundation has made a tentative deal with Seattle not to have the city tunnel under its new offices during the rebuild of the crumbling Alaska Way Viaduct. But apparently, it's just fine for Chairman Gates to figuratively tunnel under the capital in Olympia and dismantle the state's financial stability.
Back in 2004 when I interviewed Microsoft General Counsel Brad Smith for my Seattle Weekly article Citizen Microsoft, he seemed open to considering opening up more of Microsoft state tax records for public inspection. Perhaps it's time.
Coming soon at the Microsoft Tax Dodge blog: Ross Hunter's Message to 48th District Taxpayers and My Discussion with Seattle Times Executive Editor David Boardman on the paper's failure to cover Microsoft's Nevada tax dodge for readers.
