Jeff Reifman

In 2005, Microsoft reversed course after first withdrawing support for Washington’s proposed anti-discrimination bill under a boycott threat by a local pastor. Under pressure from outraged employees, customers and national media coverage, Microsoft helped pass the bill and pledged support for future anti-discrimination legislation. Last month, Microsoft contributed $100,000 to support Referendum 71, Washington’s domestic partnership initiative. Chairman Bill Gates and CEO Steve Ballmer each gave $25,000 as well. Last night, with Microsoft’s help, Washington voters appear to have become the first state in the nation to affirm domestic partnership rights in an election.

Why would Microsoft spend $100,000 of shareholder profit on a controversial gay rights bill? Because it’s important for the company to keep key stakeholders happy and preserve its image as a good corporate citizen.

To protect this image, it's time for Microsoft to reverse course on its ongoing billon-dollar tax dodge in Washington state. The best outcome for all parties would be for Microsoft to negotiate a settlement of its back taxes with the Department of Revenue and agree to comply with state tax law going forward.

It doesn’t make good business sense for a company as wealthy as Microsoft that prides itself on its role in the community and the good work of Bill Gates to be thumbing its nose at state residents as we face challenging new budget crises.

Back in June, CEO Ballmer made news when he threatened to offshore more of Microsoft’s workforce if the Obama administration raised tax rates on corporate foreign profits. He failed to mention that the company has already been “off shoring” its Washington State profits for the last twelve years.

In 1997, Microsoft opened a small office in Reno, Nevada to record its software licensing revenue, about a third of its business, thereby avoiding Washington State’s half percent wholesale tax on software licensing royalties. Since then, I estimate Microsoft has earned $127 billion in profit from $460 billion in revenue avoiding the payment of $728.8 million in taxes (with interest and penalties, Microsoft’s unpaid tax bill would exceed $1 billion).

Public outrage has been slow to build in Washington because of confusion of the legality of Microsoft’s tax practices, cultural values that reflect our contempt for taxes and fear that Microsoft would follow Boeing’s migration out of the state.

Recently, I wrote an analysis on my blog explaining that Microsoft’s tax practices are likely illegal. I also reported Microsoft’s use of Washington courts to defend its Nevada partnership’s licensing contracts. This particular action, while legal, erodes the company’s argument that it’s not in the licensing business in Washington and therefore not subject to the royalty tax. Since this report, I’ve heard that even twelve years after the move to Nevada, the company knows it’s not in full compliance with state tax law.

This is not an issue of whether companies should be allowed to minimize their taxes. This is an issue of whether Microsoft’s practices are illegal and causing harm to Washington State and its residents.

I know some people have legitimate fears that Microsoft could move jobs out of Washington if the state cracks down on its activities but Microsoft’s actually already been expanding outside of Washington as much as it possibly can. Because Washington State has no income tax, the company is able to pay its 40,224 Puget Sound workers much less than it would in other states. In addition to the fact it would take the company many years to move its 78 local sites and replace our vibrant Washington talent pool, I believe that Chairman Gates and CEO Ballmer care more about their connection and standing in our community than Boeing does. It's time for them to do the right thing.

You can read my full report on my blog.

Jeff Reifman is a former Microsoft Group Program Manager and is currently a Seattle-based technologist, writer, and media activist.

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