Here's a brief overview of how Governor Gregoire, the legislature, the courts and The Seattle Times have enabled Microsoft's hypocritical stance on education and tax dodging to damage our budget and our educational system. Please share this widely with friends and colleagues. Also, new audio clip of Microsoft's Brad Smith acknowledging the company's Nevada tax dodge.
When Institutions Fail, Education Suffers
As the Washington State legislature worked to close a record $2.8 billion deficit in April 2010, chair of the finance committee Rep. Ross Hunter slipped language into the final budget bill that granted amnesty to Microsoft on more than $1.25 billion in unpaid taxes, interest and penalties, savings the company had amassed by recording its licensing revenue in a small Nevada office since 1997. Hunter’s bill also changed how the state’s royalty tax is calculated, saving the company $91 million more annually. Prior to his public service in the legislature, Hunter spent 17 years as a Microsoft executive.
To balance the budget (and pay for Microsoft’s tax breaks), the Legislature cut $120 million from K-12 education and $73 million from university budgets. After signing the bill, Governor Gregoire praised Microsoft for contributing $25 million over five years to a scholarship program that largely funds graduates in technical programs that the company can hire.
Since then, the state’s deficit has grown to $5 billion requiring another $500 million in cuts to higher education. Recently, two ratings agencies downgraded the state’s financial outlook.
Washington schools rank 47th nationally in class size and 42nd in per pupil spending. The Washington State Supreme Court recently ruled that the Legislature has failed its Constitutional duty to properly fund public education but continues to leave the problem in the hands of lawmakers to resolve. The Washington Superior Court acted more quickly when it awarded Microsoft’s Nevada corporation an $8.7 million summary judgment against delinquent customers. For tax purposes Microsoft leverages Nevada laws but for legal purposes, it uses Washington’s court system.
Few Seattleites have ever heard about Microsoft’s Nevada tax dodge in part because The Seattle Times never mentions it in coverage of our ongoing budget crisis. Since the Post-Intelligencer stopped printing in 2009, The Times has been Seattle’s only daily newspaper. After a year of trying, I landed a meeting in November 2010 to detail Rep. Hunter’s actions to five Seattle Times journalists and Executive Editor David Boardman. While Boardman expressed interest in reporting the story, the paper never followed through. The day after our meeting, Governor Gregoire appointed Suzan DelBene, another former Microsoft executive, to oversee the state’s tax department.
While it’s easy to single out Microsoft’s $597 billion in cumulative revenue since the opening of its Nevada office, the truth is that Washington’s tax system is riddled with more than 567 corporate tax breaks. Closing all of them could result in more than $98 billion in new revenue. But if you include Microsoft’s successful 1997 lobbying to reduce the state’s royalty tax rate by two thirds, the company’s Nevada tax savings would pay off the entire state deficit on its own.
When John Burbank, a columnist in the neighboring Everett Herald, wrote that Microsoft’s unpaid royalty taxes “could be funding high-quality schools for Washington's children,” the company demanded a correction from the paper but refuses to release data that would prove its position. Due to corporate personhood, the same privacy rights as individuals protect Microsoft’s state tax records. I’ve proven Microsoft’s tax savings by comparing its published licensing revenues to the state’s aggregate data on royalty tax collections.
In January, The Seattle Times did publish an editorial by one of its designated "Luminaries" Microsoft Senior Vice President and General Counsel Brad Smith (seen at right in a house ad for the paper) who oversees the company’s Nevada corporations, “…it's [Washington] state's paramount duty to provide for the public education of all children. Unfortunately, steady declines in public resources now threaten our ability to live up to that commitment.” He supports Governor Gregoire’s call for to increase the state’s sales tax, already the most regressive in the country. Listen to Brad Smith acknowledge the company's Nevada tax practices in this clip from our 2004 interview for Citizen Microsoft (Seattle Weekly):
Meanwhile, the Gates Foundation and Microsoft CEO Steve Ballmer are actively funding advocacy efforts in Washington State to funnel these dwindling public education dollars towards the creation of private charter schools.
In Washington, the Governor, the Legislature, the Courts and the press are failing our children.
Please share this widely with friends and colleagues.
Jeff Reifman is the co-founder of Envision Seattle and publisher of the MicrosoftTaxDodge.com blog. He is also a former Microsoft employee and one of the company's estimated ten thousand multimillionaires. He's lived in Washington State since 1991.