Today, Governor Gregoire appointed former nine year Microsoft executive Suzan DelBene to run Washington State's Department of Revenue. DelBene's husband Kurt is President of Microsoft's Office Division. DelBene's basically a marketing executive, although she recently ran unsuccessfully to unseat Congressional GOP Rep. Reichert. As far as I know she has no formal background in tax law. Full disclosure: I used to work with Ms. DelBene and for her husband Kurt at Microsoft in the early 1990s.
"Gov. Chris Gregorie announced the appointment on Tuesday, saying there's nothing political about the move." Seattle Times
The Seattle Times has reported in the past that Mrs. DelBene is also a longtime friend of Representative Ross Hunter. Hunter is the 17 year ex-Microsoft veteran who as Democratic chair of the powerful legislative finance committee led the move to apportion the state's royalty tax, getting Microsoft off the hook for up to $145 million annually in taxes and potentially over $1.24 billion in back taxes, interest and penalties. Since 1998, Microsoft has recorded the bulk of its software licensing revenue in Nevada to avoid Washington State's royalty tax. This blog regularly questions the legality of this accounting practice.
Washington State is currently facing a $5.7 billion deficit, up from $2.4 billion just last year. We believe that DelBene's appointment signals a complete takeover at Revenue by Microsoft-connected interests. Based on this appointment, it seems increasingly unlikely that there will be any change of heart at the department on its past non-enforcement policy against Microsoft's Nevada tax practice.
Recently, the Department of Revenue issued an explanation to State Senator Maralyn Chase on why it has chosen not to enforce the royalty tax against Microsoft's Nevada operation. We believe the report ignores key concepts such as the Step Transaction Doctrine and Alter Ego which other states use to enforce these sorts of tax dodges.
Last week, we published a wrap up of the full status of this issue.