ballmertongue.jpg
A former employee tells Ballmer to pay up.
Jeff Reifman is everywhere these days. The former Microsoft manager who successfully tracked down Wired editor Evan

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An Open Letter to Microsoft CEO Steve Ballmer: Quit Dodging Washington Taxes

ballmertongue.jpg
A former employee tells Ballmer to pay up.
Jeff Reifman is everywhere these days. The former Microsoft manager who successfully tracked down Wired editor Evan Ratliff has also found the time to start a new web site.

MicrosoftTaxDodge.com is what it sounds like: A site devoted to Reifman's argument that his former employer isn't crossing all its t's or dotting all its i's. The logic goes like this: Though based in Redmond, Microsoft reports all its software-licensing sales in Nevada where there is no tax on those transactions. A dodge which, based on Reifman's calculations, has cost Washington state something in the neighborhood of $1.24 billion over a dozen years.

Considering the $2.6 billion budget gap, that's money that could be put to good use. So in an attempt to tighten the screws, Reifman wrote an open letter to CEO Steve Ballmer which we've reprinted after the jump.

November 29, 2009

CEO Steve Ballmer

Microsoft Corporation

One Microsoft Way

Redmond, Wa. 98052-7329

Dear Mr. Ballmer,

You've spoken eloquently about Microsoft's commitment to transparency. In that spirit, will you tell the public how it is that Microsoft has avoided paying Washington State's B&O Royalty Tax for the past 12 years?

According to my analysis, Microsoft has used its Nevada office to avoid paying $782 million in taxes since 1997. If this tax practice is determined to be illegal, Microsoft could owe the state as much as $1.24 billion including interest and penalties.

Given Washington's projected $2.6 billion budget shortfall, Microsoft's tax burden is increasingly relevant to upcoming discussions of cuts to vital services such as education, healthcare and public safety.

Last week on KUOW's The Conversation, a Microsoft spokesperson told Ross Reynolds, "We pay all our tax obligations everywhere we are, properly."

At this point, I think it's reasonable to ask Microsoft to back up that claim with a public explanation of the company's licensing operations.

In 2005, at Microsoft's Government Leaders Forum in Dubai, you spoke about Microsoft's emphasis on transparency and respect for stakeholders:

"Another focus for us is ensuring the integrity and transparency of our business processes and practices. We've worked hard over many years to be a values-driven company that maintains the highest standards of conduct and that more than meet(s) the ethical expectation and certainly the legal expectations of the countries where we do business. Some of this effort has to do with our internal processes of corporate governance, but a lot of it has to do with being open, honest and respectful with others, which is one of the core values of our company."
Now would be an excellent time to demonstrate this commitment.

Washington's B&O Tax Law states clearly that any entity engaged in the business of receiving income from royalties, such as licenses, must pay a 0.484 percent tax on gross income.

Since 1997, I estimate that Microsoft has earned $143 billion in licensing, based largely on the software created by its 40,224 Washington-based employees. How is it that this revenue is not subject to the B&O Royalty tax?

Given the seriousness of our upcoming fiscal crisis, I believe that Washington taxpayers would appreciate a more thorough explanation.

Thank you very much for your time and consideration.

Sincerely,

Jeff Reifman

 
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