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Government Microsoft Software The Almighty Buck Politics

10% Tax On Custom Software, $100M Tax Cut For Microsoft 305

Posted by Soulskill
from the since-they're-so-strapped dept.
reifman writes "Last week, the Washington State House of Representatives passed a bill which would impose a 10% tax on custom software while all but eliminating a $100 million yearly tax obligation that some say Microsoft is wrongfully avoiding by routing large chunks of business through an office in Nevada. 'I believe we've got an issue of justice and fairness here,' said Rep. Maralyn Chase. 'Most of the custom software purveyors are small businesses. It's a question for me of how we fairly distribute the tax burden.' 'It means that a 5 person team of entrepreneurs building a cool custom software suite, or a group of system integrators, would face a 10% tax on their services while keeping the exact same project in-house would not be taxed,' wrote Rep. Reuven Carlyle. 'It would be a massive blow to the entrepreneurial community in our state.' The bill won't become law until the House and Senate work out how best to raise another $300 million in taxes. A sales tax increase on consumers is also being considered."
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10% Tax On Custom Software, $100M Tax Cut For Microsoft

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  • Bad bill... (Score:5, Interesting)

    by LostCluster (625375) * on Friday March 26, 2010 @02:15PM (#31630804)

    This is clearly is bad for the individual geek who makes their living selling simple custom programs that do only what the user wants/needs and nothing that they don't, unlike Microsoft omnibus packages. It's a case of government by large corporation over the individual if this passes.

    • Re:Bad bill... (Score:5, Insightful)

      by wizardforce (1005805) on Friday March 26, 2010 @02:34PM (#31631078) Journal

      "Last week, the Washington State House of Representatives passed a bill which would impose a 10% tax on custom software

      Too late, it's already done. Now as for the reason why it isn't law, law yet is a puzzling one: they apparently need to find another 300 million in tax revenue and have completely inored the most obvious: closing the MS tax dodge instead of giving them a free pass that this bill just did. Or they could just I don't know cut all the extraneous crap that they shouldn't be doing to begin with but I suppose that actually solving the problem would piss off everyone dependent on the bloat.

      • Re:Bad bill... (Score:5, Informative)

        by Red Flayer (890720) on Friday March 26, 2010 @02:45PM (#31631258) Journal

        Too late, it's already done.

        Yeah, it's all done, except for those pesky State Senate vote and Governor sign/veto issues.

        have completely inored the most obvious: closing the MS tax dodge instead of giving them a free pass that this bill just did.

        It sounds good until you realize that MS have WA by the balls. Piss them off and they move employees out of state. Boeing did it... MS could too. Sure, there's no state income tax, but that's a lot of sales tax WA won't collect.

        Or they could just I don't know cut all the extraneous crap that they shouldn't be doing to begin with but I suppose that actually solving the problem would piss off everyone dependent on the bloat.

        Have you seen the WA budget over the past two years? They've made DRASTIC cuts in spending. The question is if they can find another $300 MM to cut, or if they're better off find additional $300 MM in revenue. In a poor economic situation, cutting spending is a hell of a anti-stimulus for economic activity... the better course of action is to wait for economic recovery to make additional budget cuts (whether or not that would actually happen is a different story).

        • Re:Bad bill... (Score:5, Insightful)

          by westyvw (653833) on Friday March 26, 2010 @02:59PM (#31631462)

          Oddly enough, if they stopped using Microsoft products they could recoup a large amount of that money anyways. I have reviewed the IT expenditures of several state agencies and they are blowing money like its no tomorrow, but they have no clue how to get efficiencies because they are so star struck by the crap MS has been dishing out to them for years.

          • Re:Bad bill... (Score:5, Interesting)

            by NotBornYesterday (1093817) on Friday March 26, 2010 @03:05PM (#31631556) Journal
            Maybe that should be their next step. If MS refuses to pay their fair share of taxes (after all, they enjoy the benefits of the roads, police, fire, and other services that are supported by these taxes, correct?), WA should launch an initiative to go open source. Whether they follow through or not isn't the point (although I'd love to see it happen). Getting MS back to the negotiating table to avoid being embarrassed in their own backyard would be priceless.
            • by dimeglio (456244)

              Washington likely allow all large employers like Microsoft all kinds of exceptions. I'm sure actuaries and accountants working for the State have already figured out (using MS software of course) how profitable they are, on tax revenue generated by their employees, despite the 300 million cut.

              A 2.6 billion state deficit is nothing.

              -- I wonder if MS has special hidden algorithms in their software: if state=Washington and query="how much state tax Microsoft should pay", then answer=0. --

        • Re:Bad bill... (Score:4, Insightful)

          by tweek (18111) on Friday March 26, 2010 @03:09PM (#31631614) Homepage Journal

          Well it's obvious you went to the Keynesien school of economics.

          Every dollar that goverment spends is one less dollar that the individual spends. In fact, the return on government spending is LESS than individual spending (I'm trying to dig up those numbers now).

          You cannot spend your way out of a recession. That money is best left in the hands of the individuals to spend as they will. Will some people resort to the hoarder mentality? Yep but it's not an absolute.

          I don't know the situation in WA but it's not like they're not in the same boat as every other state in the country - reduced revenues and all.

          There really needs to be, in all states, a line by line audit of where the states are spending money and where they can cut that spending or eliminate it entirely.

          Reason did an amazing series with Drew Carey about "saving Cleveland". It had some awesome ideas that have been shown to be successful in other parts of the country. They admit that what works one place may not work in another but honestly when you're faced with a $300m shortfall, maybe you should try something new?

          http://reason.com/blog/2010/02/25/save-the-week-reason-saves-cle [reason.com]

          • Re: (Score:3, Insightful)

            by toastar (573882)

            wow, did you fail macroeconomics?

            You do realize individual states have no control over monetary policy right? So that means the only tools it has are based in fiscal policy. And your asking the state to reduce the strength of it's fiscal powers.

            That be like saying oh my house is on fire. No! don't pour water on it, it will go out faster if you just let it burn.

          • Re: (Score:3, Interesting)

            by phantomfive (622387)

            In fact, the return on government spending is LESS than individual spending (I'm trying to dig up those numbers now).

            It's an incredibly difficult number to calculate, because of the lack of good experiments. You only have a recession every decade more or less, so it's hard to come up with good generalization. Maybe in a century or two we'll have it down....

            But for now, I recently read one economist who managed to put the multiplier at around 0.6. He was only able to do this using data from wartime, though, which is probably not the best way to spend government money (once a bomb explodes, it's of no more use to the e

          • Re:Bad bill... (Score:4, Interesting)

            by Red Flayer (890720) on Friday March 26, 2010 @03:58PM (#31632340) Journal

            That money is best left in the hands of the individuals to spend as they will.

            That's a bold assertion. What happens when they spend all the money on consumer goods produced in Asia?

            What happens if, instead, the money was spent on infrastructure that directly benefits people in the state?

            You cannot spend your way out of a recession.

            On what basis do you make that assertion? Just regurgitating Austrian or Chicago precepts -- or do you really have an understanding of economics? Even the Austrians recognize that public spending in times of recession stimulates the private economy and can hasten the end of a recessionary period... the value judgment on whether this is the *optimal* course of action in the long run is a different matter.

            Every dollar that goverment spends is one less dollar that the individual spends. In fact, the return on government spending is LESS than individual spending (I'm trying to dig up those numbers now).

            Please do share them when you've found them. I hope they are broken down by sector. Do you have them by state, or just federal? Does the federal breakdown only include domestic spending? Are the societal benefits of the judiciary spending included?

            If it were that easy to determine exactly how effective public spending is, we wouldn't be in this quagmire. I do hope you produce some data that is useful.

            • Re:Bad bill... (Score:4, Interesting)

              by tweek (18111) on Friday March 26, 2010 @11:02PM (#31636564) Homepage Journal

              Sorry for not posting sooner. Sick child in the house.

              That's a bold assertion. What happens when they spend all the money on consumer goods produced in Asia?

              Irrelevant. Those goods may be produced in Asia but they are sold by people with jobs here - advertisers, retail staff and so forth. I'm not up for getting into a massive discussion about it but take a look at http://cafehayek.com/myths-and-fallacies [cafehayek.com] and some of the articles there. You should have more respect for his opinion than mine. To answer the second question, I'm not an economist but he is.

              I find it interesting that you mention "Even the Austrians..." because I was just reading about that today. I really need to use some sort of web clipping addon.

              Anyway, I would have to say I align myself pretty strongly with Hayek but my personal philosophy is whatever provides the greatest amount of individual economic freedom.

              And I'm still looking for a good "unbiased" source of information on government spending. I hesitate to link to a third-party news source (especially News Busters) quoting Milton Friedman from a book, however this link has a subsection that is of interest:

              http://newsbusters.org/node/27813/print [newsbusters.org]

              My google-fu isn't strong enough at this late hour but I also found an interesting statement:

              "When the economy is doing fine, he estimates, $1 of government spending yields 40 cents in extra production and related jobs." - http://www.dailyfinance.com/story/does-the-return-on-government-spending-triple-in-a-depression/19200069/ [dailyfinance.com]

              In a such a short article, there's not much meat but I'm interested in seeing any corroboration and/or rebutal to the theories at the end.

              Taken in light of the Friedman statements and the basic reality of where government gets its money would seem to suggest that there IS a very small window where government COULD stimulate the economy.

              However that window is smaller, IMHO, than trying to hit a two-meter thermal exhaust port. On one side (spending too early) it's wasteful and takes money from the private sector. On the other side, you end up with massive inflation.

              I think the safer course of action with those odds is to leave the money with the people who know how to spend it best in their situation, the people who earned it.

        • by Foofoobar (318279)
          Yeah finding a whole bunch of welders is one thing. Finding technically training individuals in a whole other state (or asking your entire workforce to move to Alabama) is something else.

          Would never happen. Microsoft is dependent on Washington state as they are on Microsoft.
        • Re:Bad bill... (Score:5, Interesting)

          by phantomfive (622387) on Friday March 26, 2010 @03:33PM (#31631972) Journal

          In a poor economic situation, cutting spending is a hell of a anti-stimulus for economic activity...

          This is an incredibly misleading over-generalization, one which I keep seeing smart people make. If you think about it, it should be obvious that whether 'cutting spending' is good for the economy or bad is extremely dependent on what the money was being spent on, and where the money was coming from.

          On the spending side, it is an extremely bad idea to cut spending on roads if some of the roads become unusable as a result (obviously). It is a rather good idea to cut spending if most of the money ends up directly in another country. This should also be obvious.

          On the income side, when you spend money, it has to come from somewhere. If the government happens to have a pile of cash saved up, a recession is definitely a good time to spend it. If the government has to increase taxes to get the money, it could have a net negative effect on the economy (this also depends on where the money goes: if you raise taxes to build a new road, the resultant positives could outweigh this negative). If the government has to borrow money, it could have a negative effect, because it borrowed money from people who would have otherwise spent the money on potentially more valuable projects. If the government has to get money by printing more, well, you might as well just hit your economy with a sledgehammer.

          See how it is? It's not enough to say spending is good. You have to look at the details. Geeks should be good at that.

        • Re: (Score:3, Interesting)

          by perlface (1776706)
          Washington State is spending more money this year than last year - that is not a cut in spending. They have wasted $300mm on a unneeded Data Palace (Center) among other things... A 10% sales tax on custom software is a method to shift funds from the $1billion+ spend on state IT projects into the general fund - because the 10% tax will apply to state projects as well.
    • Re:Bad bill... (Score:5, Insightful)

      by ProfessionalCookie (673314) on Friday March 26, 2010 @04:05PM (#31632452) Journal
      Not to mention we should all be wondering what exactly is "software" and what is "custom". Word Macros, HTML, Javascript, Java, PHP, C++, Assembly? Is software for 5 users still custom, 100 users? What if it's only available to certain people but lots of them? What if it's only available at an outrageous per seat price?

      I'm willing to bet the law won't be written by anyone who knows anything about "Custom Software".

  • by ZuchinniOne (1617763) on Friday March 26, 2010 @02:17PM (#31630824)

    I propose a 20% tax on people who pass stupid laws!

    • Re: (Score:3, Insightful)

      by lorenlal (164133)

      Does that include the 15% guilt tax on the people who vote for them?

    • by westyvw (653833)

      Thats a good idea! And while they waste time writing and debating it in special session, the costs to get that bill moved through will cause the net value to be nothing.

    • by bb5ch39t (786551)
      I'm still wondering about "increasing the sales tax on consumers". You can buy consumers in WA? Isn't that against the law? Or did they mean to say: "increasing the sales tax paid by consumers." ?
    • by Blakey Rat (99501) on Friday March 26, 2010 @03:20PM (#31631776)

      Hey I know, Washington!

      Maybe you could stop running giant ad campaigns (bus, billboard, web...) telling me to get my swine flu shot. How much did that ad campaign cost? And while we're at it, why don't you stop making new lotto games and spending tons of money advertising them as well? And how much do we spend putting giant "click it or ticket" billboards along every highway? I think it's safe to assume people know that there's a seatbelt law at this point.

      Christ.

      • by cayenne8 (626475)
        I suppose they could consider implementing a modest property tax like most states do? I mean, don't property owners gain the most from public services?
        • Re: (Score:3, Insightful)

          by Blakey Rat (99501)

          Modest? It's already high enough. Changing the property tax to a "modest" one would lower it.

  • FOSS Contributions (Score:4, Interesting)

    by c++0xFF (1758032) on Friday March 26, 2010 @02:18PM (#31630840)

    At first I thought ... "that doesn't affect me, I run Linux" ...

    But what about paying a developer to work on a FOSS application? Would that be taxed? It is custom software, after all.

    • by beanball75 (126064) on Friday March 26, 2010 @02:31PM (#31631030)

      At first I thought ... "that doesn't affect me..."

      This is a very common attitude that is degrading our lives in all areas in my opinion. To me, it's like playing chess and looking just one move ahead.

    • 10% x $0 = $0
      • by c++0xFF (1758032)

        You (and others) have missed the point slightly.

        FOSS is (generally, although not universally) free as in beer. Therefore, there is no sales tax. If someone sells you a CD with Linux on it, the sale would still be taxed under normal laws.

        However, developing this software is not free. Many times, a company will want a customized feature added to a product that they already use, but don't want to develop in-house. They then pay a chunk of money to the project to have this feature developed ahead of other f

    • by jim_v2000 (818799)
      What's 10% of free?
  • The sales tax is a very regressive tax. Why should ordinary people of Washington take the hit disproportionately so that Microsoft can be let off the hook for what is basically equivalent to offshoring?
    • by jim_v2000 (818799)
      What does the sales tax have to do with Microsoft? OH I see, you're just riding the negative wave and steering it toward a company that you don't like.
    • by tsotha (720379)

      For the same reason governments have a hard time dealing with offshoring - companies will leave if you make things too uncomfortable. Microsoft provides far more benefit to the state of Washington and its people than Washington provides to Microsoft. In the end this is just a recognition of that fact.

      You can bleed companies (like GM) with large fixed facilities, but it's pretty easy to move software development. If not to Oregon or California, then to India or the Philippines.

  • WTF? (Score:3, Insightful)

    by idontgno (624372) on Friday March 26, 2010 @02:19PM (#31630856) Journal

    This is like taxing grocers and restaurants while giving incentives to out-of-state food processors and big-box ultramarkets to bring in more processed pseudo-food.

    What, exactly, is the message the legislators are trying to send here? "Tax local, buy global?"

  • by Anonymous Coward

    first cut should always be to government offices furniture budgets, then look at the "perks" elected officials get and cut those

    • Re: (Score:3, Insightful)

      by jameskojiro (705701)

      They should force Congress on a diet of Ramen Noodles and Mac 'n Cheese. They should put ever damn one of those jackasses in cubibcles instead of offices, put them up in two to three members per room dorm type housing, install a timeclock in the senate and house chambers where they have to clock in with their finger prints in order to get paid and only be paid per hour they are actually in session.

      This should save A lot of money.

    • by westyvw (653833)

      But instead, the special session in WA right now is costing us extra. Nice huh?

  • by unity100 (970058) on Friday March 26, 2010 @02:19PM (#31630860) Homepage Journal

    arent you already taxing the income that is generated as a result of that software ? and applying any kind of sales tax to the software, if there is a sales tax in the state ?

  • by Jeian (409916)

    I have no idea what the Legislature means by "custom software" (and didn't see a definition in the article) but I'm guessing that it would be software written for a specific niche or client - in which case, Microsoft would really be the *least* likely to fall under that definition. Word, Excel, etc. are hardly "custom applications."

    And if they are, well, that means just about all the software ever written would be "custom software."

    • by Jeng (926980)

      Isn't all software custom once you get into the configuration?

    • That's the point. It's effectively a tax break for off-the-shelf software makers (10% of the industry overall, but some very big individual players). Fortunately, it's only the State of Washington giving a tax break to a large domestic industry, rather than a US-wide measure. All it will do is shift any remaining innovation out of the state.
  • Can someone define "custom software" first?! Isn't any arrangement of 1s and 0s made to someone's specifications considered "custom"?! Maybe I'm just dull and naive.

    Or do they mean software that is pumped out by the thousands, like MS Windows.
    • by ShadyG (197269)

      My guess is that "custom software" is software for which sales tax is not being paid. That way you always have to pay some additional tax above that for the income you earn when you sell software.

  • by mosb1000 (710161) <mosb1000@mac.com> on Friday March 26, 2010 @02:26PM (#31630974)
    Or, they could be honest and raise the money though an old-fashioned income tax, or sales tax. But I'm sure they'd rather hide the tax burden from the people who are ultimately paying it. Gotta love the government.
    • Re: (Score:2, Funny)

      by dsavi (1540343)
      Maybe this is why a large part of the American population hate taxes (But love to complain about them)- Because their government screws up every time they make a new one.
  • Move (Score:2, Interesting)

    Fortunately my little corporation isn't in Washington. I know first hand that there are many states more conducive to small business. Unless there is some specific reason for remaining there, it isn't be too hard to move. 10% is no small increase, so it's definitely worth looking into a change of locale.

    I don't suppose anyone in the WA government considered reducing expenditures enough to make up the difference. Too radical a concept I guess.

    • Re:Move (Score:4, Informative)

      by westlake (615356) on Friday March 26, 2010 @04:14PM (#31632598)

      Fortunately my little corporation isn't in Washington. I know first hand that there are many states more conducive to small business.

      Fun facts about Wshington state:

      Estimated at 8.9% of income, Washington's state/local tax burden percentage ranks 35th highest nationally, below the national average of 9.7%. Washington taxpayers pay $4,334 per capita in state and local taxes.


      Washington ranks 9th in the Tax Foundation's State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. Neighboring states ranked as follows: Idaho (18th), Oregon (14th) and California (48th).


      Washington levies no state personal income taxes, joining Alaska, Florida, Nevada, South Dakota, Texas and Wyoming as the only other states not to do so.

      Washington's corporate tax structure contains no corporate income tax. Nevada, Texas and Wyoming are the only other states that do not levy corporate income taxes. However, Washington levies the nation's oldest gross receipts tax, the Business and Occupations (B&O) Tax, first instituted in 1933. Washington, Texas, Ohio, Michigan and Delaware are the only states to levy economy-wide gross receipts taxes.

      Washington levies a 6.5% general sales or use tax on consumers, slightly above the national median of 6%. In 2006, state and local governments combined collected $1,868 per capita in general sales taxes, which ranks the highest in the nation. Washington's gasoline tax stands at 37.5 cents per gallon, which ranks 3rd highest nationally. Washington's cigarette tax stands at $2.025 per pack of twenty and ranks 8th highest nationally. The sales tax was adopted in 1933, the gasoline tax in 1921 and the cigarette tax in 1935.

      Washington is one of the 37 states that collect property taxes at both the state and local levels. As in most states, local governments collect the majority of property taxes. Washington's localities collected $835.25 per capita in property taxes in fiscal year 2006, which is the latest year the Census Bureau published state-by-state property tax collections. At the state level, Washington collects more property taxes than most states do. In FY 2006, Washington collected $257.73 per capita, bringing its combined state/local property taxes to $1,092.98 per capita, which ranks 25th highest nationally.

      Washington taxpayers receive less federal funding per dollar of federal taxes paid than the average state. Per dollar of Federal tax collected in 2005, Washington citizens received approximately $0.88 in the way of federal spending. This ranks the state 38th highest nationally and represents a decline from 1995, when Washington received $0.97 per dollar of taxes in federal spending (ranked 31st nationally). Neighboring states and the federal spending received per dollar of federal taxes collected were: Idaho ($1.21) and Oregon ($0.93). The Facts on Washington's Tax Climate [taxfoundation.org]

  • Any regulation that is invariably put in place to "Soak the Rich Big Businesses" will inevitably turn around and screw the medium to small business. Why is this?

    Example:

    Microsoft is big enough to hire as many tax lawyers and other attorneys as needed to deal with any sort of regulation that the federal government tries to impose ont hem.

    Meanwhile Bob T. McProgrammer is writing a piece of custom software and he gets screwed because he had no idea he had to fill out forms 1342-GOV and 1040-SCREW-U Schedule

  • Washington state representative suffers from BSOD, requires reboot.
  • WTF is 'Custom Software'??? What are the definitive characteristics of Custom Software and non-Custom Software?

    This is totally bogus, and a blatant demonstration of the ability of business to pervert political processes.

    Software is software. I don't know why or how they even feel validated in taxing software at all, aside from a sales tax, let alone specifically discriminating certain software and alleviating tax burden on other software.

    It looks like some people need a talking to.

    • Custom software is the software that isn't being taxed now, as opposed to all the software that is currently taxed in Washington State. It is the status quo that requires a definition of "custom software." If this new bill becomes law, it won't matter whether software is custom, because all software will be subject to the tax. This new bill ends "discriminating certain software and alleviating tax burden on other software."

      That doesn't necessarily make it a good change. But at least complain about the right

  • by Vinegar Joe (998110) on Friday March 26, 2010 @02:47PM (#31631308)

    Is Senator Margarita Prentice. According to her bio, she is a member of:

    "American Civil Liberties Union; Amnesty International; Democratic National Committee; First Vice President, Washington State Nurses Association, 1968-1972; Labor Officer, Washington State Nurses Association, 1974-1978; Sierra Club; Renton Historical Society; Audubon Society; Humane Society of United States."

    http://www.senatedemocrats.wa.gov/senators/Prentice/biography.htm [wa.gov]

  • by Marrow (195242) on Friday March 26, 2010 @02:53PM (#31631386)

    Custom software has to be one of the cleanest, safest, crime-free, low impact industries in the state. You have industries with MASSIVE infrastructure burdens like: Trucking, Logging, Mining/Cement generation, farming. Industries that require inspectors or police protection or heavy truck support, water projects, and electrical projects. These industries cost the state big money to support. Or look for industries that create expensive side-effects like pollution.

    Just try to zero the bubble: the industries that take the most out of the state in terms of infrastructure costs and natural resources should have to pay taxes so that their cost to the state becomes zero. But the low-impact industries, ones that cost the state little or no money to support, should not have to have special taxes directed at them.

    • by Mashiki (184564)

      You might not realize this but everything you've listed is already taxed into the ground. Why do you think commodity prices keep going up, hint, it's not just because of fuel.

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