Microsoft, Seattle and Tax Dodging: What Do Companies Owe Their Hometown?

Microsoft, Seattle and Tax Dodging: What Do Companies Owe Their Hometown?

Amazon has displayed a lack of charitable giving in its hometown of Seattle. Credit: Simone Brunozzi/Flickr

Microsoft has been legally dodging taxes for years, a practice that many high-tech companies employ. The New York Times shed some light on the practice with a recent look at how Apple grows its profits but not its taxes by running its cash through companies around the world. The Times also notes that Microsoft uses some of the same tactics to avoid Washington state taxes through an office in Nevada.

Seattle-area activist, writer and former Microsoft exec Jeff Reifman has been on Microsoft’s case for years about the practice, pointing out the gap between the company’s rhetoric about improving, say, education, but sheltering software income from funding the very kinds of programs it says the state needs to remain competitive. By his account, Microsoft has gained an extra $4 billion or more that could have gone to Washington state — an amount that might have come in handy during the recent budget crisis and safety net slashing in Olympia.

The Seattle Timesrecent series on Seattle’s Amazon raised many questions and eyebrows about the retailer’s business practices, but an especially sore point was the company’s relative lack of local charitable giving when compared with the city’s other major players. The excuse for this among tech companies is usually that they’re in the ramp-up phase, making hay while the sun shines. There’s a vague promise that some of it will come back to the community via private foundations someday. Of course that is often true; Bill and Melinda Gates and Paul Allen being notable examples.

In the meantime, though, civic involvement is left to the employees, or administered through in-kind donations of software and the like. The overall message: We’re too busy right now.
That is, if corporations feel any sort of guilt or obligation at all. More frequently you hear arguments that justify the making of money itself as a charitable act. By this philosophy, embraced by both Republican and libertarian techies, selfishness is a virtue and being a job creator is akin to sainthood.

It’s not universal. While Bill Gates, Sr. fought for a state income tax on the wealthy to fix the state system, some local venture capitalists like Madrona Venture Group’s Matt MacIlwain opposed the measure, countering that Washington would be smarter to adopt the low-tax model of Rick Perry’s Texas if we want to continue to prosper.

The high-tech sector is a special case in many ways. It’s semi-virtual, easier to pick-up and move to greener pastures. Its products can often be transmitted electronically, and companies can easily operate globally. The culture of the Internet is libertarian — hard to regulate and resistant — and software and services are cash cows. By their nature, such companies have many global interests, but are less rooted in any one place. Employees are recruited from elsewhere. Washington state cannot produce enough engineers or college graduates to meet local needs, so they’re brought in, though not necessarily permanently.

Writer Wallace Stegner talked about the West’s phenomenon of attracting boomers or stickers, people who come either for the quick buck and fast strike, or to put down roots. Our tech companies tend to attract a kind of highly educated boomer who’s passing through, thinking more about job and future than community. The residents of “Knowledge Cities” like Seattle are often cloistered in campuses that provide for their daily needs, are immersed in work cultures that are all-consuming and live in communities that feel detached, new or in-the-making, like Bellevue, Sammamish or South Lake Union.

Because the newcomers are often new, busy, un-bonded, the local issues might seem rather abstract or irrelevant. Olympia? Ick. City Hall? Where’s that? Why should I give up my Red Sox cap? Why doesn’t this burg operate like a big city, Chicago or New York? What’s wrong with you people? Tell me when I’m back from my trip to Shanghai.

It’s true that deeply rooted companies, like Boeing, have cheated the local community as well — signing deals out of state to avoid taxes, threatening to move unless tax breaks and subsidies are delivered. The state’s tax code has been largely written to accommodate a company that isn’t even headquartered here anymore, and the little guys are punished through taxes that they can’t avoid.

Still, the solution doesn’t lie in appealing to the angels of better corporate natures (if they exist), but in redefining a corporation’s obligations to its community through the demands of the community itself. You cannot expect enlightened corporate self-interest if there is no advantage to behaving well, if good behavior is undefined and if bad behavior is tolerated. We need to get more specific about what we expect beyond jobs and charity. We also need a tax code that isn’t written by lobbyists, and a political system that isn’t funded by corporate interests.

*Reifman is pushing Seattle Initiative 103.* The law that would, among other things, establish a community bill of rights for the city that would seek to end corporate personhood, limit corporate election spending and lobbying, and outline worker’s rights. It’s an effort to push back, to draw the line, to define how we, as a city, want to live. If it makes the ballot, it would likely face major opposition, and if passed, a federal challenge. But that’s how progress is made, on drug reform or anything else. The stakes in the corporate rights debate are even higher.

The argument will, as Reifman says, help to reframe the conversation. This is not about what corporations want, but what people want. The battle to get Amazon or Microsoft or Boeing or anyone else on a track and under control will have to be fought out in the arena of community values.

I-103 will ask, “What are those values, Seattle?”

Tags: governancetechnologyseattletaxesretailtech hubs

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