Hundreds of small business owners are urging Microsoft to end its practice of avoiding certain U.S. taxes by keeping much of its cash hoard overseas.
About a half-dozen members of Main Street Alliance, a network of state-based small-business coalitions, went to Microsoft headquarters in Redmond today to deliver an open letter signed by more than 200 local small business owners.
The letter urged Microsoft to “reverse course and join us in calling for an end [to] offshore tax dodging in order to make economy-boosting investments in the U.S.”
Letter writers pointed to a Bloomberg News report that found Microsoft tops the list of corporations with the largest amounts of foreign profits untaxed by the U.S. government: $76.4 billion in 2012 in Microsoft’s case. Following Microsoft were IBM with $44.4 billion, Cisco with $41.3 billion and Apple with $40.4 billion.
Through “complex tax avoidance schemes,” the letter says, Microsoft has lowered its tax bill to well under the top official corporate tax rate of 35 percent. (Most corporations end up paying a lower effective rate.)
By keeping its foreign earnings overseas, companies pay taxes to the host country (which typically has tax rates lower than the U.S.’s). If the companies ever repatriate those earnings, the profits are taxed by the U.S. government.
Microsoft, along with Hewlett-Packard, became prime examples of aggressive corporate tax-skirting during a U.S. Senate hearing on the issue in 2012.
The letter from the local Main Street Alliance members goes on to say:
Small businesses … don’t have the resources to hire armies of tax lawyers to dream up creative accounting schemes to avoid our tax responsibility. Frankly, we’re proud to contribute our fair share. We know that in order to build strong local economies, we need to invest in an educated workforce, reliable roads and bridges, and a healthy middle class customer base.
While we’re proud of Microsoft’s homegrown success story, we’re deeply disappointed that instead of standing with American small businesses in making these investments, Microsoft has joined in coalitions with other big corporate interests lobbying for a permanent tax amnesty on offshore profits.
Main Street Alliance, headquartered in Seattle, has 2,500 members in Washington state, including owners of businesses such as Cupcake Royale and Tutta Bella Neapolitan Pizzeria. It has some 15,000 members across its affiliates in 12 states.
The Washington state affiliate of Main Street Alliance also pointed to a survey it conducted of its members, in which 92 percent of the more than 200 small business owners who responded said they believed large corporations are not paying their fair share of taxes, and that 67 percent support closing offshore tax loopholes.
“As a small business owner, I have to pay my 35 percent tax,” said Brian Wells, owner of Tougo Coffee in Seattle. Wells was one of those who signed the letter and helped deliver it to Microsoft. “That helps build roads, infrastructure, fund education — all the things that we need.
“It concerns me because it seems Microsoft is one of many large corporations amassing a huge amount of profits and instead of having it in banks in the U.S.., where it helps keep the economy flourish, they move these profits offshore, where they don’t have any tax burden,” Wells said.
Microsoft issued a statement, saying:
Microsoft complies with tax laws in every jurisdiction in which we operate. Last year, Microsoft paid $3.9 billion in income taxes worldwide and our effective tax rate was 19 percent. We are proud of our company’s positive economic impact. According to a recent study, Microsoft has been Washington state’s single largest contributor to economic growth since 1990, accounting for more than 31 percent of the total gain in state employment. …
Like many other technology companies, Microsoft endorses reforms to simplify the U.S. tax code and make it more globally competitive. We believe the U.S. should reform its tax rules to support the ability of worldwide American businesses to compete in global markets and invest more in the United States.
The company also pointed to its various charitable donations, including some $98 million for education and workforce training causes in the state since fiscal year 1995.