Microsoft Escapes Death, Taxes

Here’s a brief trivia quiz for would-be corporate accountants. How much federal income tax did Microsoft (Nasdaq: MSFT), the supreme ruler of the known software universe, and Cisco Systems (Nasdaq: CSCO), second only to General Electric as the most valuable company in the U.S., pay this past year?

Combined or separately, the answer is zilch, nada and not a cent.

What a revelation. Now I know why Bill Gates is the world’s wealthiest working stiff, with some $60 billion (US$) and change at his disposal. But hey, by my hurried, extraordinarily inaccurate calculations, even I could build myself a home bowling alley if I didn’t have to send half my income to the Feds.

Stock Option Weasels

So, how do Microsoft and Cisco weasel out of paying taxes? Why, with the popular new high-tech salary-substitute — stock options.

Microsoft reported $4.74 million in federal and state tax liabilities, but reaped a $5.5 billion tax benefit by deducting the profits its employees made from stock options. Cisco wrote off a $1.8 million tax liability by doing the same thing.

Even stodgy, conservative, pro-business, anti-tax groups have criticized a system that could allow such obscenely profitable corporations to slither out of paying their fair share.

“The average American, when they see big corporations not paying their fair share, they’re outraged,” Taxpayers for Common Sense spokesman Keith Ashdown told the E-Commerce Times. “When they hear about corporations welching off the system, they go berserk.”

Are Printing Costs Deductible?

That’s only where the insult starts. In effect, Microsoft never actually had to spend a dime to provide the options, even though it deducted them. The only expense the company incurred was the cost of printing out the stock certificates.

“Because they’re giving stock options, no one outside their company benefits,” Ashdown said. “It’s insulting.”

Microsoft even received a little cash via the payroll deductions employees used to exercise their options. Meanwhile, the employees get taxed when they exercise their options and pay that tax out of their own cash wages.

Add in the “warrants” Microsoft sells on its own stock to mutual fund managers, combined with the money it saved through stock option loopholes and income from its own employees, and Microsoft made $5 billion in the stock market its last fiscal year.

Oh, yeah. That’s tax-free.

Taking Advantage

Pardon me if you think I’m treading a well-worn partisan path, once again ranting about the inequality of yet another in a seemingly endless series of infuriating corporate tax loopholes. But this one simply isn’t right.

I don’t mean it’s incorrect, inaccurate or illegal. I mean it’s slimy and vaguely grotesque, even if the new economy is the driving force behind this fabulous, fat-cat-rich, best-of-all-possible Americas we’re living in like Arabian knights of yore.

I can already hear the reactions: “Look, Mr. Naysayer, Microsoft and Cisco didn’t write the tax codes.” No, they didn’t. Not literally. But all the money they saved from not paying taxes — literally, billions of good, American dollars — was available to pay the right high-powered lobbyists to target the right people in Washington, who in turn oversee the tax loopholes — excuse me, tax laws.

Mind Games

Microsoft and Cisco are doing more than raiding the system and dodging their fiscal responsibility. They’re setting a bad example, and others are following it.

“The big problem now for the IRS is more and more people avoiding paying taxes, perpetrating tax fraud,” Ashdown said. “This is the reason why they do it. They see something like this.”

Microsoft and Cisco are exploiting New Economy fever. They have us all hoodwinked into believing that if we’re insane enough to place any kind of tax anywhere near anything remotely connected to this incredibly lucrative but fragile phenomenon called e-commerce — get that tax away from that laptop, quick! — the whole system will come crashing down and we’ll be back to manual typewriters, ball-point pens and working for a living.

Where’s that groundswell of uproar and protest when you need it?


  • Interesting article.
    Why don’t you write one now that shows how Microsoft and Cisco have helped America?
    For example, how many jobs have they created?
    How many millionaires did they create?
    How much money are the thousands of employees of these companies pouring into the public coffers by paying taxes?
    How many ancillary jobs have these companies produced? (computer hardware makers, commercial construction jobs, residential home builders, electronic companies, news sources that profit off dissing them, etc.)
    How much money have these companies or the CEOs given away in charities, and whether the money (if in the form of taxes) would have been spent better by money-grubbing politicians?
    How (and why) many states and countries around the world promise corporations that they will not force them to pay taxes, just so that those corporations can bring jobs and money into their areas?
    What would happen if states and other countries taxed large corporations according to what they believed necessary? (For the answer to this, please visit Cuba, N. Korea, China, and ask many Russians that did so in the Soviet Union.)
    I AM anxiously awaiting your article!

    • In your strident reply, you forgot to address the point at hand: Should corporations pay taxes at all? If not, why not?
      Many capitalist countries tax corporations, is that Communism? Obviously not.

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