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You are here: Home / Business Briefing / Microsoft's Tax Bill Lowest in 15 Years
Microsoft's State, Local Income Tax Bill Is Lowest in 15 Years
Microsoft's State, Local Income Tax Bill Is Lowest in 15 Years
By Matt Day Like this on Facebook Tweet this Link thison Linkedin Link this on Google Plus
Microsoft said it expects to pay $30 million in U.S. state and local income taxes for its just-completed fiscal year, the smallest annual bill since the company started reporting the figure in 2003.

A year ago, Microsoft's state and local income-tax payments totaled $136 million, and in the last 14 years the payments averaged $214 million. Tax payments to Washington state are not included in these figures because it has no state income tax.

The latest disclosure, in Microsoft's annual report on Wednesday, comes as big U.S. corporations' tax bills draw more political scrutiny.

A Microsoft spokesman said the decline in 2017 was caused by the company's deferring taxes on some income to future years and the winding down of the company's smartphone business.

Forty-four states and the District of Columbia levy corporate income taxes, according to the Tax Policy Center think tank. For out-of-state corporations, most governments aim to tax the portion of a firm's income generated by activities in their state.

Washington state directly taxes corporations primarily through its business and occupation (B&O) tax levied on the value of products sold.

Microsoft's $30 million in state and local tax payments doesn't include the B&O tax, a company spokesman said. The company records that bill as a component of operating expenses, and doesn't break out the payment amount.

Microsoft, which has its headquarters in Redmond, said in a statement that it paid "significantly more" Washington state B&O tax in 2017 than the prior year, without providing figures.

The company minimizes its tax bill in part by routing sales through its Reno, Nevada, software-licensing office. Nevada doesn't tax business income.

Microsoft's latest regulatory filing also shows the fruits of the company's effort to avoid U.S. federal income taxes. The company's overseas income, untaxed in the U.S., rose to a record $142 billion as of June 30, up 15 percent from a year earlier.

U.S. corporate income tax on foreign earnings isn't triggered if companies deem such money "permanently reinvested" abroad.

The cash pile underscores the stakes for the Redmond company should the Trump administration and Congress consider revising corporate tax rates.

The top U.S. corporate income-tax rate is 35 percent. But firms with global operations tend to avoid paying that much by placing foreign subsidiaries in low-tax countries, and keeping cash earned from those units stored abroad. President Donald Trump has suggested cutting the corporate tax rate to 15 percent.

Moody's Investors Service last month estimated that U.S. firms held a combined $1.3 trillion abroad, led by Apple, Microsoft, Cisco and Google parent Alphabet. Business groups argue that if the U.S. rate were lowered, or a tax holiday declared on foreign income, companies would opt to repatriate some of that money.

If Microsoft brought its overseas income to the U.S. today, it would owe $45 billion in taxes.

That means those profits from foreign subsidiaries were taxed at less than a 4 percent rate, lower than the rate in any of the major countries in which Microsoft does business and an indication of the company's success in using accounting procedures to shift income to areas with low or zero taxes.

Microsoft sells many of its products through subsidiariesin Ireland, Singapore and Puerto Rico. For tax purposes, each unit routes some profit through Bermuda, which doesn't tax business income. Microsoft's filings indicate that much of its permanently reinvested overseas profit is invested in U.S. government bonds, among other instruments.

Overall, Microsoft's worldwide effective tax rate during its 2017 fiscal year was 8 percent, down from 15 percent a year earlier, as the company accounted for losses racked up in past years by its troubled phone unit.

Microsoft paid $2.4 billion in income taxes worldwide, the lowest since 2002, on revenue of $89.9 billion. The company's net income was $21.2 billion.

© 2017 Seattle Times under contract with NewsEdge/Acquire Media. All rights reserved.

Image credit: iStock.

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