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Microsoft only paid $30 million income tax last year, lowest since 2003

The Seattle Times is reporting that Microsoft only paid $30 million in state and local taxes for 2017. $30 million is the smallest amount that Microsoft has paid since the company started publicly reporting these figures. According to Microsoft, the reason for the decline is due to deferring taxes on future income as well as the recent downsizing of its smartphone operations in the US.

The Seattle Times story notes that the $30 million figure is somewhat alarming, as Microsoft paid $136 million in state and local income tax payments in 2016. According to the Tax Policy Center think tank, 44 states (and Washington, D.C.) require corporate income taxes. For companies that are headquartered out-of-state, state governments usually only tax companies for activities that occur in their particular state.

Washington state taxes corporations through its business and occupation (B&O) tax, which imposes a tax on the value of products sold in state. According to Microsoft, the $30 million figure does not include Washington’s B&O tax. The lowered payment might be due to Microsoft moving much of its operations overseas, as Microsoft reported $142 billion in overseas income as of June 30, 2017, a 15% increase over 2016.

At the moment, the US corporate tax rate is 35%. However, companies that have global operations look to put most of their foreign income in countries where the tax rate is far lower. If Microsoft were to bring its overseas income to the US, Microsoft would owe approximately $45 billion in taxes.

Microsoft sells more of its products through subsidiaries in Ireland, Singapore, and Puerto Rico. In order to avoid paying higher taxes, Microsoft reports some of the profit through Bermuda, which doesn’t put a tax on business income.

Microsoft’s tax rate for the 2017 fiscal year is 8%, down from 15% in 2016. Microsoft is accounting for the failure of its Windows Phone business. Microsoft also paid its lowest amount of income taxes worldwide at just $2.4 billion. That figure is based on Microsoft’s $89.9 billion in revenue. For 2017, Microsoft’s net income was $21.2 billion.

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Is Microsoft's decline in tax payments due to moving more of its operations overseas?