Why Microsoft is backing a major tax hike on itself … and Amazon

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Microsoft CEO Satya Nadella speaks at Microsoft Envision in New Orleans in 2016. (Kevin Lisota / GeekWire)

Microsoft is making an extraordinary habit of inviting regulation of itself, at least when the software giant has a say in what those rules look like.

This week, Microsoft expanded its appetite for oversight by backing a new bill in its home state, Washington, that would significantly increase the tech giant’s tax burden to pay for a new higher education fund. Under the bill, the highest tax bracket would include just two companies: Microsoft and Amazon.

Why would a giant corporation invite new taxes? There are a few forces at play.

First, Microsoft, like the rest of the tech industry, has a vested interest in training more technologists. The Bureau of Labor estimates that there will be 1.4 million computer-science related jobs and just 400,000 graduates with the skills needed to fill them by 2020.

Related: From ‘evil empire’ to model citizen? How Microsoft’s good deeds work to its competitive advantage

Incidentally, 2020 is when Washington state would increase taxes to fund workforce training if the new bill becomes law. Starting that year, Microsoft and Amazon’s business taxes would increase by 67 percent to expand financial aid and capacity to train more students in high-demand fields like tech.

Microsoft also gains a competitive advantage by positioning itself as a corporation with a conscience. New initiatives over the past few months, such as Microsoft’s $500 million affordable housing pledge and support for a privacy bill in Washington state, set the company apart from peers mired in a techlash. The contrast is particularly sharp in Washington, where Amazon and other tech companies resisted a Seattle tax on big businesses to fund affordable housing in a fight that made national news.

Microsoft President Brad Smith and CFO Amy Hood announce a new $500 million affordable housing fund. (GeekWire Photo / Monica Nickelsburg)

“Part of what Microsoft is doing is they see the weakness of their peers and they see an opportunity to take advantage of it,” David Yoffie, a Harvard Business School professor, told GeekWire earlier this month. “So some of this is an opportunity to stand out from the crowd and to demonstrate that they can take the high moral ground.”

The nitty gritty: The bill was introduced by Rep. Drew Hansen. Starting Jan. 1 2020, it would do the following:

  • Increase business taxes 20 percent for three dozen types of companies that provide technology, engineering, medical, and other services.
  • On top of existing taxes, a “workforce education investment surcharge” would apply to “select advanced computing businesses.”
  • More specifically, tech companies with annual worldwide revenue between $25-100 billion would pay an additional 33 percent of their total business tax obligation.
  • Tech companies with more than $100 billion in worldwide revenue — in short, Microsoft and Amazon — would see their business taxes increase by a whopping 67 percent.

Microsoft’s agenda: Microsoft wants to use the cash to create a new fund dedicated to workforce education. In the company’s dream scenario, according to Microsoft President Brad Smith, Washington state would expand financial aid grants to all students who are eligible; add technical colleges and apprenticeship programs to the list of institutions eligible for financial aid; and increase capacity for students in high demand fields, like computer science, engineering, and nursing.

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