Tech giants benefit from offshore accounts and Iowa tax breaks7/3/2013
DES MOINES – Iowa has handed out nearly $30.3 million in tax breaks to attract two tech companies that rank among the top in the nation for their offshore holdings, which allow them to drastically reduce their tax burden in the United States.
The companies – Microsoft and Google – increased their offshore profit holdings by $16 billion and $8.5 billion, respectively, in the past year alone. The move has allowed them to save millions from taxes they would otherwise have to pay to the U.S. government.
“From our perspective that’s a federal tax code issue,” said David Bernstein, chair of the Iowa Economic Development Authority board. “From the state’s perspective, our board is trying to get economic development and jobs in the state. And we are competing with other states for these data centers.”
Officials with the authority added to the two company’s tax savings in the past six years, providing them with generous incentives in exchange for data centers that employ a handful of workers.
At the same time, Google and Microsoft significantly expanded their overseas holdings and were among 92 businesses to boost their offshore holdings by a combined at least $229 billion in 2012. It’s estimated their practice of shifting or earning money in other countries will cost the United States $600 billion loss tax revenue in the next decade, according to the Congressional Joint Committee on Taxation.
Federal tax laws allow U.S. companies to go without recording or paying taxes on profits earned by subsidiaries overseas if the money is not brought back into the country. Businesses will often create shell companies that do little or no business in countries with lower tax rates.
Microsoft, for example, had $60.8 billion in offshore holdings at the end of fiscal year 2011. The company’s increase in overseas holdings increased in 2012 by almost as much as its $17 million in net profits, according to the Wall Street Journal.
A U.S. Senate committee report said Microsoft avoided about $4 billion in U.S. taxes in 2011 by shifting intellectual properties to subsidiaries in Ireland, Puerto Rico and Ireland.
“They are basically skipping town on tax payments,” said Dave Swenson, an economist at Iowa State University. “They have simply found a strategy to legally dodge federal tax liability to maximize returns to investors.”
Iowa provided Microsoft with a total of $20.7 million in tax incentives in the past five years for its data center, which is slated for construction in West Des Moines. The city also kicked in another $6 million in incentives. Microsoft has promised the state at least 54 jobs in return.
Google received nearly $9.6 million in state tax savings during the past six years for its data center in Council Bluffs. The company just announced an expansion and will eventually employ 95 workers.
The figures for both Google and Microsoft don’t include the additional money they will save from the state partially or fully refunding dollars spent on sales and use taxes for items including cool tower equipment, computer purchases and power infrastructure equipment, among other things. Those savings are a result of legislation passed by state lawmakers in 2009 to attract the companies.
“We have allocated a lot of public tax forgiveness in the name of very few jobs,” Swenson said. “It doesn’t mean anything to say that we have just received a billion dollar industry. It’s how many jobs and the money they pay that matters.”
Iowa’s not alone in offering the two companies millions in incentives to attract their business.
Eleven states handed out a combined $832.3 million in incentives to Microsoft and Google from 2004 to 2011, according to Good Jobs First, a nonprofit that tracks state subsidies. The most generous states included Washington, North Carolina and Oregon.
“Everyone is this way,” Swenson said. “We are certainly not special.”