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Microsoft, like Enron, now pays zero federal income tax, even though Microsoft’s earnings for the two years ending June 2001 exceeded US$15 billion. This nonpayment of federal income tax is indeed the largest source of Microsoft’s massive US$40 billion cash balance.
Accountants and investment professionals have argued that it does not matter, since the employees pay tax on wages paid in stock as ordinary income, and these amounts are on their W-2s. Why double-tax companies such as Enron and Microsoft?
What the business media and analysts missed was the significance of not showing wage expense on the income statement. This wage expense at Microsoft exceeded US$22 billion for the two-year period ending June 2001, and not a dime of this amount is charged against its earnings. Showing this expense as a charge to earnings would indeed make Microsoft, like Enron, an unprofitable company.
Link: Portland Tribune
