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Originally published April 11, 2010 at 10:01 PM | Page modified April 12, 2010 at 5:40 PM

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Brier Dudley

Microsoft chooses key time to remind Olympia of its clout

Microsoft insists the timing is coincidental. Yet it chose Friday to publicize a study showing its massive economic effect on the state...

Seattle Times staff columnist

Microsoft insists the timing is coincidental.

Yet it chose Friday to publicize a study showing its massive economic effect on the state.

Not any Friday, but the Friday before lawmakers huddled for a last push to decide what taxes Microsoft and everyone else must pay to keep the state afloat.

Microsoft pays a lot of taxes, but it also plays hardball in Olympia.

After losing a "manufacturing" tax exemption on data centers it uses for online services, the company shifted some services to computers out of state last August. The Legislature restored the tax break in March.

That was minor compared with Microsoft's 1997 decision to reduce taxes by shifting licensing to a Nevada office, a tactic that a former manager, Jeff Reifman, tried to reverse in Olympia.

With Friday's report, Microsoft is using a carrot instead of a stick, reminding the state of Microsoft's importance.

The company has to choose its words carefully, though. It's simultaneously trying to convince Wall Street it's becoming more frugal. Its phenomenal success over the years also undermines griping about Washington's business climate.

Either way, the report is an eye-opener. It was based on 2008 data and produced by University of Washington economics professor Theo Eicher. A few highlights:

• Microsoft paid employees $7 billion in compensation in 2008, including $3.96 billion in wages and $1.02 billion in stock compensation.

• Employee wages averaged $100,608. Including benefits and stock, compensation reached $178,159 apiece.

• From 1990 to 2008, the number of Microsoft jobs grew 13.5 percent a year on average and accounted for 28.5 percent of the growth in statewide employment, which grew 1.7 percent a year on average.

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• Microsoft bought $2.15 billion worth of goods and services in Washington in 2008. That includes $1.25 billion of contract-programming services and $478 million of business services such as legal work.

It's no wonder Bill Gates pushed for the paperless office. That spending includes $261 million on paper, printing and publishing.

The report is based on Microsoft circa 2008, before it laid off 5,000 people and cut department budgets by about 10 percent in 2009.

Employment has bounced back locally to between 40,000 and 41,000, up from 39,311 in 2008, according to Brad Smith, the company's general counsel.

Microsoft isn't trying to prod the Legislature on any particular measure with the study, but it "shows the importance more broadly of ensuring the tax climate — or the business cost climate — remains attractive," Smith said Friday.

With the region losing the headquarters of a few major companies, the ones that remain should speak up about these topics, he said.

Microsoft doesn't want Washington to be the most business-friendly state, he said, because then education, transportation and other things that affect quality of life would suffer.

The company would prefer, though, that Washington wasn't among more expensive states in which companies operate.

"If you can be in the Top 10 for quality and stay out of the Top 10 for cost, that is a sustainable competitive advantage for the state as a whole," Smith said.

Should we worry that Microsoft will move away otherwise? Smith said no.

"It absolutely remains the case that Washington state is Microsoft's home," he said, adding that "it's more a question of whether the jobs that Microsoft is able to add in the future will be added in Washington state, another state or outside the United States."

Enjoy the carrot. But Microsoft is keeping the stick handy, just in case.

Brier Dudley's column appears Mondays. Reach him at 206-515-5687 or bdudley@seattletimes.com.

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About Brier Dudley

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.
bdudley@seattletimes.com | 206-515-5687

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