Posted at 12:25 p.m. PDT Monday, October 9, 2000

Cisco, Microsoft pay no income taxes--use employee stock options to wipe out 7.3 billion dollar tax liability

SAN FRANCISCO (AP) -- Cisco Systems Inc. and Microsoft Corp., two of the nation's richest companies, capitalized on the windfall profits of their employees to wipe out their federal income tax bills last year.

San Jose-based Cisco, the second most valuable U.S. company behind General Electric Co., eliminated a $1.8 billion income tax liability by deducting the gains that its employees realized from stock options during the company's most recent fiscal year.

Redmond, Wash.-based Microsoft, the world's largest computer software company, recorded a $5.5 billion tax benefit by deducting its employees' profits from stock options during its last fiscal year. Microsoft reported federal and state tax liabilities of $4.74 billion in the year ending June 30.

Cisco earned $2.7 billion in its last fiscal year ending July 29. Microsoft's profit totaled $9.4 billion.

The San Francisco Chronicle detailed the tax relief received by both Cisco and Microsoft in Monday's editions, based on recently released financial statements.

Corporations are allowed to deduct the gains of their workers' stock options because the profits are regarded as employee compensation, just like regular wages.

Nevertheless, even a leading anti-tax group criticized the practice that allowed Cisco, a leading maker of computer networking equipment, to skirt taxes.

``For a company that makes that kind of money not to pay taxes raises serious tax-equity questions,'' said Jon Coupal, president of the Howard Jarvis Taxpayers Association.

Stock options, a staple of most compensation packages in the technology industry, give an employee the right to buy a specific number of shares at a fixed price. The difference between the fixed price and the actual stock market price at the time an employee redeems the options result in a profit for the worker and a deduction for the business.

The boom in tech stocks over the past few years has generated staggering gains for employees and substantial deductions for employers.

For instance, Cisco's 34,000 employees earned more than $7 billion by exercising stock options during the company's most recent fiscal year, according to the Chronicle. Those employee profits resulted in a $2.5 billion tax benefit for Cisco in fiscal 2000, up from $837 million in fiscal 1999 and $422 million in fiscal 1998.

While they snap up the tax benefits provided by stock options, high-tech companies have fiercely opposed proposals that would require them to deduct the cost of issuing the options from their reported earnings.

http://www.mercurycenter.com/breaking/docs/013222.htm

-- Carl Jenkins (Somewherepress@aol.com), October 09, 2000

Answers

This is quite an escape hatch; I wonder who subsidizes this.

-- Nancy7 (nancy7@hotail.com), October 10, 2000.

This here kind of beat taxes scheme is just about over. I read where these option gimmicks aren't working any more.

-- Buck (bigbuck@trailways.net), October 10, 2000.

Yet another "sweetheart" deal for the IT industry. This on top of the H1B Visa anti-American worker deal that waltzed thru Congress last week. Your tax dollars at waste.

Why do we keep electing these people?

-- K (infosurf@yahoo.com), October 10, 2000.