Ralph Nader wants Microsoft to pay
By Reuters
January 7, 2002, 4:35 p.m. PT
SEATTLE--Consumer advocate Ralph Nader has called for Microsoft to start paying dividends to investors, saying the software giant's $36 billion cash pile amounts to an illegal tax shelter for wealthy shareholders such as Chairman Bill Gates.
Nader, through his Consumer Project on Technology (CPT) office, wrote Gates a letter last Friday saying Microsoft should change its practice of not giving dividends--cash payments usually paid each quarter to shareholders.
"The quantitative failure to pay dividends year after year is an inappropriate and, we believe, unlawful device to shelter Microsoft earnings from federal income taxes," read the letter, which was first carried by The Wall Street Journal.
Microsoft has never paid a dividend in its 15 years as a public company and instead has amassed the largest cash hoard in corporate history.
By not receiving a dividend, wealthy Microsoft shareholders avoid paying the top marginal income tax rate of more than 39 percent levied on such income, Nader said.
Instead, wealthy shareholders take advantage of the cash pile by selling company stock, which is subject only to a capital gains tax of 20 percent, Nader said.
In the letter, Nader and CPT director James Love said U.S. tax laws contain a provision called the "accumulated earnings tax," which says companies that allow earnings to accumulate beyond "reasonable needs" of the business may be required to pay a tax of 39.6 percent on those earnings.
"The fact that a corporation has an unreasonable accumulation of earnings is sufficient to establish liability for the accumulated earnings tax unless the corporation can show the earnings were not accumulated to allow its individual shareholders to avoid income tax," states a page on the Web site of the Internal Revenue Service.
The letter noted that top executives and directors own more than 17 percent of Microsoft, which has a market capitalization of about $360 billion. Gates alone owns about 12 percent of the company. He sold about $2.6 billion in stock last year.
"It is significant that a small number of persons who run the company hold a substantial share of the stock in the company, a fact that is very unusual for such a large publicly traded corporation," the letter said.
"This also raises questions about whether or not these persons, including yourself, are accumulating these staggering sums of cash to advance other agendas, rather than to advance the interest of shareholders," it said.
A Microsoft representative said Monday that the company occasionally reviews whether to pay a dividend but that it has no plans to start doing so. The representative also said the cash stash was for legitimate business purposes like product development, stock repurchases, and investments and acquisitions.
"Microsoft works hard to comply with U.S. federal income tax rules and, as the letter notes, the tax rules recognize the need for companies to retain cash to fund their businesses, and high-technology companies commonly maintain significant cash balances to support their business objectives," the representative said.
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