Tax concerns to push Microsoft Azure cloud hosting out of Washington state

Tax concerns to push Microsoft Azure cloud hosting out of Washington state

Summary: Microsoft is making preparations to move applications that developers are hosting on its Azure cloud infrastructure out of its Washington state datacenter, due to a change in the tax laws there.

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Microsoft is making preparations to move applications that developers are hosting on its Azure cloud infrastructure out of its Washington state datacenter, due to a change in the tax laws there.

Microsoft warned customers testing their apps on the Azure test release about the planned change earlier this week. Microsoft is readying a migration tool to help testers with the move, company officials said.

Cloud-computing and .Net expert Roger Jennings put together all the various reports and clues into a detailed August 5 post on his OakLeaf Systems blog.

As Jennings noted, on August 3, the Windows Azure team announced plans to disable the "USA - Northwest" option for new Azure-hosted applications. (Existing applications that are part of the Azure beta may be allowed to remain hosted in the Quincy, Wash., datacenter, as the Microsoft blog post says. Later on, the team appears to contradict that fact, however, saying all apps and storage would be moved.)

From the Azure team's post:

"This change is in preparation for our migration out of the northwest region. Due to a change in local tax laws, we’ve decided to migrate Windows Azure applications out of our northwest data center prior to our commercial launch this November. This means that all applications and storage accounts in the 'USA - Northwest' region will need to move to another region in the next few months, or they will be deleted."

Earlier this year, there were reports that Microsoft (and Yahoo) had halted datacenter construction in Quincy. At that time, many company watchers believed the halt was likely temporary and was due to the poor economy. It turns out it was due to a Washington state tax change, as DataCenter Knowledge explained.

"Late last year Washington State attorney general Rob McKenna ruled that data centers were no longer covered by a state sales tax break for manufacturing enterprises, and thus must pay a 7.9 percent tax on data center construction and equipment."

(Washington State Governor Chris Gregoire is trying to restore the exemption for data centers, according to a Seattle Post-Intelligencer story cited by Jennings.)

Jennings speculates that Microsoft might be moving its U.S.-based Azure-hosted applications to its San Antonion datacenter.

I've asked Microsoft for more information on this, including what is going to happen to its Quincy datacenter. I'm also asking whether the decision to move the Azure-hosted apps out of Quincy will stand if a tax exemption comes to pass. If and when I receive responses to these questions from Microsoft, I'll update this post.

Update: So far, this is all Microsoft is willing to share on this matter. A corporate spokesperson sent me the following e-mailed statement:

"Beyond the information in the Windows Azure team blog post that you referenced in your post this afternoon, we don't have additional specifics to share about the Windows Azure data migration from NW to SW datacenters."

Update No. 2 (August 6): The aforementioned Microsoft spokesperson just e-mailed a second statement, with an answer to my question on Quincy's future. No word on which services will continue to be housed in Quincy or why users' Azure apps but not other services are going to be moved to the Southwest. But here's what the company is saying:

"Microsoft will continue to host many Microsoft online services out of our mega data center in Quincy, Washington.

"The delivery of online services is a fairly new business model. We are working with the Washington state legislature and the Governor to identify ways the state can offer competitive advantages over other states eager to attract this business, including areas such as tax regulations. Microsoft continues to be committed to our business in the state of Washington and the data center in Quincy."

Topics: Microsoft, Banking, Data Centers, Government US, Hardware, Storage

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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28 comments
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  • What next, they'll terminate everyone's licensing agreements and then

    hit the kill switch?

    Governments should be bullying corporations. Not the other way around. (or perhaps neither side should bully the other?)
    HypnoToad72
    • What?

      'Kill switch?' - - moving the datacenter is not a kill switch. You just need to reroute where your sending and expecting to recieve your data. That's why they gave a weeks notice.

      They made a smart business move to keep costs down. This will help ensure other businesses can afford their services and keep them competitive and profitable. It's how competitive business models work.

      States that are run better, less taxation, should benefit from their efficiency. MS will move their data center, jobs, taxes to San Antonio. SA will reap the benefits of Washington States tax laws.

      And Gov't should BULLY businesses. They should work together. And when they cannot, the business should seek the lowest costs to keep prices for We the Consumer down. Business does not exist for the purpose of supporting the state. The state exists to provide a legal framework for people to work and live their lives.
      Fark
      • Microsoft has excess capacity at their SanAntonio facility

        Microsoft must have excess capacity at their San Antonio facility, so they don't need add more equipment the facility in Quincy, Washinton. If Microsoft does need to add more capacity, Quincy would still be cheaper since the sales tax on additional computing equipment purchased for the San Antonio facility is 8.125% vs. 7.9% in Quincy.
        WiredGuy
      • And how do you propose...

        the state provide this legal framework? Pull it out of thin air?

        The State and in turn the country are the only reason companies have a right to exist. Without your government we would all be under the rule of some foreign state and we would all be working for the state.

        Our government is the only reason we aren't speaking Japanese, or German, or Russian and under a Nazi or communist regime.

        I don't like paying taxes anymore than anyone else. But how else are we going to reap the fruits that this great nation has made possible to reap. I would just as soon see MS move completely out of the country and let them enjoy life under some other government.
        bjbrock
        • Wow such a subservient attitude!

          Have you forgotten, like the majority of American's it seems, that WE THE PEOPLE run the government.

          There aren't a bunch of government issued robots that go and fight wars for us. We fight and die for our freedoms.

          In turn we also elect and reelect baffon's to run our government.

          Our government is free to raise taxes but it isn't free to force us into servitude to pay these taxes.

          Here in California we too have some strange idea that if we loose tax revenue because businesses are leaving the state then we should raise taxes even more to make up the difference!

          That would be like Apple raising the price of a Mac during this rescission because fewer people are buying their computers.

          There is this thing called supply and demand and not enough people understand it.
          mikefarinha
        • I have to object to this statement ...

          "Our government is the only reason we aren't speaking Japanese, or German, or Russian and under a Nazi or communist regime."

          It is the young men and women who kept this country free and they continue to do so, so thank a Vet for your freedom not your government.
          mrlinux
    • What are you talking about?

      It's cheaper to move out of state to offer the same service. This is a case of the Government (state) bullying companies and the company saying OK, you can have 100% of nothing. There are many states where it makes no sense to run a business there anymore, and the ones that can move away. California and New York come to mind.

      TripleII
      TripleII-21189418044173169409978279405827
    • And watch what happens when Fed's try to "bully"

      Cap and Trade actually change anything, a nationwide VAT meaning the cost of producing everything goes up the companies that can will laugh and move to Mexico or other countries where the cost of production is lower.

      TripleII
      TripleII-21189418044173169409978279405827
      • Cap and trade has no chance of passing the Senate

        After dozens of concessions to energy and fuel producers, Waxman-Markey only passed the House by 7 votes. Anything even remotely like the House bill will have the proverbial snowball's chance in the Senate.

        Cap and trade will not become law in the United States during this congress. Once you realize this, you don't have to be afraid anymore.

        Cheers
        WiredGuy
        • It will pass but mean nothing.

          That's why I qualified it as "if it does anything". It has to be seen to pass though for appearances. The VAT may be a foregone conclusion though since they can't raise "income taxes", parsing the promise and they have to raise taxes simply because we can't continue down the current road even if healthcare is not taken over by the Government.

          My main point, per state, squeee to hard, they will leave. It will apply to a country as well.

          TripleII
          TripleII-21189418044173169409978279405827
          • Good point.....

            "My main point, per state, squeee to hard, they will leave. It will apply to a country as well."

            Good point, but where would they go? There are only a handful of first world countries that have lower tax rates than the US and those that do have economies that make ours look pretty rosy.
            WiredGuy
    • Who is doing the bullying?

      Microsoft?
      Not at all. In this case it is the government that has decided apon a new way to to get money for nothing.

      We moved our company two years ago because of just that type of thinking: the local municipality decided they were going to now tax us (along with other companies in the area) a privilege tax for every employee [b]nationwide[/b] as our corporate offices were located here, even though we pay a privilege tax to the local municpalities where they worked. At the corporate offices there are only 30 people, nationwide over 650.

      It was a scam to get money for nothing, and there was no other choice but to move to an area with more intelligent tax laws.

      Microsoft is doing no different.
      GuidingLight
  • Typical Microshaft

    Hire foreigners, make the taxpayers foot the bill for relocating your phony philanthropy headquarters, then run away when it's time to pay your fair share of taxes.

    Bill Gates is the world's biggest socialist - he always has his hand out begging for corporate welfare.
    David Blomstrom
    • Typical Anti-MS Nimrod

      Taxpayers are footing the bill for the move? Please explain.

      [i]Phony[/i] philanthropy? The Gates Foundation has provided untold millions for a wide variety of worthy causes. What have YOU done for anyone lately?

      "Corporate welfare" is a liberal catch phrase for any activity in which a legitimate company attempts to save money on taxes or expensive regulations. Most people who use the term (like you) have no clue what it means. It's just a way of demonizing successful people and/or companies.

      Lastly, there is certainly nothing wrong with a company pulling up stakes to save on taxes. Forcing states to compete for businesses is a way of keeping taxes low. And ALL taxes need to be lower. We're among the most over-taxed nations on the planet.


      neverhome
      • I would just as soon see them move...

        out of the country. Let them do business under some other country's rule. Ballmer has already threatened that because of Federal legislation he didn't like. Let them go and good riddance.
        bjbrock
        • I would just as soon see them move...

          ABSOLUTELY!
          And by golly, let'em take all those American jobs with'em when they leave! Who needs'em anyway?!

          neverhome
          • American jobs???

            There's no bigger fan of the H1B visa program than Bill Gates.
            David Blomstrom
  • The Quincy facility is monsterous.

    The Quincy facility exists today, complete with thousands of servers, redundant emergency power supplies, the whole nine yards. The facility is 470,000 square feet of space under one roof!


    One of my colleges just mentioned to me that Yahoo may have some lightly used facilities that are now available to Microsoft. The tax issue may just be a smoke screen - just a theory.
    WiredGuy
    • WA Taxes

      Washington State's business taxes are rather regressive.

      If you're a store selling things, you're taxed on -gross-, not -net- volume.

      There are certain loopholes for aircraft manufacture (yet Boeing moved their corporate headquaters to Chicago a few years ago for tax reasons) and wood products.

      Microsoft is not the first, nor the last, company to abandon this state.

      --Seattlite
      astro_z
      • Yes, but Texas taxes are even HIGHER!

        Microsoft was the beneficiary of a special tax break designed for them. Now, WA state has decided that they shouldn't get that break.

        I don't know if Microsoft has cut a special deal with Texas, but if they haven't, they will have to pay 8.125% sales tax on any new equipment that they add to their San Antonio facility to support expansion there. Texas sales tax is even higher than Washington's!

        As I mentioned in an earlier post, the Quincy facility is already there - up and running. There is nothing in the local Quincy paper about Microsoft expanding their operation there. There is a story about the Sabey Corporation building a large new data center in Quincy - they lease server space to other corporations.
        http://qvpr.com/articles/quincy-get-another-data-center
        WiredGuy