Tax consequences of WIN95 team members keeping a piece of software for testing
devblogs.microsoft.com
devblogs.microsoft.com
Basically anything that is considered a non-cash benefit is FBT tax owed by the employer. The tax is at the current maximum marginal income tax rate (47%) on a "grossed up" value of the benefit (currently 2.08).
So $1000 of benefit is grossed up to $2080, then taxed at 47% so FBT of $977.60.
Employer can deduct cost of the benefit ($1000) and the FBT ($977.60) from the company's income as an expense. I've left out the complications of GST (VAT) in the example.
There are a bunch of exemptions and stuff (eg for Xmas/end-of-year parties etc) as well as allowable travel expenditure for work etc.
Basically designed to make the fringe benefit not worth giving to employees by employers so that they pay them the cash instead as income.
If the employer can claim back GST (currently 10%) on the original purchase, the formula for G becomes G=1/(1-R)+(1/11)/R. To account for the extra 10%/110% that the employer can claim back.
The USA's income tax agency, the Internal Revenue Service or IRS, has a whole booklet to help employers figure out how to withhold taxes for fringe benefits:
https://irs.gov/pub15b - Publication 15-B, Employer's Tax Guide to Fringe Benefits
It discusses the de minimis exception mentioned in the originally linked page, as well as exceptions for some meals - important if your employer gives you free or discounted cafeteria lunch or restaurant lunch discount coupons.
Considering that, I don't think they really care too much about a few engineers being allowed to keep loaner copies of software they used for testing.
Some countries have specific legislation to exclude air miles.
It would hit airlines who sell $$$$ worth of tickets each year, but then hand out discount vouchers/points/miles to customers (many of whom bought the original tickets on business expenses, but take the vouchers/points/miles personally, thereby evading tax). The tax authority would be able to estimate the 'value' in vouchers handed out (not the book cost or stated face value, but what customers value them at), the percentage of those vouchers that represent tax evasion, and then fine the airline 3x the lost taxes.
Same for starbucks loyalty cards etc.
As a law abiding citizen, I now have a moral dilemma. Pay tax as the law says, or don't pay tax because the government promised not to punish me?
Where will the latter lead? It's fine to do other crimes as long as you know the government usually won't prosecute? It's fine to write overly broad laws because we will only enforce them against the truly bad guys?
Perhaps it wasn't clearly articulated, but I see some moral dilemmas here.
1) Competing goods: obeying the law (civic virtue; collectivism) vs. personal happiness (hedonism; individualism).
2) Competing concepts of civic virtue regarding laws that won't be enforced: Is it better to (a) vigorously oppose such systems, because e.g. they lay the groundwork for tyranny, or (b) accept that some enforcement sloppiness is beneficial for various reasons, and should therefore be accepted?
On the one hand, you could argue that taking advantage of the IRS deciding not to bother with air miles is wrong.
On the other hand, if you decided to include air miles as taxable on your return, you might be obeying the letter of the law.
This reminds me of the central plot point of The Good Place, which I won’t spoil here, but will paraphrase indirectly: “at what point (if any) is it acceptable to stop considering the second- and higher-order consequences of our actions or inactions?”
I tend to hew toward your 2(b). If even the IRS isn’t going to bother, why would I if it won’t meaningfully matter?
So the Egghead store in San Jose on Blossom Hill Road had 2 interesting employee perks:
0. Vendor reps, including those from Microsoft, were happy to see you cheap NFR copies ($10-25 USD mostly, with some expensive packages going for $50-150) of almost their entire catalog of retail and semi-retail channel software.
1. Here's the shady one: since 99.9% of software was only "sealed" by shrink wrap and having a shrink wrap machine in the store to fix damaged or packages missing sealing altogether, it was essentially impossible to tell, as an end purchaser, if a particular item had been used and resealed. This was by design to avoid throwing away returned product or sending it back to the manufacturer as a loss. An unofficial benefit was created to deter shrinkage (employee theft) at this store in particular, had an unwritten policy established by the manager that permitted employees to temporarily "borrow" software that wasn't sealed or was already unsealed such as being returned.
I helped closed the store in 1997 after the CompUSA tech hypermart format ate tiny stores like ES that would eventually also meet its own demise.
> Bonus chatter: During one of the many iterations of this story being retold, someone remarked that they got a copy of the video game Wing Commander III through this exercise. I immediately remembered that they fulfilled their expectation by filing a bug against Windows 95: When you earned the cloaking device on level 58 or something, you couldn’t activate it.
I never managed (not that it mattered, it took 10-15 minutes to load each mission even on DOS; I imagine it would have been worse under Windows 95).
Oh, the flashbacks of tweaking config.sys and autoexec.bat to cram as close to 640KB RAM as possible just to execute a game...
The "and here comes the HIMEM.SYS, here EMM386.EXE, then I need MSCDEX to get my CD-ROM...damn...okay, I don't really need the keyboard driver for this..."
Unless you're booting into MS-DOS Mode, in which case, you're back to all the old awfulness.
Learned that years after I had finished the game. I had an 8MB machine and updated it to 16. Wing Commander 3 went from taking minutes to load each level to doing it in seconds.
First computer I bought with my own money, pored over computer magazines for weeks to figure out how to get the best bang for my buck.
Ended up with a Matrox Millenium 4MB graphics card with a 3dfx Voodoo on top, if memory serves.
The budget was maxed out to the extent that the owner of the shop I purchased all the parts at agreed to drive me the two miles back to the ferry home as I had no money for a taxi.
Good times.
Also, I think what made me pull the trigger was that RAM prices unexpectedly dropped by quite a lot just as I was about to buy, so I probably figured I might as well do a little future proofing.
>I got a 1099-MISC for my hobby of reviewing products on Amazon. Do I have to put it in small business or can I put this in "uncommon income" as the hobby it is?
https://ttlc.intuit.com/community/taxes/discussion/i-got-a-1...
During the pandemic when everybody was working from home, I thought about renting some place with more interesting scenery for a few weeks. I mentioned it to my bosses and was given a very short list of places where I could do so without triggering tax issues for myself or the company (later in the pandemic more options opened up).
When I looked into it, it seems like lots of states are pretty strict about tax requirements for people working remotely from their state.
It does hit professional athletes, though: https://en.wikipedia.org/wiki/Jock_tax
I'm not an accountant but I have read that baseball players pay state taxes based on where they play, such as away games in a different state. I'm not sure if it applies to tech in the same way, it sounds like it would be a nightmare to file, especially if your company has trips where most of the company might be operating in a different state for a few days or a week.
For example[0]:
> Professional athletes' taxes are also much more complicated than the average taxpayer. In the U.S., people must pay taxes based both on where they live and where they work. That means when the New York Mets play the Dodgers in Los Angeles, Mets players can be taxed for the days they played in California.
[0]: https://spectrumnews1.com/ca/la-west/sports/2023/12/15/ohtan...
Jane IT, working at remote client site for a day is exactly the same but enforcing it would cost too much.
Federal
State (mine)
State (meeting state for 2 days)
City (meeting city for 2 days)
No other company has ever done that to me, I assume it provided some benefit to my company to do it that way.
Obviously the chances of getting caught are extremely slim but the consequences could be significant.
https://www.canada.ca/en/immigration-refugees-citizenship/se...
You need a passport and can't stay for more than 6 months.
As well, between Canada and the US you’re covered under the visa waiver program, so you don’t even need to apply or anything. Just show up at the border.
It’s a fairly well known gotcha up here (at least among my circles). If you’re going to the US for meetings or conferences you are _only_ going for meetings and conferences. You will not be working at your hotel in the evening. You’ve set your auto responder and will not be responding to work emails.
Generally it’s fine, but sometimes you get the CBP guy that wants to ruin someone’s day or is a stickler for the rules and you’re told to apply for a full work visa and sent back home.
My understanding, which is not legal or tax advice, is that, as a private person, you pay taxes in the state you have your primary residence in. There are a lot of rules around what it means to have a primary residence, so you need to check those.
This is also unqualified non-advice.
I had thought there was a de minimis rule, so you need not report for a small number of days and a small income, but formalization of that policy was only proposed, not passed.
At one point, California and New York were unique in this, but I believe the practice has spread to other states, especially as a result of remote work becoming more widespread.
The relevant case (from 1989) is https://caselaw.findlaw.com/court/ca-court-of-appeal/1772838....
Edit to add: as someone who moved out of California 10 years ago, I've been advised by a professional to basically continue filing a non-resident return forever. If I file a return that says 0 days in state and $0 owed, the FTB has a statutory time limit to contest that assertion. If I don't file anything, they claim they have an indefinite lookback period.
After calculating the point value and the amount I would pay for flights, I would actually pay more money in taxes than I would if I just paid for the flight myself, making the points mostly worthless.
In this scenario United Airlines is compensating people for a service, so these airline miles are considered income. That is why they need to compute the dollar value of those miles in order to report the tax burden. This happens whenever someone is paid with something other than dollars, and when people barter.
I immediately remembered that they fulfilled their expectation by filing a bug against Windows 95: When you earned the cloaking device on level 58 or something, you couldn’t activate it.
In theory, my tax return requires about 4 extra states and a few cities, and a bunch of state registrations, and my payroll provider doesn't support the operations; so the net result is a Helleresque fever dream.
In practice, I never leave home on paper.
I would view it similar to letting people pick through your ewaste trash. It might have value but the company has written it off.
Here author talks about taxing software that remains with the employee, as if it were "gift" or "taxable benefit" of employment, not an exercise of unalienable right to share software for testing.
Sounds more like tax office logic, instead of common sense.
Taxable benefit would occur if Microsoft bought software of others and gifted it to employee. Or if Microsoft could not reasonably expect people to actually test the software, or allowed them to resell it.
It seems like this article does not distinguish non-monetary "benefit" from employment from necessity that the company gives free license to use its software for testing.
Isn't that exactly what they did?
Gifts are taxable when they accumulate to a certain size.
In the US, gifts may be due taxes by the giver, not the recipient.
In the above case, the question was if it was a gift (and not needed to be paid taxes for by the recipients), or payment for work (which is taxed)
A sales discount is not income, nor is it a gift (which are not taxable to the recipient, but are possibly taxable to the giver).
In dsign's example, where the pizza is from your employer: in the U.S., it would generally be de minimis if it's a one-off or infrequent event. If it's a regular thing though, it generally is considered income unless it's very low value. The I.R.S. ruled long ago that any single item over $100 is not de minimis, but as this was a fairly old ruling, with inflation most practitioners think the modern threshold before the I.R.S. cares is somewhere between $250-$600.
Note: I do taxes for a living. While I don't do individual taxes, I deal with gifts to employees, etc., all the time.
Eg if A Jewellery shop gave employees a special 2-for-1 / BOGOF gold bars, I expect that’d raise lots of red flags?
If it is your employer giving you the pizza, there is a different story. I can't tell you how it would work in USA, but I'll tell you how it would work in Sweden. In a few cases, which include you being an employee of United Nations, you wouldn't pay taxes on the pizza (hurray!). But if you don't qualify for the exceptions, your employer would have to account for the $25 as if it were salary and tax it accordingly. Just for amusement purposes I've computed that for you: 33% in income tax, 31.4% in payroll tax, 20% in state tax if you earn over $4500/month, and 12% in VAT (but that one your employer gets to zero in this particular example). The 31.4% is not subtracted from your payout but just paid by your employer (or yourself, if you are self-employed). All in all, you eat your free pizza worth $25 and your employer deducts from your salary $13.3 to pay in taxes, and in addition to that pays $8 in payroll taxes. That gives the tax office a neat $21 for that $25 pizza you ate for "free". Your employer also has to pay for the pizza, of course, but they can deduce whatever VAT was in its price.
But that $12.5 per pizza is below market value, so you got a gift, which is income.
I think the better question is how what most companies do with "enterprise pricing" fits in where there is no official price (i.e. nothing that obviously establishes a market price) and all offers are specific to each inquiry. What happens if the company decides to sell the same thing to one company at the fraction of the usual price but the prices aren't public. What if the company buying it is a one-person company?
My understanding of the windows clipboard is that at boot time, the clipboard was empty, but at any other time the clipboard would retain the last thing copied.
That presumably means this game would work after a fresh boot, but any other time the game wouldn't get past level 58. Doesn't sound fixed to me.
Pasting in Windows / Mac is more complex than most devs these days realize, you can copy vector graphics between MS Office and Adobe Illustrator and it will work out a transfer format.
Being able to cancel a long paste was an important feature.
IIRC by default you couldn't just select text with the mouse - as DOS had never had mouse support, and didn't really have the concept of text being selected.
You had to click a particular button to activate text selection before it was possible to copy.
The GUI looked like this: https://commons.wikimedia.org/wiki/File:Microsoft_Windows_95... you'll note there's a toolbar at the top; the dotted square to the right of the 'Auto' dropdown let you select text, then the copy and paste buttons to the right of that let you copy and paste. You'll note that, with no text selected, the copy button is greyed out.
I am confused by the article, though - Ctrl+C is famous as the copy key combination, and yet apparently it's the 'cancel active paste' key combination? - so perhaps someone with an even better memory will correct me :)
I would say that if you work for Microsoft and they give you a program free in order to test, then it's not a form of income. The program doesn't represent monetary value in that situation. Microsoft, the copyright holder, is licensing you to have a copy of that program under terms which do not involve exchange of money.
This interpretation could be strengthened if the medium were marked as not for sale or resale.
Something given to you cannot count as income if you cannot resell it, or not legally.
The interpretation could be further strengthened if the gifted software is not entitled to any support.
Now let's think about dual licensing. Suppose you can obtain a proprietary version of a program for $100, or you can get it free under a copyleft license. It's exactly the same program, just packaged with different licenses. Have you received $100 worth of income? Or is it nothing, because the free one comes with no support?
That definition definitely doesn’t pass muster. You can gift employees Spotify accounts, in their name. Not resellable, definitely a gift.
Nope. The entire point of this was testing third-party off-the-shelf software.
Sounds like this meets the definition of racketeering
It's just a bad tax policy that creates weird incentives ("use the canteen even if you don't need it"). Let's keep the word racket for criminal enterprises and antivirus companies.
Which is fine in general, just not specific to this particular tax.
If we think this tax is a racket, we should equally think that all taxes are a racket. That's because your "Try not paying it" argument applies to all taxes.
If we think this tax is uniquely bad, there should be another reason that it's bad. Which is my point.
The general principles in play are that
1) any benefit is taxed according to its equivalent cash value. (How much money would the employee need to pay to get an equivalent thing, if they paid out of pocket and without any cooperation of the employer)
2) A benefit "occurs" by being granted, not by being consumed.
In the cateen situation there is also a special simplification rule in play, where a generic cash value is defined each year for breakfast, lunch and dinner that is to be used as basis for taxation (almost) no matter what the actual costs for the meal is.
I actually fail to see what is logical here. And I would go further by saying it is neither logical, nor fair.
First the basic point. Why should an employee be taxed for a service he is not making use of. That's a government trying to get more tax income than what they are entitled to, hidden under the guise of simplification. We are equal under the law, and therefore, theoretically, we are equal under taxes. It is irrelevant that someone has, or does not have access to such a canteen, if they are not making use of the facility, the net outcome is the same, and therefore, the taxation should be the same.
And then a point could be made about the relevancy of taxation in the canteen example. (Although it should not be forgotten that it was just a randomly quantified example for the sake of argument). But let's say that company A decides to provide a canteen, with food sold at cost price to its employees. This turns out to be 20% cheaper than eating in a random other canteen "at market price" (i.e. charging you for cost price + company B profit).
Now you are actually taxing the fact that company A decided to make the effort to setup a canteen, hire cooks/canteen employees, probably make a qualitative effort to offer better food, and not seek profit on the effort, when compared to company B, offering food at a higher price as it includes profit.
Congratulations, in a context of decreasing food quality offered by catering services world-wide, your taxation approach just further de-incentivized potential quality over taxation income. Further fully disregarding the fact that to offer a catering service, company A had to make investments, is employing personnel, buying food, etc, and is, therefore, already contributing more to global tax revenues for the state.
Furthermore, you are also unfairly putting non-profit catering services at a disadvantage, as, they too will be taxed more, as they are also offering their food below "market price". (Not too far-fetched, as such efforts are being set-up, with success, for school canteens, focusing on local, organic food, at operating cost-price)
¯\(°_o)/¯
The baseline assumption that everyone has access to the canteen and uses it is the company's fault for not implementing a more detailed system.
Or you could consider a canteen an improvement of the working conditions for the employees, which will help boosting productivity, and therefore revenue, and, consequently, tax incomes. After all, are we taxing companies with air conditioning, good office lighting, or private office space? Because they are having a competitive advantage when compared to companies without..
That is the subject of a legendary Japanese story about judge Ōoka Tadasuke, pretty well known in Europe, and something Swedish children probably know.
Ōoka hears the case, and then rules that the jingling sound of the beggar's coins is enough compensation for the "stolen" smell.
(Ōoka was a real historic figure; the story may be apocryphal.)
If the company provides cheap food it undercuts the local competition and the town as a whole suffers. Making the tax punitive like this would make the "price" of a subsidized company canteen very high. Either the employer would have to pay to subsidize and pay the employees more (so pay twice) or the policy would be unpopular. Or it's Sweden and everyone is fine with it because Sweden.
I disagree with that take as an argument for taxation.
Let's assume, for the sake of a counter argument, that a company stops providing their canteen service, and, instead, all employees bring their own lunch from home. The local "competition" is still not getting the hypothetical customers they had hoped for. So should the employees be taxed because, by bringing their own lunch, they are not bringing business to the local restaurants and the town is suffering? Or should we tax the supermarkets because they are undermining the local restaurants by allowing the employees to eat cheaply?
My argument is that imposing a tax because some hypothetical other scenario is potentially not happening is wrong. At best, it's an excuse to levy an extra tax, by bringing forward the fallacy that other business are being hurt. Or worse, it is forcefully coercing employees to participate in the economy at a higher cost than what they were prepared to pay, and determining for them what the cost of the lunch of an employed person should be. (Either by forcing them to eat out, or by taxing them so that the cost of canteen+tax is similar to eating out).
Where there could be room for taxation is if the food is provided below cost price, as the employees are then having an advantage in nature that could be considered part of a salary. But even if the food was provided for free, if we estimate an average meal to cost $5, and for 20 days of work a month, that would be $100 of equivalent salary. Is that really worth the administrative hassle?
The benefit can be constrained to individuals, but then you usually get into fairness arguments and most people rather take the equivalent salary increase instead if given the option.
Either way, it is not going to be fair.
For this reason, most companies simply rather not offer free parking.
As I recall, this anecdote is part of a larger story:
* This was at a time where it was common to buy software in retail stores, it would come in a fancy cardboard box with a stack of floppy disks (or a CD-ROM), a printed manual, a warranty card you could mail in, and so on.
* Microsoft wanted Windows 95 to have good compatibility so someone went to a software store and brought one copy of everything the store sold.
* Then Microsoft handed these out to Windows 95 testers and told them "You can have this for free if you report any bugs you encounter"
* The employees received (and got to keep) the physical box, installation media, manual etc.
> I would say that if you work for Microsoft and they give you a program free in order to test, then it's not a form of income.
Tax authorities have fairly strict (and complicated) rules about this sort of thing, to stop companies/employees dodging income tax using 'free' gifts.
If I could give my employees a $50k cash bonus and it got taxed at 24% or I could gift them a $50k car "for testing" and it was tax free, everyone would be getting paid in cars.
Belgium has exactly that (use of a car is tax-free) and as a result company cars are wildly popular. Getting rid of this tax loophole has been unpopular, but as a compromise they will only apply it to electric cars in the future.