What Microsoft’s Midtown Atlanta campus can teach us about corporate tax avoidance

Examining our tax system can be like the parable of the blind man who fails to adequately describe an elephant by touching parts of its body.

One piece doesn’t tell the whole story. 

That’s why, when examining how corporate property taxes work in Atlanta, it can be instructive to see the whole elephant. Take the case study of Atlantic Yards in Midtown and its current tenant—Microsoft.

Though Microsoft is the second biggest company in the world with a market cap of $2.7 trillion, the IRS says it hasn’t been paying its fair share of taxes. In October, Microsoft announced that the IRS had notified the company it owes an additional $28.9 billion in back taxes, plus penalties and interest. This was the outcome of  the largest audit in IRS history, covering the computing giant’s taxes from 2004 to 2013.

A federal judge examining the case wrote in an opinion that “a significant purpose, if not the sole purpose, of Microsoft’s transactions was to avoid or evade federal income tax.” 

That was after a ProPublica investigation found that Microsoft had funneled at least $39 billion in profits to Puerto Rico, where it had secured a tax rate near zero, thanks to the company’s tax consultants, KPMG. 

They did so by selling its intellectual property to an 85-person factory Microsoft owned in a Puerto Rican city. And that may be just the tip of the iceberg. One University of Michigan study published in March estimated that Microsoft could owe the IRS as much as $169 billion in back taxes due to its use of Irish, Singaporean, and Puerto Rican affiliates as tax havens to shift income, expenses and profits.

Microsoft released a statement in October taking issue with the IRS audit findings. “We believe we have always followed the IRS’ rules and paid the taxes we owe in the U.S. and around the world,” Daniel Goff, Microsoft’s corporate vice president for worldwide tax and customs, wrote in the blog post. 

They’re not the only Big Tech firm that tax watchdogs have accused of gaming their taxes. The UK group Fair Tax Foundation in 2021 released a study charging the so-called “Silicon Six”–Microsoft, Amazon, Facebook, Google owner Alphabet, Apple, and Netflix– with inflating their stated tax payments by almost $100 billion over the 2010s.

“With these low tax jurisdictions and tax havens overseas, there are ways to shift income within the company where you pay low or nearly zero tax,” said Alex Zhang, a professor at Emory University Law School who studies tax policy.

The Midtown Atlanta Connection

But what about multinationals’ state and local taxes right here in Atlanta? Consider Microsoft’s Midtown campus at Atlantic Station, owned by Global Atlantic Financial Group.

In 2017, real estate developer Hines and global real estate investor Invesco Real Estate announced a deal to build Atlantic Yards—a 523,000-square-foot office project on the eastern edge of Atlantic Station. 

The Fulton County Development Authority (DAFC) provided a property tax break to the developer worth $9.7 million over ten years to offset acquisition and construction costs to build the two-tower campus and attract what was described then as “a Fortune 50 technology company that is considering relocating its headquarters from another state to Atlanta.

It was one of more than 80 projects granted tax breaks by DAFC from 2018 to mid-2021 that the Atlanta Journal-Constitution reported were overwhelmingly concentrated in hot real estate markets that may not have required tax incentives to get built.

Then, in 2019, Microsoft was named as the tech company eying the Atlantic Yards campus as an Atlanta hub site for a new cloud computing center. Gov. Brian Kemp and then-Atlanta Mayor Keisha Lance Bottoms said that landing Microsoft as Atlantic Yards’ tenant would bring 1,500 new high-paying jobs, further establish Midtown as a tech hub, and strengthen the tax base. The state of Georgia also gave the tech giant a $6 million grant to spend on employee training and recruitment at state colleges.

Microsoft moved into the two Atlantic Yards office towers in early 2022. It has fully leased them through 2035. A few months later, in July of 2022, Global Atlantic Financial Group, a life insurance company that’s a subsidiary of private equity giant KKR, purchased Atlantic Yards for $385 million.  Global Atlantic’s assets have grown to $158 billion in 2020. 

Despite the $385 million sale, Fulton County tax assessors determined that the fair market value for Atlantic Yards was less than half of that—$170 million—according to Fulton tax records. The property’s assessed value, normally calculated at 40% of fair market value, was halved by the DAFC tax break to $34 million. 

In August 2022, Global Atlantic Financial Group filed an appeal with the Fulton County Board of Assessors over its tax bill for Atlantic Yards. Because of 299c in the Georgia tax code, property owners who disagree with their tax assessment can file an appeal with their county’s Boards of Equalization. Winning the appeal automatically freezes the property taxes for three years.

Even though it paid $385 million for Atlantic Yards, the economic development tax incentive and the low assessment valuation sharply reduced Global Atlantic Financial Group’s property tax bill last year. After the tax breaks, the investment entity only paid slightly over $1 million ($1,068,000) in property taxes to Fulton County. Of that, $697,000 went to Atlanta Public Schools. 

The tax bill for Atlantic Yards barely budged for 2023. This year, Global Atlantic Financial Group is paying $1.5 million in property taxes—$1.1 to the city of Atlanta and $343,000 to Fulton County. 

What should the property taxes be on Atlantic Yards? About $6 million a year, according to one local commercial property tax watchdog, former Invest Atlanta board member Julian Bene. That’s with no economic development property tax break and a “correctly appraised” property valuation at the $385 million sale price in 2022, he said. At a 1.6% tax rate for the appraised value, also known as fair market value, that would come to $6.16 million annually.  

Both Microsoft and Global Atlantic Financial Group have financial ties to Bermuda, the tiny island named the world’s worst corporate tax haven by Oxfam, due to its lack of corporate income taxes. Global Atlantic Financial Group is incorporated in Bermuda. The company, which was set up by Goldman Sachs in 2004, has seen its assets increase to $158 billion. Meanwhile, a 2022 study from The Center for Corporate Tax Accountability and Research found that Microsoft Global Finance, which is an Irish Microsoft subsidiary with tax resident status in Bermuda, paid zero corporate income tax in 2020.

Whose tax burden?

What it all means is that Microsoft, Global Atlantic Financial Group, like many other big companies and investment entities, can use layers of legal tax avoidance to their advantage. They can obtain income and property tax breaks at the local and state levels, exploit loopholes, and at the national level, use transfer pricing or cost sharing to offshore profits in tax havens, according to the IRS. 

“Super wealthy people can afford an army of tax lawyers to do all of their tax planning,” said Zhang. “And to be honest, some of the tax planning is not that hard to do.”

But what happens when multinational corporations are able to sharply reduce their tax bills like this? The tax burden for schools and local infrastructure shifts to everyday taxpayers. “Quite often, lower income and lower property value neighborhoods will bear a much higher tax burden than neighborhoods with much higher property values,” said Zhang.