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Software gets export tax exemption

President Clinton cuts software exporters a tax break that could save the industry an estimated $1.6 billion over the next decade, according to Congress.

President Clinton cut software exporters a tax break today that could save the industry an estimated $1.6 billion over the next decade, according to Congress.

The Software Export Equity Act was passed as part of the historic Taxpayer Relief Act of 1997, which institutes the largest tax cuts since 1981. Rep. Jennifer Dunn (R-Washington), who represents a state home to Microsoft and other software firms, introduced the legislation to let the software industry benefit from the 1971 Foreign Sales Corporation statute, which gave U.S. manufacturers up to a 15 percent export tax exemption.

The original statute was enacted to help industries compete with foreign exporters back when the software business didn't exist. Exporters of music CDs were granted the exemption in 1986, but software shipped on CDs remained unexempt.

Microsoft has been pushing Congress and the Treasury Department to revise the outdated statute ever since the software giant was sued over its 1990-91 tax filing, in which it took the liberty of using the export exemption. The government is challenging two other aspects of the filing and is asking Microsoft to pay $18 million in back taxes.

The case is still in progress, but the software giant is hopeful that the new law will help its defense and the industry as a whole.

"We think this is important for U.S. software companies because it gives them an important incentive to keep their development and manufacturing in the United States," Bill Sample, Microsoft's senior tax director, said today. "We get about half of our revenue from foreign customers, so this will save us money."

Silicon Valley's home state also drove the exemption forward. Sen. Barbara Boxer (D-California) and Sen. Dianne Feinstein (D-California) both cosponsored the companion bill.