Stardock being purchased?

Say it's not so Frogboy..... :SURPRISED:

Not the diabolical Microsoft...DOH! :SURPRISED:

Sentient species taste better...

The article is here. I wouldn't expect much talk from Stardock about any pending "acquisition" stuff, regardless of who's pitching and who's catching.

The article does end on a somewhat hopeful note, both for fans of an independent Stardock and those of us silly enough to keep hoping for better government:



Budgets for many US states are in terrible shape right now. It sounds like Michigan might have been going too far in the opposite direction from Florida's also-extreme response to this crisis. Our state legislature has savaged the budgets of county and city governments by forcing property tax cuts without providing any serious help for maintaining basic services and schools.

I'd vote for some tax increases here in Florida, but nothing that would change last year's $1,200 bill to $168,000 this year. Families and businesses need better long-term predictability for things like tax bills. Hurricanes, tornados, earthquakes, etc., are more than enough uncertainty to keep folks on their toes and productive.

Why is everyone assuming that it is Stardock who will be acquired? Why isn't it possible that they will be doing the acquiring? I wouldn't classify Microsoft as a "similar" software firm to Stardock. They might compete in the same markets, but Microsoft competes in almost every market.

I'm definitely not making that assumption. I think it at least slightly more likely that Stardock would be the acquiring firm in a scenario like this. Brad has a pretty well-documented independent attitude. Plus, the vague and terse wording about the "sharing quarters" does *not* sound at all like an MSFT buyout in progress.

But the acquisition talk is secondary for me.

In addition to being really shocked that a revised state tax law could lead to such a dramatic increase over last year's bill, I really admire Brad's loyalty to place. IMO, a willingness to pick up and move hundreds or thousands of miles is at least as much a US cultural problem as it is an "economic asset." If leaving everything behind is always high on your options list, you're less likely to work hard to make your current scene better.

I'd say that it's also about applying some pressure to the tax negotiations (what a word!). And my guess would be that there's a number of smaller companies in the immediate vicinity of said software giant.

Actually, this does not shock me as much, now that I've read the article. It is dramatic from a business standpoint, but not entirely a surprise.

According to the way the article was written, it seems that a majority of Stardock's employees are contract (1099) employees through ADP. In other words, they are technically employees of ADP, not Stardock. Under the old tax law, these people were not being counted as employees, so Stardock's taxes were very low. Under the new tax law, it sounds as if the state of Michigan IS counting them in the tax assessment, disregarding whether they are W-2 employees or 1099 employees, thus increasing Stardock's tax payment. Under this new method, if the company suddenly goes from say, 5 or 10 W-2 employees to what is now 55 (W-2 + 1099), then I can kind of see how the tax amount would increase so much. Once again, this is just my interpretation of the article's language.

This is why seminars are good for you. Reading something and then discussing it with folks who also read it recently helps you notice where you are not reading as well as you might like.

These days I earn all my income 1099, and I used to do scholarship and teach civics; I should have been sharper. But I blazed through that article in normal-lazy mode and did not notice that it implied (without giving enough facts, IMO) that the new MBT might do something like make a business pay employment tax for an FTE hired as a contractor. It might just be partial; there's just not enough info there and I've done no research.

I wish that article had included something like "Portion X of the new taxes is because Stardock has 55 full-time contractors working onsite and Portion Y is because Michigan coporate income taxes have changed."

Yes, without having read the new tax code, it is difficult to infer the article's meaning. Then again, it's also difficult to determine the main point of the article..is it about businesses having difficulties with the new tax code? Is it about a developing propensity for businesses to move because of the new tax code? Is it to focus on an appallingly unjustified 7,000% increase in Stardock's taxes? I can't tell...can you?

Reading over it two things stand out in my mind one is the previously mentioned employee increase. The other is that is now looking at a percentage of the profits. .5% of 18,000,000 is 90,000. 84,000 is based on the fiscal year ending June 30. 168,000 is an estimate for 2008. Yes that is a 14,000% increase. But information I don't have is was the defunct SBT a flat tax that applied to all business in the state? How does the new MBT stack up against tax rates in other states. From the quote below I'll make an assumption that it is at least in part, out of line. As from my reading the forums Brad seems to be a fair minded man with a good head for business. I wish Stardock all the best working this out. But for me at least I feel very under informed from that article, and it leaves me with too many questions to form an opinion. I also can't get to MS from a mention of Redmond, WA in the article. So I wouldn't even venture to guess that Stardock is being purchased.

I usually don't get so involved with a post, and if I step over a line here Mods, Stardock - Feel free to delete this post. I just got curious because of the 14,000% That's just wild!!!.

Here is the state info on the tax The MBT
A Better Tax for Michigan Business
- Rewards investment in capital, jobs, and R&D
- Reduces reliance on taxing compensation
- Provides small business and personal property tax relief

The Tax
- Business income taxed at a rate of 4.95%
- Modified gross receipts tax (sales minus purchases from other firms) at a rate of 0.8%
- Banks pay alternate net capital tax (net worth at a rate of 0.235%)
- Insurance tax rate increased from 1.07% to 1.25% (current credits retained)

Credits for Investing in Michigan
- Investment tax credit for purchase of capital assets
- Compensation credit for jobs created or retained
- Research and development credit

* The MBT retains or expands 15 Single Business Tax (SBT) credits and adds 11 new credits.

Here is a real mouthful about the SBT
Elimination of the Single Business Tax (SBT)
Public Act 115 of 1999 provided for reduction of the Single Business Tax (SBT) rate by one-tenth of a percentage point per year from its 1998 rate of 2.3% until the tax is eliminated. This process has been accelerated through the initiative process. On August 9, 2006, the Michigan Legislature approved voter-initiated legislation (Public Act 325 of 2006) to repeal the SBT effective for tax years beginning after December 31, 2007. Legislative approval of legislation is not subject to veto by the Governor, unlike conventional bills introduced by legislators and approved by both houses of the Legislature. The revenue effect of the repeal of the SBT will be approximately $1.9 billion on a full-year basis and fall entirely on the General Fund of the state, with some of the loss affecting FY2008 and the remainder FY2009. The initiated law contains language that encourages the legislature to: "adopt a tax that is less burdensome and less costly to employers, more equitable, and more conducive to job creation and investment."
Hard to believe that sentence I bolded at the end. LOL

I now have enough info to form an opinion. Go get them Stardock. Hope they work with you and you don't have to move. At least if you do though the NW is a nice place and it puts you just south of Ironclad  ;p 

and where you get that turn of phrase?

lol

a 20 million dollar company paying annual taxes of 160,000 dollars is a drop in the bucket. well...what is the percentage of 160,000 dollars of 20 milllion dollars. It is like asking a millioniare to pay 8000 dollars in tax in a year.

:LOL: :LOL: :LOL:

I think a little bit of pee came out...... :SURPRISED:

I'd advise you against operating your own business or being an accountant.

I could be wrong, but I think SD is a $20M/yr company in revenue, not profit. There's a difference. Depending on the business, gross profit is more like 20-30% of revenue. That's the amount that the IRS will tax, and you can figure they'll take about 30% or so. For this example, that leaves around $4M from which to pay the $160K tax. And invest in R&D, and capital equipment, and return some profit to the investors.

In practice, when a business gets hit with an unplanned expense of this size, it usually means that some employees or contractors get fired.

And, yes, I've run my own business and worked for corporations large and small over the last 25 years, and seen exactly what happens in this situation.

Yeah...no it's not, and that is not the point. The point is that under this new tax code, Stardock's corporate tax has gone up 14,000% in one year. How about if your property taxes went up 14,000% in one year? Would that be a drop in the bucket? While $168k may not seem like much against $20M in revenues, Stardock is still classified as a small company, and that is a huge expense to have to overcome. My (uneducated and conservative) estimation is that this equates to Stardock being forced to sell at least 16,000 MORE games than they did the year before, just to make up the difference. Or, they could eliminate 2 jobs. The point is, what do you suppose the hit would be to a company with $100M in revenues and 120 employees? Companies make their budgets based on the previous year's data, adjusting for growth. They did not budget for a huge increase in taxes like this, and it is a lot to have to absorb. It could mean that there would be no annual bonus for the employees. It could represent a lot of things, and it seems that this law penalizes companies like Stardock for problems that don't even relate to their activities.

I can't say whether Stardock has done anything like this, but I worked for a company that used "independant contractors" as a way to dodge most of their tax liabilities. This causes hardships for the employees, as no withholding tax is taken out during the year, resulting in their entire tax burden hitting all at once in April. This law is probably designed to remove such tax dodges, and Stardock just got caught by something intended for an entirely different target.

In my case, no one complained because *most* of the employees weren't legal and weren't paying taxes anyway. The rest of us made so little we owed almost nothing, so it didn't matter. Ever seen what happens when a 150 employee company loses 100 people in one day to an INS raid? It's not pretty   

It sucks, but what are you going to do? StarDock was dodging taxes by exploiting a loophole. It was legal, so I'm not saying that it was a bad thing. But the loophole was plugged. SD was happy playing the game when they were coming out winners, but now that the game changed, it's a little disingenuous to cry foul now.



Oh well. SD was playing over their head anyway, relying on paying fewer taxes due to a loophole. Next time, they'll learn to stop relying on loopholes for financial solvency.

You're legally required to pay in quarterly if you have more than $1000 in tax liability. If you get set up with EFTPS it it's pretty trivial to do, but the sending big lumps of cashola to the IRS every few months does make you painfully aware how much the government is taking from you :p

My impression of the tax change (not having actually read it) is that Michigan is changing its definition of an 'employee'. Which would be pretty stupid as contractors are not employees anywhere else (AFAIK), particularly not for federal tax purposes. They certainly can't demand payroll taxes for out-of-state or out-of-country contractors, so it's probably some kind of flat tax based on number of employees.

And having 1099 contractors isn't some kind of strange and arcane loophole that a company is scummy or stupid purely for using it. It only makes sense to have off-site people as contractors, since you can't exactly tell just how much they're working to pay them hourly, and even salaried+benefits would be a paperwork nightmare due to the widely varied locations of the contractors. Just pay them a bit more so they can cover benefits and SE taxes themselves, and it's easier for everyone.

Just, whatever happens, don't go over to Microsoft please. No matter what, you can't. It's Like EA trying to buy out the company that produces Grand Theft Auto. Don't do it.

To expand on the above statement, gross profit margins vary greatly by business, ranging from 2% of revenue for many retail business (supermarkets, for example), to 80% or more for near-monopoly software businesses, where premium prices can be charged for for products developed by relatively few employees. The majority of industries are much closer to the 2% than the 80%.

Stardock is far from a monopoly, and I have no idea what their margin is. It's my impression that they are in very competitive markets for both their office productivity and gaming products, which would tend to indicate that their margins aren't as high as you might think.

For their game products, yeah, I would definitely a competitive area, but I think they have a pretty good monopoly on the windows customization market. I don't think the prices for their customization software is outrageous or anything though, but I assume they make a pretty good margin on that area of their product line (unless they're just doing major rewrites of the code base often).

I thought profit for a company is defined after expenses and taxes are taken care of. Soo why is the IRS are allowed to tax the profit margins. Should it not just tax the revenues.

That definitely varies by situation. About a decade ago, Microsoft lost a major lawsuit about how they used on-site contractors. IIRC, they had to let many go because they were unwilling to convert them to full-time salary positions.

I think the stock options stuff had something to do with it, but in any case, like most regulatory contexts, there is a wide range of stories, some pretty, some ugly, some just a muddle.



It took me a couple of years to get in the hang of planning for and paying my estimated 1099 taxes, and it is still my least favorite part of working 1099 because if I have a better year than I expected, I can end up owing a payment with my return.

As far as your taxes being taken from you, we need to get over this nonsense in the US. Either sign up for Libertarian fantasy-land and start getting all sorts of bills for police protection, fire protection, maintainence for the street where you live, tolls for your road to work, and, of course, your share of the privatized US military, or just admit that taxes are a necessary, if unpleasant, part of civilized life. We need to stop talking like there is no such thing as a bad tax cut and focus more on whether a given tax law is working well or doing screwy things like this MI change seems to have done.

In many cases it is not - certainly Stardock would apply, as their contractors work all over and at worker-specified hours.

In the case of the company I worked for, it most certainly WAS a loophole, and highly illegal as well. When the company went under, the IRS bent the owner over and thouroghly, uhh AUDITED him  :LOL: