Nxxx,2011-09-11,A,014,Bs-BW,E2

14 Ø N THE NEW YORK TIMES NATIONAL SUNDAY, SEPTEMBER 11, 2011

The Tax Advantage next year to hire a prominent Washing- ton tax lobbying firm. Soon after the law Rich Tax Breaks Bolster Video game developers was signed, its lobbyist, Jonathan Tal- can take advantage of SOFTWARE MAKERS Section 174 of the Tax Code isman of Capitol Tax Partners, was government tax breaks granted a meeting with the Treasury provided to a number Companies like Microsoft and Department’s deputy assistant secre- Makers of Video Games; of different industries. Intuit can immediately deduct tary of tax policy — the same office Mr. all development costs instead Kohl once held — to ask that the de- Tax breaks for... of taking deductions for them over several years. duction be extended to video game com- panies and the revenues they earned Tech Value Is Questioned ESTIMATED ANNUAL COST from online subscriptions. When the $4.3 billion I.R.S. issued its final regulations, video committee, also promised the tax break From Page 1 games and their online revenues were would indirectly bolster national securi- ENTERTAINMENT INDUSTRY RESEARCH AND DEVELOPMENT specifically cited as qualifying for the pares to the official United States corpo- ty by stimulating “the search for new Section 41 of the Tax Code deduction. That deduction last year products and new inventions upon More than 20 states offer rate rate of 35 percent. video game developers VIDEO GAME Companies as diverse as Pfizer, equaled 9 percent of its production All told, the federal government gave which the future economic and military incentives similar to the DEVELOPERS Boeing and Apple can claim tax costs, offering E.A. significant tax sav- $123 billion in tax incentives to corpora- strength of our nation depends.” federal tax breaks given to credits for their annual ings. tions in 2010, according to the Joint In 1969, the I.R.S. expanded that tax movie companies. increases in research and Company officials point out that the Committee on Taxation, with breaks for break to allow companies to deduct the development spending. deduction is available to a wide range of cost of software development, which ESTIMATED ANNUAL COST groups and people as diverse as Nascar ESTIMATED ANNUAL COST industries. “The credit is not specific to track owners, mohair producers, hedge was a small part of a business that was N.A. INTELLECTUAL PROPERTY / $4 billion video games,” said Mr. Brown, the fund managers, chicken farmers, auto- then dominated by bulky mainframe spokesman. “It’s designed to encourage C M Y K Nxxx,2011-09-11,A,001,Bs-BK,E3computers. When the video game in- ONLINE CONTENT PRODUCTION makers and oil companies. any domestic manufacturing in the dustry sprouted in the early 1970s, game Not explicitly covered by the Tax Code Many tax policy analysts say the United States — from soft drinks to C M Y K Nxxx,2011-09-11,A,001,Bs-BK,E3developers reaped substantial tax sav- Companies like Google can license breaks for the video game industry — steel, to movies, music and newspa- ings because most of their costs were their products to subsidiaries in whose domestic sales of $15 billion a pers.” During Mr. Kohl’s seven years at CCCMMMYYYKKK Nxxx,2011-09-11,A,001,Bs-BK,E3Nxxx,2011-09-11,A,001,Bs-BK,E3Nxxx,2011-09-11,A,001,Bs-BK,E3Nxxx,2011-09-11,A,001,Bs-BK,E3for software development. lower-tax countries and then assign C M Y K C M Y K year now exceed thoseNxxx,2011-09-11,A,001,Bs-BK,E3 of the music the company, Electronic Arts also be- Electronic Arts, founded in 1982, has their profits overseas. Companies business — are a vivid example of a tax came more aggressive about assigning since become one of the world’s domi- with multiyear online subscriptions Late Edition system that defies common sense. Most its intellectual property offshore, a nant video game companies — pro- can also defer part of their revenue. times, subsidies begin as a way to nur- Today, cloudsmove and that sun, often afternoon reduces a company’s C M Y K Nxxx,2011-09-11,A,001,Bs-BK,E3ducing popular titles like SimCity, FIFA ESTIMATED ANNUAL COST Late Edition ture a fledgling industry that will not be and eveningtax showersbill. Mr. Kohl, and who a thun- declined to be in- soccer, Harry Potter and Madden NFL At least $60 billion profitable for years or to encourage a Sources: Joint Committee on Taxation; Today, clouds and sun, afternoonderstorm, terviewed,high 73. is now runningpartly the tax de- — and has benefited mightily from that Kimberly A. Clausing, Reed CollegeLateLateLate Edition Edition Edition Late Edition Tonight, business activity deemed to have a Latepartment Edition at Amazon, which is leading tax incentive. and evening showers andcloudy, a thun- low 65. Tomorrow, some Nxxx,2011-09-11,A,001,Bs-BK,E3broad benefit to society, like reducing Today,Today,Today,cloudscloudsclouds and and and sun, sun, sun, afternoon afternoonToday, afternoonclouds and sun, afternoon the legal battle by Internet retailers C M Y K C M Y K Nxxx,2011-09-11,A,001,Bs-BK,E3The company’s software develop- derstorm, high 73. Tonight,Today,sun,partly highclouds 80. and Details, sun, afternoon Page 18. pollution or improving publicNxxx,2011-09-11,A,001,Bs-BK,E3 health. andandand evening evening evening showers showers showers and and andand a a thun- a thun-evening thun- showers and a thun- who want to avoid collecting state sales C M Y K But it’s a lot easier to create a tax ment costs — including salaries for the cloudy, low 65. Tomorrow,and eveningsome showers and a thun- designers — have totaled nearly $6 bil- derstorm,derstorm,derstorm, high high high 73. 73. 73.Tonight, Tonight, Tonight,derstorm,partlypartlypartly highLate 73. Edition Tonight, partly taxes from customers. break than to eliminate it. That leaves a sun, high 80. Details, derstorm, Page 18. highIn 73. 2003, Tonight, before partly joining Electronic generous assortment of tax incentives lion over the last five years, and the cloudy,cloudy,cloudy, low low low 65. 65. 65.Tomorrow, Tomorrow, Tomorrow,cloudy,Today,somesomesome lowclouds 65. andTomorrow, sun, afternoonsomecloudy, low 65. Tomorrow, some VOL. CLX . . No. 55,525 © 2011 The New York Times NEWcompany YORK, says it SUNDAY, deducted all but SEPTEMBER a 11, 2011 $6 beyond the greater New York metropolitanArts, area. Mr. Kohl co-authored$5.00 a widely- available to all types of companies, like sun,sun,sun, high high high 80. 80. 80. Details, Details, Details, Pagesun, Pageand Page evening 18.high 18. 18. Late 80. showers Details, Edition and Page a thun-sun, 18. high cited 80. Details,proposal urging Page the 18. federal gov- Electronic Arts, with skilled accounting small amount of those expenses imme- Today, cloudsLate and Edition sun, afternoon VOL. CLX . . No. 55,525 © 2011 The New York Times NEW YORK, SUNDAY, SEPTEMBER 11, 2011 Late$6 beyond Edition the greater Newderstorm, York metropolitan high 73. area. Tonight, partly ernment to crack down on corporate tax departments. diately. Companies that produce movies and evening showers and a thun- $5.00 or compact discs, by contrast, face Today, clouds and sun, afternoon avoidance, warning that “the tax shel- Electronic Arts has also lobbied suc- Today, clouds and sun, afternooncloudy,andderstorm, evening low high 65.showers 73. Tomorrow, Tonight, and a partlythun-some VOL.VOL.VOL. CLX CLX CLX . . . No. .No. No. 55,525 55,525 55,525 ©© 2011© 2011 2011 The The TheNew New New York York York Times Times Times © 2011 TheNEW NewNEWNEW York YORK,Times YORK, YORK, SUNDAY, SUNDAY, SUNDAY, SEPTEMBER SEPTEMBER SEPTEMBER 11, 11, 11, 2011 2011 2011tighter restrictions which often$6$6 beyond$6 beyondrequire beyond the the thegreater greater greaterC M New NewY New YorkK York York metropolitan metropolitan$6 metropolitan beyond thearea. area. greaterarea. NewNxxx,2011-09-11,A,001,Bs-BK,E3 York metropolitan area. ter problem is simply too detrimental to VOL. CLX . . No. 55,525VOL. CLX . . No. 55,525 cessfully© 2011NEW The for New more YORK,York tax Times assistance. SUNDAY, The NEW SEPTEMBER YORK, SUNDAY, 11, 2011 SEPTEMBERand 11,evening 2011 showers and a thun-$5.00sun,$5.00$5.00derstorm,cloudy, high$6 beyond low high 80. 65. the 73.Tomorrow, Details, greater Tonight, New partlysome Page$5.00 York metropolitan 18. area. $5.00 them to spread out the deduction on sun, high 80. Details, Page 18. the tax system not to act.” As head of Beyond Cairo, architect of the company’s strategies in derstorm, high 73. Tonight, partlycloudy, low 65. Tomorrow, some most production costs over a number of RICH TAXtax at Electronic BREAKS Arts, he became a not- recent years was Glen A. Kohl, a tax sun, high 80. Details, Page 18. years. While video game makers have cloudy, low 65. Tomorrow, some ed expert in using Late foreign Edition subsidiaries Beyond Cairo, Today, clouds and sun, afternoon VOL. CLX . . No. 55,525lawyer colorful© 2011enough The New to York publicly Times com- NEW YORK, SUNDAY, SEPTEMBER 11, 2011 $6 beyond the greater New York metropolitanRICH area. TAX BREAKS$5.00 to legally, and sharply, cut a corpora- VOL. CLX . . No. 55,525 © 2011 The New York Times NEW YORK, SUNDAY,often SEPTEMBER compared themselves 11, 2011 to movie sun, high$6 beyond 80. Details,the greater New Page York 18.metropolitan area. $5.00 and evening showers and a thun- Israel Sensing pare himself to Bruce Springsteen and VOL. CLX . . No. 55,525 © 2011 The New York Times NEWcompanies YORK, when SUNDAY, seeking tax SEPTEMBER incentives, 11, 2011 $6 beyond the greater New York metropolitan area. $5.00 tion’s United derstorm, States high tax 73. Tonight, bill.partly As a co- BeyondBeyondBeyond Cairo, Cairo, Cairo,Beyond Cairo, to joke in the pages of The Wall Street BOLSTER MAKERScloudy, low 65. Tomorrow, some Beyond Cairo, the game developers’ ability to write off RICHRICHRICH TAXTAX TAX BREAKSBREAKS BREAKSRICH TAX BREAKS chairman of thesun, high Silicon 80. Details, Valley Page 18. Tax Di- Israel Sensing Journal that his dog, Rubin, shared the RICH TAX BREAKS A Wider Siege the vast majority of their development rectors Group, he also moderated a name of the Treasury secretary under VOL. CLX . . No. 55,525 © 2011 The New York Times NEW YORK,BOLSTER SUNDAY, SEPTEMBER MAKERS 11, 2011 $6 beyond the greater New York metropolitan area. $5.00 VOL. CLX . . No. 55,525 © 2011 The New York Times NEWBeyond YORK, Cairo, SUNDAY, SEPTEMBER 11, 2011 costs immediately gives$6 beyond them athe sub- greater New York metropolitan area. $5.00 seminar in 2010 that showed technology IsraelIsraelIsrael SensingSensing SensingIsrael Sensing whom he served (Robert E. Rubin). RICH TAX BREAKS Israel SensingBeyond Cairo, stantial financial advantage over other OF companiesVIDEO how GAMES to use offshore subsid- BeyondA Wider Cairo, Siege After working in the Treasury De- BOLSTERBOLSTERBOLSTER MAKERSMAKERS MAKERSBOLSTERRICH TAX BREAKSMAKERS Israel Sensing entertainment companies in taxes and Beyond Cairo, RICH TAX BREAKSBOLSTERiaries to MAKERS reassign the licensing of their partment during the Clinton adminis- RICH TAX BREAKS Embassy AssaultIsrael a Sign Sensing cash flow. BOLSTEROF VIDEO MAKERS GAMES intellectual property and, in some cases, AAA Wider Wider Wider Siege Siege SiegeA Wider Siege tration, Mr. Kohl entered the private Israel Sensing A Wider SiegeA Wider Siege Video game companies also get other BOLSTER MAKERS reduce their effectiveBOLSTER federalMAKERS tax rate Israel Sensing sector and became head of E.A.’s tax de- Beyond Cairo, research-related breaks. In 1981, as A Wider SiegeABOVE, ELECTRONIC ARTS AND VISCERAL GAMES; BELOW, JONATHAN ALCORN/BLOOMBERG NEWS substantially from 35 percent. Embassy Assault a ofSign a Mideast inA Flux Wider Siegepartment in 2004, leading the company RICH OFTAXOFOF VIDEOVIDEO VIDEOBREAKS GAMESGAMES GAMESBOLSTEROFOF VIDEO VIDEO MAKERS GAMESGAMES OF VIDEO GAMES Americans worried that Japan’s grow- TECH VALUEElectronic QUESTIONED ArtsOF VIDEO has more GAMES than 50 as it aggressively lobbied for a federal Dead Space 2, above, shipped more than two million copies in its first week. Embassy Assault a Sign ing dominance in the auto business Embassy Assault a Sign OF VIDEO GAMES overseas subsidiaries, according to its EmbassyEmbassyEmbassy Assault Assault Assault a Embassya Signa Sign SignAof Wider a AssaultMideast Siege a inSign Flux tax break on domestic production and Below, E.A.’s area at the Electronic Entertainment Expo in June. Israel Sensing Embassy Assault a Sign would be followed by a decline of the of a Mideast in Flux TECH VALUE QUESTIONED recent regulatoryTECH VALUE filings, QUESTIONED many in low- Embassy Assault a Signset up a matrix of offshore subsidiaries, By ETHAN BRONNERof a Mideast in Flux high-tech industry in the United States, BOLSTER MAKERS TECHOF VALUEVIDEO QUESTIONED GAMES tax countries like Bermuda, Singapore ofofof a a Mideasta Mideast Mideast in in in Flux Flux Fluxof a Mideast in Flux many in low-tax countries. By ETHAN BRONNER Subsidies on Research of a Mideast inof Flux a Mideast in Flux Congress added another research and TECHTECHTECH VALUE VALUE VALUE QUESTIONED QUESTIONED QUESTIONEDTECHTECH VALUE VALUE QUESTIONED TECH VALUEand Mauritius. QUESTIONEDSubsidies The company on Research has also JERUSALEM — With its Cairo As a result, the company with the de- JERUSALEM — With its Cairo Tapped to Develop a A Wider SiegeEmbassyBy AssaultETHAN BRONNER a Sign development credit, this time specifi- embassy ransacked, its ambassa- accumulated more than $1.3 billion in By ETHAN BRONNER fiant sales slogan, “Your Mom Hates dor to Turkey expelled and the Subsidies on ResearchTapped to DevelopFirm’s a Big Hit embassy ransacked, its ambassa- cally for companies that increased their Palestinians seeking statehood Subsidies on Research profits offshore, where it will not be JERUSALEM — With its Cairo JERUSALEMBy ETHAN —BRONNER With its CairoDead Space 2,” in effect gets financial recognition at the OF United Na-VIDEO GAMES ByBy ByETHAN ETHAN ETHAN BRONNER BRONNER BRONNER By ETHAN BRONNER dor to Turkey expelled and the R.& D. spending from the previous year. tions, Israel found itself on Satur- Subsidies on Research taxed by the United States unless it is of a Mideast in Flux By ETHAN BRONNERembassy ransacked, its ambassa- Tapped to Develop a By DAVID KOCIENIEWSKI embassy ransacked, its ambassa- JERUSALEM — With its Cairohelp from moms and other United The hope was that by encouraging com- day increasingly Subsidies isolatedSubsidiesSubsidies and on on on Research Research ResearchSubsidiesTECH TappedVALUE on QUESTIONED to Research DevelopSubsidies a Firm’sbrought on Big back Research intoHit the country. Palestinians seekingdor statehoodto Turkey expelled andStates the taxpayers to reduce its federal grappling with a radically trans- Tapped to Develop a The United States government EmbassyJERUSALEMJERUSALEMJERUSALEM Assault — — —With Witha With Sign its its itsJERUSALEMCairo Cairo Cairodor to Turkey — With expelled its Cairo andJERUSALEM the — Withembassy its Cairoransacked, its ambassa- panies to invest more in research, the formed Middle East where it be- Firm’s Big Hit Company officialsoffers tax incentivessay its to overseas compa- ac- recognition at the dorPalestinians United to Turkey Na- seeking expelled statehood andtax the bill. lieves its options are limitedTappedTapped andTapped to to toDevelop Develop Develop Tappeda a a Firm’s to Develop Big Hit a nies pursuing medical break- embassyembassyembassy ransacked, ransacked, ransacked, its its itsambassa- ambassa-embassy ambassa-Palestinians ransacked, seeking its ambassa- statehood recognition at the United Na- private sector might create the next poor. Firm’s Big Hit Tappedtivities to areDevelop notthroughs, an attempt urban a redevelopment to avoid Unit- embassytions, Israel ransacked, found itself itsPalestinians ambassa- on Satur- seeking statehoodCompany officials say they have no The diplomatic crisis, in which By DAVID KOCIENIEWSKI and alternatives to fossil fuels. Bell Laboratories and inspire the kind ed States taxesIt andalso provides instead tax breaks reflect for how ofdordor ador toMideast to to Turkey Turkey Turkey expelled expelledin expelled Flux anddor and and to therecognition the By theTurkey ETHAN expelled BRONNER at the and United dor the to Na- Turkey expelledrecognitiontions, andIsrael thefound at the itself United on Satur- Na- winds unleashedTECH by the VALUE Arab QUESTIONED By DAVID KOCIENIEWSKI day increasingly isolatedday increasingly and isolated qualms and about taking all the tax breaks of technological breakthroughs that Spring are now casting a chill Firm’sFirm’sFirm’s Big Big Big Hit Hit HitSubsidiesByFirm’s DAVID KOCIENIEWSKI onBig Hit Research much of its businessa company whosetakes hit videoplace game in other PalestiniansPalestiniansPalestinians seeking seeking seeking statehood statehoodPalestinians statehood seeking statehood tions, Israel found itself on Satur- over the region,he was crystallizedUnited States government offers tax ies of Dead SpaceFirm’s 2 in the Biggame’s Hitthis first year was week the gory Deadon JERUSALEMtions, Israel —found With itself its Cairo Palestiniansongrappling Satur- with seeking a radicallygrappling statehood trans- with a radically trans-legally available to them. To do other- by the scene of Israeli military TheBy DAVIDUnited KOCIENIEWSKIStates government The United States governmentSpace 2, which challenges play- day increasingly isolated and benefit society as a whole. By DAVID KOCIENIEWSKI countries. “E.A.ers to advance is a through global an apoca- company recognitionrecognitionrecognition at at at the the the United United Unitedrecognition Na- Na- Na- at the United Na- formed Middle East where wiseit be- would be like a consumer “in- jets sweepingincentives into Cairo at dawn to companies pursuingTappedoffers medi tax incentives -to Developthe to market compa- a this year. It shows a total of $1.2 bil- embassyday ransacked, increasingly its ambassa- isolatedrecognitionformed and Middle at East the grappling Unitedwhere it with Na- be- a radically trans- Within a few years, the credit was be- on Saturday to evacuate diplo- The United States government offers taxwith incentives a majority lyptic to ofbattlefield compa- our by customers killing space and tions,tions,tions, Israel Israel Israel found found found itself itself itself on ontions, onSatur- Satur- Satur- Israel found itself on Satur- lieves its options are limitedsisting and on paying full price during a mats after thecal Israeli breakthroughs, Embassy urban redevelopmentoffersnies pursuing tax incentives medical to compa- break- zombies. By ETHAN BRONNER dor tograppling Turkey with expelled a radically andtions, the trans- Israel found itselfformed on MiddleSatur- East where it be- ing claimed by businesses with little had been besieged by thousands The Unitedlion States in global governmentnies profits pursuing roughlythe last medical50 five percent yearsThose tax break-of incentives usingour revenue — aan col- gen- lieves its options arepoor. limited and TSubsidiesByBy ByDAVID DAVID DAVID on KOCIENIEWSKI KOCIENIEWSKI KOCIENIEWSKI ResearchBythroughs, DAVID urban KOCIENIEWSKI redevelopment lection of deductions, write-offs daydayday increasingly increasingly increasingly isolated isolated isolatedday and and increasingly and isolated and lieves its options are limitedstore and sale,” wrote Jeff Brown, a compa- of protesters. [Page 10.] nies Firm’s pursuing medicalBig Hit break- By DAVID KOCIENIEWSKI Palestiniansformed Middle seeking East statehood whereday it increasingly be- isolatedThe diplomatic and crisis, in which technological background — fast-food andIt was alternativesan image that reminded to fossil fuels. andoffers alternatives tax to incentives accountingfossil fuels. tothroughs, method compa- that erated urban management outside redevelopmentand of creditsthe United mostlysays devised cap States,” for- Mr. JERUSALEM — With its Cairo poor. poor. ny spokesman. Even E.A.’s competitors throughs, urban redevelopment other industries in other eras — grapplinggrapplinggrappling with with with a a radically a radically radicallygrappling trans- trans- trans- with a radically trans- restaurants, hair stylists and fashion some Israelis of IranThe inThe 1979,The United United United States States States government government governmentTheIt United also provides States tax governmentbreaks for Brown said. “Naturally we hire, build embassy ransacked, its ambassa-recognitionlieves its at options the United are limited grappling Na-The and diplomatic with a radicallycrisis,windsThe in diplomatic unleashed trans-which crisis, by the in whichacknowledge Arab that its tax strategies are- when IsraelIt evacuatedalsoTapped itsprovides embas- to taxDevelop breaks fora aand companynies alternatives pursuing to turesfossil medicalfuels. its operatingand The break- alternatives United profits. States to fossil governmentnow makefuels. video game produc- formedformedformed Middle Middle Middle East East East where where whereformed it it be- itbe- be-Middle East where it be- Spring are now casting a chill designers. So Congress tried to restrict sy in Tehran after offerstheoffers revolutionoffers tax tax tax incentives incentives incentives to to offers to compa- compa- compa-a company tax incentives whose hit video to game compa- facilities, copyrighttion one of our the most trademarks, highly sub- in- tions,poor. Israel found itself on Satur-formed Middle East windswhere unleashed it be- by the n’t Arab particularly aggressive compared whosethere replaced anhit ally withvideo an im- game this year was throughs,theIt also gory provides urban tax breaks But redevelopment forlargelyoffersIt also because tax provides incentives of deferredtax sidized tobreaks compa- businesses revenue, for in the United dor to Turkey expelled and the winds unleashed byover thethe region, Arab was crystallized what research would qualify. The credit placable foe. this year was the gory Dead vest and pay taxesStates, says in Calvin countries H. Johnson, outside lieveslieveslieves its its itsoptions options options are are are limited limited limitedlieves and and itsand options are limited and Spring are now casting a chill niesniesniesFirm’s pursuing pursuing pursuing Big medical Hit medical medical nies break- break- break-aBy company pursuing DAVID whose KOCIENIEWSKI medical hit video game break- who has worked at the Treasury day increasinglyThe diplomatic isolated crisis, lieves in and which its options areby limited the scene and of Israeli military “Seven months after the down- Spaceand 2,alternatives which challenges to fossil play-nies afuels. company pursuing whose medical hit video break- game Palestinians seeking statehood Spring are now castingover the aregion, chill was crystallized was denied for social science research Deadfall of Hosni Space Mubarak’s regime,2, which challenges playersthis yearto ad was- thedeductions gory Dead for executiveof the stock U.S.” optionsDepartment and and is now a tax va pro-- poor.poor.poor. poor. throughs,throughs,throughs, urban urban urban redevelopment redevelopment redevelopmentthroughs,ers to advance urban through redevelopment an apoca- fessor at the University of Texas grapplingwinds with unleashed a radically by trans- thepoor. Arab byjets thesweeping scene into of Israeli Cairo at military dawn and marketing. The narrowest defini- Egyptian protesters tore to TheSpace UnitedIt 2,also which providesStates challenges government tax play- breaksthroughs,this yearfor urban was the redevelopment gory Dead recognition at the United Na- over the region, was crystallized vanceshreds the Israeli through flag, a symbol an apocalyptic battlefieldlyptic by battlefield kill- byriety killing of space accounting requirements,at Austin. the company TheTheThe diplomatic diplomatic diplomatic crisis, crisis, crisis, in in whichinThe which which diplomatic crisis, in which jetson Saturdaysweeping tointo evacuate Cairo at diplo-dawn of peace between and Egyptandand and alternatives alternatives its alternatives to to fossilto fossil fossil fuels.and fuels. fuels. alternativesers to advance through to fossil an apoca- fuels. Because video game makers formedSpring Middle are East now where casting it be-The a chill diplomatic crisis, in which tion, proposed by the Clinton adminis- offersa company tax incentives whose tohit compa-videoandSpace gamealternatives 2, which to challenges fossilstraddle fuels. the linesplay- between soft- tions, Israel found itself on Satur- by the scene of Israelimats after military the Israeli Embassy ingeastern spaceneighbor, after zombies. 31 years,” lypticzombies. battlefield byofficially killing space reports a netJockeying loss for thefor Developersperiod. And windswindswinds unleashed unleashed unleashed by by by the thewinds the Arab Arab Arab unleashed by the Arab on Saturday to evacuate diplo- tration, was to allow the credit only for Aluf Benn, the editorBy inIt DAVID chiefIt alsoIt also of also provides KOCIENIEWSKIprovides provides tax tax tax breaks breaks breaksIt alsofor for for provides tax breaks for ware development, the entertain- lievesover its optionsthe region, are waslimited crystallizedwinds and unleashed byhad the been Arabbesieged by thousands nies thisThose pursuing year tax incentives was medical —the a col- gory break-ersIt to Deadalso advance provides through tax mentbreaks an industry apoca- andfor online retail- day increasingly isolated and jets sweeping into Cairomats afterat dawn the Israeli Embassy the left-leaningThose Israeli tax newspa- incentives — a collectionzombies. of de- SpringSpringSpring are are are now now now casting casting casting Spring a a chill a chill chill are now casting a chill research that produced an actual inno- per Haaretz, wrotea Saturday. acompany acompany company “It whose whose whose hit hit hitvideo video videoa company game gamelection game of whose deductions, thehit video write-offscompany game reports thatAs Congress it paiding, outand they canthe$98 combine Obama million tax breaks adminis- by the scene of IsraeliSpring military are now castingof protesters. a chill [Page 10.] throughs,SpaceThose tax urban 2, incentives which redevelopment challenges — a col-a company play- whose hit videoin ways that game companies like Net- grappling with a radically trans-poor. on Saturday to evacuatehad been diplo-besieged by thousands seems that theThe flag will United not re- States government lyptic battlefieldtration wrestleby killing with space the next round of overoverover the the the region, region, region, was was was crystallized crystallized crystallized It was an image that reminded vation, but that measure met deter- turn to the flagstaffthisthis this anytime year year year was was was the the the gory goryductions, gorythis Dead Deadand Deadyear creditswrite- was mostly thein devised cash gory for for Dead taxes worldwide in thoseflix and years. Adobe cannot. Video over thejets region,sweeping was into crystallized Cairo at dawn of protesters. [Page 10.] andlection alternativesers to of advance deductions, to fossil through write-offs fuels. thisan apoca- year was the gorygame developers Dead receive such a formed Middle East where it be-The diplomatic crisis, in whichovermats the after region, the was Israeli somecrystallized Embassy Israelis of Iran in 1979, mined opposition from business lobby- soon.” offers tax incentives to compa-eoother game industries industry in had other failed eras —to zombies.name a budget cuts this fall, and a possible It was an image that reminded Egypt and IsraelSpace Space bothSpace issued 2, 2, which2, which which challenges challenges challengesoffsSpace and play- play-and play- 2,credits credits which mostly challenges devised for play- rich assortment of incentives that byby by the the the scene scene scene of of of Israeli Israeli Israeli militaryby military military the scene of Israeli military BUT NOBODY PAYS THAT lyptic battlefield Neitherby killingSpace corporations space 2, which challengesnor theeven oilgovernment companies play- have ques- lieves its options are limited andwindson unleashed Saturday to by evacuate the by Arabhad the diplo- been scene besieged of Israeli bywhen thousands militaryIsrael evacuated its embas- ists. By the time the Treasury Depart- statementsnies on Saturday pursuingreaffirm- medical break-technologicalItothernow also make industries provides video breakthrough in game othertax produc- erasbreaks — that for Those had taxoverhaul incentives of the tax — acode, col- they will de- some Israelis of Iran in 1979, ing their commitmentsersers ers toto theirto advanceto advance advance through through through an aners anapoca- apoca- toapoca- advance through an apoca- DAMON WINTER/THE NEW YORK TIMES tioned why the government jetsjetsjets sweeping sweeping sweeping into into into Cairo Cairo Cairo atjets at atdawn dawnsweeping dawn into Cairo at dawn sy in Tehran after the revolution mostlyhelpedtion zombies.devised one anyone of the beyond mostmake highly its shareholders,tax sub- ersreturns to advance public, through and theshould an subsidizeinformationapoca- such a mature poor. Springmats are after now the casting Israeli a jets Embassyof chill protesters. sweeping [Pageinto Cairo 10.]when atIsrael dawn evacuated its embas- ment ruled in 2002, an appointee of Incentivespeace treaty,throughs, but for in aVideo televised Games urban redevelopmenta companyTHEnow RECKONING: make whose video A DECADE game hit AFTER video produc- 9/11 gamelection of termine deductions, whether write-offs the types of subsidies onon on Saturday Saturday Saturday to to to evacuate evacuate evacuateon diplo- diplo- Saturday diplo- to evacuate diplo- there replaced an ally with an im- address on Saturdaylyptic night,lypticlyptic Prime battlefield battlefield battlefield by by bykilling killing killinglyptic spaceemployees space tionsidizedspace battlefield one businesses of or the customers. most by in killing highly the United sub- space and profitable industry whose had been besieged by thousandson Saturday to evacuatesy in Tehran diplo- after the revolution President George W. Bush decided to Minister Benjamin Netanyahu of A special report on the costsfor and thisother consequences, year Thoseindus measured was - tax in lives, themost incentives dollars gory andcompanies countless Deadlyptic — challenges a col-battlefielddisclose to theoffered human spirit.in by to their E.A.killingmain regulatory and contribution space other is tocorporations createfil- The diplomatic crisis, in whichover the region, was crystallizedIt was an image that reminded and alternatives to fossil fuels. States, says Calvin H. Johnson, and credits mostly devisedamusing and sometimes for antiso- thereplacable replaced foe. an ally with an im- drop it. Israel warned that zombies.Egyptzombies.zombies. “cannot zombies.sidized“The businessesresearch in credit the United benefits the are worth the billions in forgone reve- matsmatsmats after after after the the the Israeli Israeli Israeli Embassy Embassymats Embassy of after protesters. the Israeli [Page Embassy 10.] ignore the heavy damage done to • Since 2001, neither America’stries worstSpace fears whoinlection• Afterhas 2,other whichaworked decade of of deductions, war,at challengesings the Afghanistan Treasury is insufficient re- •zombies. play-write-offsPortraits of Grief, to brief determine profiles of the lost, cialhow entertainment. much they winds unleashed by the Arabby the scene of Israeli militarymatssome after Israelis the Israeliof Iran“Seven Embassy in months 1979, after the down- It also provides tax breaks forStates, says Calvin H. Johnson, other industries in otherFor example, eras Electronic — Arts of placable foe. “It seemed as though it would be im- Articlesthe fabric of peace.” in thisThose seriesThoseThosenor are tax its tax examininghighest tax incentives incentives hopes incentives have ef- been realized, — — — aThose wrongbut a Department col- a col-mains col- companiesunstable, tax incentivesPakistanand is isnow anda shaky a encouragestaxally — and pro- astruck col- a chord the after thenue attacks. annually Relatives to the Treasury. While hadhadhad been been been besieged besieged besieged by by bythousands thousands hadthousands been besieged by thousands fall of Hosni Mubarak’s regime, Facing crises in relations with something new passes for normal. Pageers 2. whotoandthe advance has military creditsworked endgame through at is mostly unclear.the Treasury Page an 6. devisedapoca-and friendsThose tell forhow life tax has changed. incentives Page 32. Redwood — a City, col- Calif., shipped Spring are now casting a chilljets sweepingIt was an into image Cairo that at dawnhadremindedwhen been Israel besieged evacuated by “Seventhousands its embas- months after the down- eras —a company now make whose video hit gamevideo gameproductionwrong kind one of research,”pay in said federal Mr.now Rash- taxes make and video how game thatmore thancompares produc- two million copies to of Egyptian protesters tore to possible to enforce,” said Pamela F. fortsEgypt and by Turkey, businesseslection itslection twolection most to of lowertheir of of deductions, deductions, deductions, taxes, write-offs write-offs lection write-offsfessor of at deductions,the University of write-offs Texas Britain and some nations in the Euro- ofof protesters.of protesters. protesters. [Page [Page [Page 10.] 10.] 10.] of protesters. [Page 10.] fall of Hosni Mubarak’s regime, important regional allies, Israel Departmentother industries and is now a in tax other pro-lection eras — of deductions,Dead write-offs Space 2 in the game’s first on Saturdaysome Israelis to evacuate of Iran diplo-of in protesters. 1979, [Page 10.] of thethis most year highly was subsidized the gory businesses Deadlyptickin,at Austin.a battlefieldtax in expertthe andbythe executivekilling official space tionatUnited Mar- one States of the mostcorporate week highly on the rate market sub- thisof year. 35 It over the region, was crystallized sy in Tehran after theshreds revolution the Israeli flag, a symbol Olson, then the assistant secretary for andturned the to thedebate United overhow States. to improve the fessor at the University of Texas pean Union have been paring back their ItIt wasIt was was an an animage image image that that that reminded reminded remindedIt was an image that reminded Egyptian protesters tore to Throughout the nightandand onand Friday, credits credits credits mostly mostly mostly devised devised devisedand forcreditsnow for for make mostly video devised game for produc- shows a total of $1.2 billion in glo- when Israel evacuated its Itembas- was an image thatof peacereminded between Egypt and its zombies.vell Because Technology, video a game company makers basedandsidized credits in businesses mostly in devised bal the profits United the last for five years us- by the scene of Israeli militarymats after the Israeli Embassythere replaced an allyshreds with the an Israeli im- flag, a symbol tax policy, and now a tax lawyer at Uniteddesperate Space Israeli States, officials 2, called whichsays Calvin challenges H. Johnson, play-at Austin.who has percent. tax subsidies for game developers, Can- tax system.otherotherother industries industries industriesOn in in inother a other otherHaunted other eras eras erasstraddle — industries — —Shore, the lines in a between otherStruggle soft- eras —to Let Go ing an accounting method that somesomesome Israelis Israelis Israelis of of of Iran Iran Iran insome in in 1979, 1979, 1979, Israelis of Iran in 1979, eastern neighbor, after 31 years,” Continued on Page 10 Santation Clara, one Calif. of the “By most diverting highlyother fund- sub- industries in other eras — jets sweeping into Cairo at dawnhad beensy in besiegedTehran after by thousands the revolutionsomeplacable Israelis foe. of Iranof peace in between 1979, Egypt and its Skadden, Arps, Slate, Meagher & Flom. ers to advance through an apoca-ThoseBecause tax video incentives game makers — a States, col- saysada Calvin has been H.management trying Johnson, saysto lure captures them its and workedONLINE: at the Treasury Department andware isdevelopment, now the entertain-All told, the federal governmentoperating profits. gave $123 whenwhenwhen Israel Israel Israel evacuated evacuated evacuated its its when itsembas- embas- embas- Israel evacuated its embas- easternAluf Benn, neighbor, the editor after in31 chiefyears,” of “Because you couldn’t be certain that nownownow make make make video video video game game game now produc- produc-ing produc- straddle makesidizedand attention the video businesses lines from betweengame where in produc- soft- it the nowcould United be maketheir video jobs game from belowproduc- the border. In on Saturday to evacuate diplo-of protesters.there replaced [Page an 10.] ally withwhen“Seven an Israelim- months evacuated afterthe its the left-leaning embas- down- Israeli newspa- lyptic battlefieldA by Largely killing Irish spaceSlicelection ofment Queens industryof Lost deductions, Generations and online retail-write-offs of Firefighterswho has and worked Traders at theBut Treasury largely because of deferred Aluf Benn, the editor in chief of someone wouldn’t come back later and a taxnytimes.com/businessday professortiontiontion one one one at of of the ofthe the the University most most most highly highly highlytion mostof sub- ware one sub- Texas sub- useful,development, of theat the most billion the credit entertain- highly in is tax sub-hobbling incentives2008, to Ontario corporations paidrevenue, one deductions game in for2010, execu-company a sysy syin in Tehranin Tehran Tehran after after after the the the revolution revolution syrevolution in placableTehran after foe. the revolution anding, States, credits they can says mostlycombine Calvin tax devised breaks H. tionDepartment Johnson, for one of the and most is now highlytive astock tax options sub- pro- and a variety of mats after the Israeli EmbassyIt was an image that remindedsyfall in ofTehran Hosni after Mubarak’s thetheper revolution Haaretz, left-leaning regime, wrote Israeli Saturday. newspa- “It Courtzombies. 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PAGE 1 U(D5E71D)x+%!/!_!=!# cans to leave since the start of the occu- pendent streak, and lost work in the late omy shrinks, Washington has goals for Novak Djokovic, Rafael Nadal, Serena Iraq Contemplates U.S. Exitpation in 2003,Cliff some Robertsonare now not so Dies sure at 881970s and earlyNot ’80s Made after exposing in America a improvement U.S.but no Openexplicit Finals plan for Set Williams and SamanthaThomas Stosur L. Friedman reached PAGE 11 Though Iraqis have called for Ameri-about a drawdown.The Oscar-winning PAGEactor had6 anstudio inde- boss as Asan manufacturing’sembezzler. PAGE share 22 of theachieving econ- them.After more than 10 hoursPAGE of1 tennis,the United States Open finals. 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14 Ø N THE NEW YORK TIMES NATIONAL SUNDAY, SEPTEMBER 11, 2011

The Tax Advantage next year to hire a prominent Washing- ton tax lobbying firm. Soon after the law Rich Tax Breaks Bolster Video game developers was signed, its lobbyist, Jonathan Tal- can take advantage of SOFTWARE MAKERS Section 174 of the Tax Code isman of Capitol Tax Partners, was government tax breaks granted a meeting with the Treasury provided to a number Companies like Microsoft and Department’s deputy assistant secre- Makers of Video Games; of different industries. Intuit can immediately deduct tary of tax policy — the same office Mr. all development costs instead Kohl once held — to ask that the de- Tax breaks for... of taking deductions for them over several years. duction be extended to video game com- panies and the revenues they earned Tech Value Is Questioned ESTIMATED ANNUAL COST from online subscriptions. When the $4.3 billion I.R.S. issued its final regulations, video committee, also promised the tax break From Page 1 games and their online revenues were would indirectly bolster national securi- ENTERTAINMENT INDUSTRY RESEARCH AND DEVELOPMENT specifically cited as qualifying for the pares to the official United States corpo- ty by stimulating “the search for new Section 41 of the Tax Code deduction. That deduction last year products and new inventions upon More than 20 states offer rate rate of 35 percent. video game developers VIDEO GAME Companies as diverse as Pfizer, equaled 9 percent of its production All told, the federal government gave which the future economic and military incentives similar to the DEVELOPERS Boeing and Apple can claim tax costs, offering E.A. significant tax sav- $123 billion in tax incentives to corpora- strength of our nation depends.” federal tax breaks given to credits for their annual ings. tions in 2010, according to the Joint In 1969, the I.R.S. expanded that tax movie companies. increases in research and Company officials point out that the Committee on Taxation, with breaks for break to allow companies to deduct the development spending. deduction is available to a wide range of cost of software development, which ESTIMATED ANNUAL COST groups and people as diverse as Nascar ESTIMATED ANNUAL COST industries. “The credit is not specific to track owners, mohair producers, hedge was a small part of a business that was N.A. INTELLECTUAL PROPERTY / $4 billion video games,” said Mr. Brown, the fund managers, chicken farmers, auto- then dominated by bulky mainframe spokesman. “It’s designed to encourage computers. When the video game in- ONLINE CONTENT PRODUCTION makers and oil companies. any domestic manufacturing in the dustry sprouted in the early 1970s, game Not explicitly covered by the Tax Code Many tax policy analysts say the United States — from soft drinks to developers reaped substantial tax sav- Companies like Google can license breaks for the video game industry — steel, to movies, music and newspa- ings because most of their costs were their products to subsidiaries in whose domestic sales of $15 billion a pers.” During Mr. Kohl’s seven years at for software development. lower-tax countries and then assign year now exceed those of the music the company, Electronic Arts also be- Electronic Arts, founded in 1982, has their profits overseas. Companies business — are a vivid example of a tax came more aggressive about assigning since become one of the world’s domi- with multiyear online subscriptions system that defies common sense. Most its intellectual property offshore, a nant video game companies — pro- can also defer part of their revenue. times, subsidies begin as a way to nur- move that often reduces a company’s ducing popular titles like SimCity, FIFA ESTIMATED ANNUAL COST ture a fledgling industry that will not be tax bill. Mr. Kohl, who declined to be in- soccer, Harry Potter and Madden NFL At least $60 billion profitable for years or to encourage a Sources: Joint Committee on Taxation; terviewed, is now running the tax de- — and has benefited mightily from that business activity deemed to have a Kimberly A. Clausing, Reed College partment at Amazon, which is leading tax incentive. broad benefit to society, like reducing the legal battle by Internet retailers pollution or improving public health. The company’s software develop- ment costs — including salaries for the who want to avoid collecting state sales But it’s a lot easier to create a tax taxes from customers. break than to eliminate it. That leaves a designers — have totaledor nearlyimproving $6 bil- public health. As a result, the company with the defiant lion over the last five years, and the In 2003, before joining Electronic generous assortment of tax incentives But it’s a lot easier to create a tax break sales slogan, “Your Mom Hates DeadArts, Space Mr. 2,” Kohl co-authored a widely- available to all types of companies, like company says it deducted all but a small amount of those expensesthan to eliminateimme- it. That leaves a generous as- in effect gets financial help from momscited and proposal oth- urging the federal gov- Electronic Arts, with skilled accounting ernment to crack down on corporate tax departments. diately. Companies that sortmentproduce movies of tax incentives available to all types er United States taxpayers to reduce its federal or compact discs, by contrast, face avoidance, warning that “the tax shel- Electronic Arts has also lobbied suc- of companies, like Electronic Arts, with skilled tax bill. tighter restrictions which often require ter problem is simply too detrimental to cessfully for more tax assistance. The them to spread out theaccounting deduction ondepartments. Company officials say they have theno qualms tax system not to act.” As head of architect of the company’s strategies in most production costs over aE numberlectronic of Arts has also lobbied successful- about taking all the tax breaks legallytax available at Electronic Arts, he became a not- recent years was Glen A. Kohl, a tax years. While video game makers have ed expert in using foreign subsidiaries lawyer colorful enough to publicly com- ly for more tax assistance. The architect of the to them. To do otherwise would be like a consum- often compared themselves to movie to legally, and sharply, cut a corpora- pare himself to Bruce Springsteen and companies when seekingcompany’s tax incentives, strategies in recent years was Glen er “insisting on paying full price duringtion’s a Unitedstore States tax bill. As a co- to joke in the pages of The Wall Street the game developers’ abilityA. Kohl, to write a tax off lawyer colorful enough to publicly sale,” wrote Jeff Brown, a company spokesman.chairman of the Silicon Valley Tax Di- Journal that his dog, Rubin, shared the the vast majority of their development rectors Group, he also moderated a name of the Treasury secretary under compare himself to Bruce Springsteen and to Even E.A.’s competitors acknowledge that its costs immediately gives them a sub- seminar in 2010 that showed technology whom he served (Robert E. Rubin). joke in the pages of The Wall Street Journal that tax strategies aren’t particularly aggressive stantial financial advantage over other companies how to use offshore subsid- After working in the Treasury De- entertainment companieshis in dog, taxes Rubin, and shared the name of the Treasury compared with others in the industry.iaries to reassign the licensing of their partment during the Clinton adminis- cash flow. secretary under whom he served (Robert E. Ru- Furthermore, Electronic Arts officialsintellectual say property and, in some cases, tration, Mr. Kohl entered the private Video game companies also get other reduce their effective federal tax rate sector and became head of E.A.’s tax de- bin). that in recent years the company has paid a research-related breaks. In 1981, as ABOVE, ELECTRONIC ARTS AND VISCERAL GAMES; BELOW, JONATHAN ALCORN/BLOOMBERG NEWS substantially from 35 percent. partment in 2004, leading the company Americans worried that Japan’sAfter grow- working in the Treasury Department substantial portion of its profits in taxes,Electronic but Arts has more than 50 as it aggressively lobbied for a federal Dead Space 2, above, shipped more than two million copies in its first week. ing dominance in theduring auto business the Clinton administration, Mr. Kohl en- declined to discuss details of its financialoverseas re subsidiaries,- according to its tax break on domestic production and Below, E.A.’s area at the Electronic Entertainment Expo in June. would be followed by a decline of the recent regulatory filings, many in low- set up a matrix of offshore subsidiaries, tered the private sector and became head of ports. high-tech industry in the United States, tax countries like Bermuda, Singapore many in low-tax countries. E.A.’s tax department in 2004, leading the com- Several tax experts noted that one of the Congress added another research and and Mauritius. The company has also As a result, the company with the de- development credit, thispany time as specifi- it aggressively lobbied for a federal tax company’s biggest tax advantages accumulatedis a tool more than $1.3 billion in fiant sales slogan, “Your Mom Hates cally for companies thatbreak increased on theirdomestic production and set up a ma- available to all companies, a deductionprofits related offshore, where it will not be Dead Space 2,” in effect gets financial R.& D. spending from thetrix previous of offshore year. subsidiaries, many in low-tax to the stock gains on options exercisedtaxed by by its the United States unless it is help from moms and other United The hope was that by encouraging com- brought back into the country. States taxpayers to reduce its federal panies to invest more incountries. research, the executives. (Tax practitioners also saidCompany that the officials say its overseas ac- tax bill. private sector might create the next tivities are not an attempt to avoid Unit- Company officials say they have no Bell Laboratories and inspire the kind ed States taxes and instead reflect how qualms about taking all the tax breaks of technological breakthroughs that much of its business takes place in other legally available to them. To do other- benefit society as a whole. countries. “E.A. is a global company wise would be like a consumer “in- Within a few years, the credit was be- with a majority of our customers and sisting on paying full price during a ing claimed by businesses with little roughly 50 percent of our revenue gen- store sale,” wrote Jeff Brown, a compa- technological background — fast-food erated outside of the United States,” Mr. ny spokesman. Even E.A.’s competitors restaurants, hair stylists and fashion Brown said. “Naturally we hire, build acknowledge that its tax strategies are- designers. So Congress tried to restrict facilities, copyright our trademarks, in- n’t particularly aggressive compared what research would qualify. The credit vest and pay taxes in countries outside was denied for social science research of the U.S.” and marketing. The narrowest defini- tion, proposed by the Clinton adminis- Jockeying for Developers tration, was to allow the credit only for research that produced an actual inno- As Congress and the Obama adminis- vation, but that measure met deter- tration wrestle with the next round of mined opposition from business lobby- eo game industry had failed to name a budget cuts this fall, and a possible ists. By the time the Treasury Depart- BUT NOBODY PAYS THAT technological breakthrough that had overhaul of the tax code, they will de- ment ruled in 2002, an appointee of Incentives for Video Games helped anyone beyond its shareholders, termine whether the types of subsidies President George W. Bush decided to employees or customers. offered to E.A. and other corporations drop it. “The research credit benefits the are worth the billions in forgone reve- “It seemed as though it would be im- Articles in this series are examining ef- wrong companies and encourages the nue annually to the Treasury. While possible to enforce,” said Pamela F. forts by businesses to lowertheir taxes, wrong kind of research,” said Mr. Rash- Britain and some nations in the Euro- Olson, then the assistant secretary for and the debate overhow to improve the kin, a tax expert and executive at Mar- pean Union have been paring back their vell Technology, a company based in tax policy, and now a tax lawyer at tax system. tax subsidies for game developers, Can- Skadden, Arps, Slate, Meagher & Flom. Santa Clara, Calif. “By diverting fund- ada has been trying to lure them and “Because you couldn’t be certain that ONLINE: ing and attention from where it could be their jobs from below the border. In someone wouldn’t come back later and nytimes.com/businessday most useful, the credit is hobbling 2008, Ontario paid one game company a challenge things, by saying that what American innovation.” subsidy of more than $321,000 for each seemed like an innovation at the time Yet, given the sharp decline in Ameri- job to relocate from the United States. had actually been discovered before.” can manufacturing jobs over the last More recently, Montreal persuaded the Glen A. Kohl was the architect of the project to reduce the pollutants released The failed attempts to restrict the half century, subsidies for research and game company THQ to relocate 800 pro- from the smokestacks of a refinery in tax strategies at Electronic Arts. R.& D. credit to basic research have development still have wide support. duction jobs there, closing studios in Louisiana. Union Carbide failed to meet been a boon for video game companies. The Obama administration has pro- New York and Phoenix, with a rich the experimental threshold for the cred- with others in the industry. Even when companies are merely cre- posed making the research and devel- package of incentives. it, though video game makers often Furthermore, Electronic Arts officials ating new versions of existing games — opment tax credit permanent (it has E.A. has 750 employees in Montreal, seem to have little trouble meeting the say that in recent years the company conducting research that would have lit- been renewed every two years since where all video game companies re- requirement. has paid a substantial portion of its prof- tle value to anyone but themselves — 1981), and expanding it, at a cost of more ceive a tax credit equal to 37.5 percent of Video game industry officials say that its in taxes, but declined to discuss de- their development processes usually in- than $100 billion over the next decade. their payroll, and has announced plans by improving technology, they are indi- tails of its financial reports. volve enough experimental uncertainty to hire more there. Over all, 4,500 of rectly helping society at large. Several tax experts noted that one of to qualify for the tax break. Looking for More Electronic Arts’ 7,600 employees are in the company’s biggest tax advantages During the last five years, Electronic Dean Zerbe, national managing di- the United States. rector at Alliantgroup, said that the mil- is a tool available to all companies, a de- Arts has claimed tens of millions in tax Electronic Arts has not been content There are signs that more tax breaks itary had used some video game tech- duction related to the stock gains on op- savings from research and develop- to merely collect the many benefits may be in store for game manufactur- nology to train soldiers and pilots. Elec- tions exercised by its executives. (Tax ment credits for its various games, ac- from existing tax breaks. Mr. Kohl, who ers. States have been offering an esca- tronic Arts said it donated some games practitioners also said that the compa- cording to the company’s regulatory fil- had an extensive background in merg- lating collection of incentives to try to to the military, schools and charities. ny’s losses, under generally accepted ings. (Company officials declined to ers and acquisitions law, arrived at the attract the companies — more than 20 accounting principles, provided the specify how much of that total came Even those who support subsidies for company in 2004, the same year Con- states now offer video game developers most meaningful picture and reflected from the federal government.) technological research complain that gress passed a domestic production de- tax breaks to cover their wages, devel- the standard approach used by other At the same time, the I.R.S. and the the current research and development duction that was intended to cut taxes opment and manufacturing costs. credit is woefully designed — favoring companies.) United States Tax Court have denied on companies that export. When Presi- Several recent studies have raised big companies over start-ups and often Industry advocates say that without the credit for some projects that would dent George W. Bush signed the law in doubts about the effectiveness of sub- subsidizing businesses for research these incentives the United States have benefited the community as well October, it listed an assortment of in- sidies offered by state and local govern- they would have done anyway. would forfeit its technological edge — as the companies receiving it. In 2009, dustries eligible for the break, including ments, and Michigan this year reduced and the 32,000 direct jobs in the gaming for instance, the federal tax court de- Michael D. Rashkin, author of “Prac- sound recordings and computer soft- its breaks for game developers. But industry — to countries like Canada, nied Union Carbide’s attempt to claim a tical Guide to Research and Develop- ware, but did not specify video games. Texas officials say its tax breaks for which offers video game developers research and development credit for its ment Tax Incentives,” said that the vid- Electronic Arts paid $60,000 early the game developers are more beneficial even greater tax subsidies. than those given other businesses, in “Software and high-tech industries part because the average salaries in the are the brain trust of the U.S.,” said industry exceed $80,000 a year. Shane T. Frank, chief operating officer California Lawmakers Give Amazon Tax Reprieve Game developers are pushing for of Alliantgroup, a consulting firm that more. John S. Riccitiello, the chief exec- helps video game companies and other By DAVID STREITFELD The deal with California might em- Lawmakers had hoped to collect utive of Electronic Arts, was among the businesses take advantage of the tax bolden other states, said Robert W. $200 million in taxes from Amazon business leaders who successfully lob- credit for research and development. SAN FRANCISCO — California law- Wood, a tax lawyer here. “Other and other online retailers for the cur- bied the City of San Francisco to drop its “We can’t afford to lose that knowledge makers overwhelmingly approved a states needing money will look and rent state budget. That money will payroll tax last year to help retain social and those high-paying jobs to India or compromise bill Friday night giving say, ‘It wasn’t a smooth process, but now have to be found elsewhere. Nev- media companies like Zynga, maker of anywhere else.” Amazon.com a one-year reprieve from having to collect a sales tax from California is going to come out ertheless, the legislators said they FarmVille and other games. The video its customers in the state. ahead,’” Mr. Wood said. were pleased. game industry’s trade group, the En- Trying to Lure Jobs Under the new measure, Amazon California lawmakers spent much of Loni Hancock, a Democratic state tertainment Software Association, this One reason Electronic Arts and other agreed to start collecting the tax in the summer trying to compel Amazon senator from Berkeley, said: “We year recruited 39 members of Congress video game companies have a bounty of September 2012 unless there was fed- to collect the tax, but the Seattle- would have liked them to begin col- to form the E-caucus, which will advo- tax incentives that other industries eral legislation on the issue. Senator based retailer aggressively resisted, lecting the tax already, but this is a cate for legislation to benefit game de- envy is that elected officials from across Richard J. Durbin, a Democrat from spending $5 million to gather a half- positive step forward.” She mentioned velopers. Representative Kevin Brady, the political spectrum find it hard to re- Illinois, has proposed a national law million signatures to take the matter another benefit: avoiding a noisy ref- a Republican from Texas who sits on the sist offering incentives to encourage requiring e-commerce companies to to voters in a referendum next June. erendum campaign that the state tax-writing Ways and Means Commit- technological research — and jobs. collect sales tax, but it has not gained The battle pitted Democrats and the could easily have lost. tee, said that the caucus has not asked When the tax code was rewritten in much traction. California Retailers Association Left unmentioned by either side for tax breaks. 1954 — nearly 20 years before the first Legislatures around the country, against Amazon and Republicans, was the possibility that Amazon might But industry officials say they even- commercially successful video game supported by struggling bricks-and- who called attempts to collect the tax be trying to buy some time. If it moves tually hope to persuade Congress to was released — Congress included a mortar stores, have been seizing on a tax increase. Consumers are sup- several small subsidiaries out of the make video game companies eligible for new break allowing companies to de- the sales tax issue as a means of rais- posed to pay a use tax on material state, it could argue that it no longer the federal tax breaks now available to duct all laboratory-based research and ing much-needed funds. Amazon is they buy online, but few do. has the physical presence in Califor- film and television producers. Michael experimentation costs immediately. fighting in the courts against a New Under the deal, the referendum will nia that requires it to collect the tax. D. Gallagher, chief executive of the soft- Part of the intention was to simplify the York law compelling it to collect taxes, now be dropped. Amazon called the The measure now goes to Gov. Jer- ware group, said that the industry tax code. But with the cold war and nu- and has used the prospect of either new measure “win-win legislation” ry Brown, who has not spoken pub- would not push for the breaks now, giv- clear arms race making Americans opening or closing warehouses as a that would allow it “to bring thou- licly about it. The vote occurred Fri- en the nation’s budget problems, but fearful that the country’s technological bargaining chip in negotiations with sands of jobs and hundreds of millions day night, with only a few dissenters might do so later. edge was eroding, Daniel Reed, chair- Texas and South Carolina. of investment dollars to California.” in either chamber. “It certainly is a worthwhile policy man of the House Ways and Means goal,” Mr. Gallagher said. Nxxx,2011-09-11,A,014,Bs-BW,E2

14 Ø N THE NEW YORK TIMES NATIONAL SUNDAY, SEPTEMBER 11, 2011

The Tax Advantage next year to hire a prominent Washing- ton tax lobbying firm. Soon after the law Rich Tax Breaks Bolster Video game developers was signed, its lobbyist, Jonathan Tal- can take advantage of SOFTWARE MAKERS Section 174 of the Tax Code isman of Capitol Tax Partners, was government tax breaks granted a meeting with the Treasury provided to a number Companies like Microsoft and Department’s deputy assistant secre- Makers of Video Games; of different industries. Intuit can immediately deduct tary of tax policy — the same office Mr. all development costs instead Kohl once held — to ask that the de- Tax breaks for... of taking deductions for them over several years. duction be extended to video game com- panies and the revenues they earned Tech Value Is Questioned ESTIMATED ANNUAL COST from online subscriptions. When the $4.3 billion I.R.S. issued its final regulations, video committee, also promised the tax break From Page 1 games and their online revenues were would indirectly bolster national securi- ENTERTAINMENT INDUSTRY RESEARCH AND DEVELOPMENT specifically cited as qualifying for the pares to the official United States corpo- ty by stimulating “the searchcompany’s for new losses, under generally accepted ac- afford to Sectionlose that 41 of theknowledge Tax Code and deduction.those high- That deduction last year products and new inventions upon More than 20 states offer rate rate of 35 percent. counting principles, videoprovided game developers the most meanVIDEO- GAMEpaying jobsCompanies to India as diverse or anywhere as Pfizer, else.”equaled 9 percent of its production All told, the federal government gave which the future economic and military incentives similar to the DEVELOPERS Boeing and Apple can claim tax costs, offering E.A. significant tax sav- $123 billion in tax incentives to corpora- strength of our nation depends.”ingful picture and federalreflected tax breaks the given standard to ap- credits for their annual ings. tions in 2010, according to the Joint In 1969, the I.R.S. expandedproach that used tax by other companies.)movie companies. Trying toincreases Lure Jobsin research and Company officials point out that the Committee on Taxation, with breaks for break to allow companies to deduct the development spending. deduction is available to a wide range of cost of software development,Industry which advocatesESTIMATED say thatANNUAL without COST these One reason Electronic Arts and other video groups and people as diverse as Nascar ESTIMATED ANNUAL COST industries. “The credit is not specific to track owners, mohair producers, hedge was a small part of a businessincentives that was the United StatesN.A. would forfeit its game companies have a bounty of tax incen- INTELLECTUAL PROPERTY / $4 billion video games,” said Mr. Brown, the fund managers, chicken farmers, auto- then dominated by bulkytechnological mainframe edge — and the 32,000 direct jobs tives that other industries envy is thatspokesman. elected “It’s designed to encourage computers. When the video game in- ONLINE CONTENT PRODUCTION makers and oil companies. in the gaming industry — to countries like Can- officials from across the political spectrumany domestic find manufacturing in the dustry sprouted in the early 1970s, game Not explicitly covered by the Tax Code Many tax policy analysts say the United States — from soft drinks to developers reaped substantialada, which tax sav- offers video game developersCompanies even like Googleit hard can license to resist offering incentives to encourage breaks for the video game industry — steel, to movies, music and newspa- ings because most of their costs were their products to subsidiaries in whose domestic sales of $15 billion a greater tax subsidies. technological research — and jobs. pers.” During Mr. Kohl’s seven years at for software development. lower-tax countries and then assign year now exceed those of the music “Software and high-tech industries are the When the tax code was rewrittenthe in company, 1954 — Electronic Arts also be- Electronic Arts, founded in 1982, has their profits overseas. Companies business — are a vivid example of a tax came more aggressive about assigning since become one of the brain world’s trust domi- of the U.S.,” said Shanewith T. multiyearFrank, onlinenearly subscriptions 20 years before the first commercially system that defies common sense. Most its intellectual property offshore, a nant video game companieschief —operating pro- officer of Alliantgroup,can also a defercon -part ofsuccessful their revenue. video game was released — Con- times, subsidies begin as a way to nur- move that often reduces a company’s ducing popular titles like SimCity, FIFA ESTIMATED ANNUAL COST ture a fledgling industry that will not be sulting firm that helps video game companies gress included a new break allowingtax companies bill. Mr. Kohl, who declined to be in- soccer, Harry Potter and Madden NFL At least $60 billion profitable for years or to encourage a and other businessesSources: Joint take Committee advantage on Taxation; of the tax to deduct all laboratory-based researchterviewed, and is now running the tax de- — and has benefited mightily from that business activity deemed to have a Kimberly A. Clausing, Reed College partment at Amazon, which is leading tax incentive. credit for research and development. “We can’t experimentation costs immediately. Part of the broad benefit to society, like reducing the legal battle by Internet retailers pollution or improving public health. The company’s software develop- ment costs — including salaries for the who want to avoid collecting state sales But it’s a lot easier to create a tax taxes from customers. break than to eliminate it. That leaves a designers — have totaled nearly $6 bil- lion over the last five years, and the In 2003, before joining Electronic generous assortment of tax incentives Arts, Mr. Kohl co-authored a widely- available to all types of companies, like company says it deducted all but a small amount of those expenses imme- cited proposal urging the federal gov- Electronic Arts, with skilled accounting ernment to crack down on corporate tax departments. diately. Companies that produce movies or compact discs, by contrast, face avoidance, warning that “the tax shel- Electronic Arts has also lobbied suc- tighter restrictions which often require ter problem is simply too detrimental to cessfully for more tax assistance. The them to spread out the deduction on the tax system not to act.” As head of architect of the company’s strategies in most production costs over a number of tax at Electronic Arts, he became a not- recent years was Glen A. Kohl, a tax years. While video game makers have ed expert in using foreign subsidiaries lawyer colorful enough to publicly com- often compared themselves to movie to legally, and sharply, cut a corpora- pare himself to Bruce Springsteen and companies when seeking tax incentives, tion’s United States tax bill. As a co- to joke in the pages of The Wall Street the game developers’ ability to write off chairman of the Silicon Valley Tax Di- Journal that his dog, Rubin, shared the the vast majority of their development rectors Group, he also moderated a name of the Treasury secretary under costs immediately gives them a sub- seminar in 2010 that showed technology whom he served (Robert E. Rubin). stantial financial advantage over other companies how to use offshore subsid- After working in the Treasury De- entertainment companies in taxes and iaries to reassign the licensing of their partment during the Clinton adminis- cash flow. intellectual property and, in some cases, tration, Mr. Kohl entered the private Video game companies also get other reduce their effective federal tax rate sector and became head of E.A.’s tax de- research-related breaks. In 1981, as ABOVE, ELECTRONIC ARTS AND VISCERAL GAMES; BELOW, JONATHAN ALCORN/BLOOMBERG NEWS substantially from 35 percent. partment in 2004, leading the company Americans worried that Japan’s grow- Electronic Arts has more than 50 as it aggressively lobbied for a federal Dead Space 2, above, shipped more than two million copies in its first week. ing dominance in the auto business overseas subsidiaries, according to its tax break on domestic production and Below, E.A.’s area at the Electronic Entertainment Expo in June. would be followed by a decline of the recent regulatory filings, many in low- set up a matrix of offshore subsidiaries, high-tech industry in the United States, tax countries like Bermuda, Singapore many in low-tax countries. Congress added another research and and Mauritius. The company has also As a result, the company with the de- development credit, this time specifi- accumulated more than $1.3 billion in fiant sales slogan, “Your Mom Hates cally for companies that increased their profits offshore, where it will not be Dead Space 2,” in effect gets financial R.& D. spending from the previous year. taxed by the United States unless it is help from moms and other United The hope was that by encouraging com- brought back into the country. States taxpayers to reduce its federal panies to invest more in research, the Company officials say its overseas ac- tax bill. private sector might create the next tivities are not an attempt to avoid Unit- Company officials say they have no Bell Laboratories and inspire the kind ed States taxes and instead reflect how qualms about taking all the tax breaks of technological breakthroughs that much of its business takes place in other legally available to them. To do other- benefit society as a whole. countries. “E.A. is a global company wise would be like a consumer “in- Within a few years, the credit was be- with a majority of our customers and sisting on paying full price during a ing claimed by businesses with little roughly 50 percent of our revenue gen- store sale,” wrote Jeff Brown, a compa- technological background — fast-food erated outside of the United States,” Mr. ny spokesman. Even E.A.’s competitors restaurants, hair stylists and fashion Brown said. “Naturally we hire, build acknowledge that its tax strategies are- designers. So Congress tried to restrict facilities, copyright our trademarks, in- n’t particularly aggressive compared what research would qualify. The credit vest and pay taxes in countries outside was denied for social science research of the U.S.” and marketing. The narrowest defini- tion, proposed by the Clinton adminis- Jockeying for Developers tration, was to allow the credit only for research that produced an actual inno- As Congress and the Obama adminis- vation, but that measure met deter- tration wrestle with the next round of mined opposition from business lobby- eo game industry had failed to name a budget cuts this fall, and a possible ists. By the time the Treasury Depart- BUT NOBODY PAYS THAT technological breakthrough that had overhaul of the tax code, they will de- ment ruled in 2002, an appointee of Incentives for Video Games helped anyone beyond its shareholders, termine whether the types of subsidies President George W. Bush decided to employees or customers. offered to E.A. and other corporations drop it. “The research credit benefits the are worth the billions in forgone reve- “It seemed as though it would be im- Articles in this series are examining ef- wrong companies and encourages the nue annually to the Treasury. While possible to enforce,” said Pamela F. forts by businesses to lowertheir taxes, wrong kind of research,” said Mr. Rash- Britain and some nations in the Euro- Olson, then the assistant secretary for and the debate overhow to improve the kin, a tax expert and executive at Mar- pean Union have been paring back their vell Technology, a company based in tax policy, and now a tax lawyer at tax system. tax subsidies for game developers, Can- Skadden, Arps, Slate, Meagher & Flom. Santa Clara, Calif. “By diverting fund- ada has been trying to lure them and “Because you couldn’t be certain that ONLINE: ing and attention from where it could be their jobs from below the border. In someone wouldn’t come back later and nytimes.com/businessday most useful, the credit is hobbling 2008, Ontario paid one game company a challenge things, by saying that what American innovation.” subsidy of more than $321,000 for each seemed like an innovation at the time Yet, given the sharp decline in Ameri- job to relocate from the United States. had actually been discovered before.” can manufacturing jobs over the last More recently, Montreal persuaded the Glen A. Kohl was the architect of the project to reduce the pollutants released The failed attempts to restrict the half century, subsidies for research and game company THQ to relocate 800 pro- from the smokestacks of a refinery in tax strategies at Electronic Arts. R.& D. credit to basic research have development still have wide support. duction jobs there, closing studios in Louisiana. Union Carbide failed to meet been a boon for video game companies. The Obama administration has pro- New York and Phoenix, with a rich the experimental threshold for the cred- with others in the industry. Even when companies are merely cre- posed making the research and devel- package of incentives. it, though video game makers often Furthermore, Electronic Arts officials ating new versions of existing games — opment tax credit permanent (it has E.A. has 750 employees in Montreal, seem to have little trouble meeting the say that in recent years the company conducting research that would have lit- been renewed every two years since where all video game companies re- requirement. has paid a substantial portion of its prof- tle value to anyone but themselves — 1981), and expanding it, at a cost of more ceive a tax credit equal to 37.5 percent of Video game industry officials say that its in taxes, but declined to discuss de- their development processes usually in- than $100 billion over the next decade. their payroll, and has announced plans by improving technology, they are indi- tails of its financial reports. volve enough experimental uncertainty to hire more there. Over all, 4,500 of rectly helping society at large. Several tax experts noted that one of to qualify for the tax break. Looking for More Electronic Arts’ 7,600 employees are in the company’s biggest tax advantages During the last five years, Electronic Dean Zerbe, national managing di- the United States. rector at Alliantgroup, said that the mil- is a tool available to all companies, a de- Arts has claimed tens of millions in tax Electronic Arts has not been content There are signs that more tax breaks itary had used some video game tech- duction related to the stock gains on op- savings from research and develop- to merely collect the many benefits may be in store for game manufactur- nology to train soldiers and pilots. Elec- tions exercised by its executives. (Tax ment credits for its various games, ac- from existing tax breaks. Mr. Kohl, who ers. States have been offering an esca- tronic Arts said it donated some games practitioners also said that the compa- cording to the company’s regulatory fil- had an extensive background in merg- lating collection of incentives to try to to the military, schools and charities. ny’s losses, under generally accepted ings. (Company officials declined to ers and acquisitions law, arrived at the attract the companies — more than 20 accounting principles, provided the specify how much of that total came Even those who support subsidies for company in 2004, the same year Con- states now offer video game developers most meaningful picture and reflected from the federal government.) technological research complain that gress passed a domestic production de- tax breaks to cover their wages, devel- the standard approach used by other At the same time, the I.R.S. and the the current research and development duction that was intended to cut taxes opment and manufacturing costs. credit is woefully designed — favoring companies.) United States Tax Court have denied on companies that export. When Presi- Several recent studies have raised big companies over start-ups and often Industry advocates say that without the credit for some projects that would dent George W. Bush signed the law in doubts about the effectiveness of sub- subsidizing businesses for research these incentives the United States have benefited the community as well October, it listed an assortment of in- sidies offered by state and local govern- they would have done anyway. would forfeit its technological edge — as the companies receiving it. In 2009, dustries eligible for the break, including ments, and Michigan this year reduced and the 32,000 direct jobs in the gaming for instance, the federal tax court de- Michael D. Rashkin, author of “Prac- sound recordings and computer soft- its breaks for game developers. But industry — to countries like Canada, nied Union Carbide’s attempt to claim a tical Guide to Research and Develop- ware, but did not specify video games. Texas officials say its tax breaks for which offers video game developers research and development credit for its ment Tax Incentives,” said that the vid- Electronic Arts paid $60,000 early the game developers are more beneficial even greater tax subsidies. than those given other businesses, in “Software and high-tech industries part because the average salaries in the are the brain trust of the U.S.,” said industry exceed $80,000 a year. Shane T. Frank, chief operating officer California Lawmakers Give Amazon Tax Reprieve Game developers are pushing for of Alliantgroup, a consulting firm that more. John S. Riccitiello, the chief exec- helps video game companies and other By DAVID STREITFELD The deal with California might em- Lawmakers had hoped to collect utive of Electronic Arts, was among the businesses take advantage of the tax bolden other states, said Robert W. $200 million in taxes from Amazon business leaders who successfully lob- credit for research and development. SAN FRANCISCO — California law- Wood, a tax lawyer here. “Other and other online retailers for the cur- bied the City of San Francisco to drop its “We can’t afford to lose that knowledge makers overwhelmingly approved a states needing money will look and rent state budget. That money will payroll tax last year to help retain social and those high-paying jobs to India or compromise bill Friday night giving say, ‘It wasn’t a smooth process, but now have to be found elsewhere. Nev- media companies like Zynga, maker of anywhere else.” Amazon.com a one-year reprieve from having to collect a sales tax from California is going to come out ertheless, the legislators said they FarmVille and other games. The video its customers in the state. ahead,’” Mr. Wood said. were pleased. game industry’s trade group, the En- Trying to Lure Jobs Under the new measure, Amazon California lawmakers spent much of Loni Hancock, a Democratic state tertainment Software Association, this One reason Electronic Arts and other agreed to start collecting the tax in the summer trying to compel Amazon senator from Berkeley, said: “We year recruited 39 members of Congress video game companies have a bounty of September 2012 unless there was fed- to collect the tax, but the Seattle- would have liked them to begin col- to form the E-caucus, which will advo- tax incentives that other industries eral legislation on the issue. Senator based retailer aggressively resisted, lecting the tax already, but this is a cate for legislation to benefit game de- envy is that elected officials from across Richard J. Durbin, a Democrat from spending $5 million to gather a half- positive step forward.” She mentioned velopers. Representative Kevin Brady, the political spectrum find it hard to re- Illinois, has proposed a national law million signatures to take the matter another benefit: avoiding a noisy ref- a Republican from Texas who sits on the sist offering incentives to encourage requiring e-commerce companies to to voters in a referendum next June. erendum campaign that the state tax-writing Ways and Means Commit- technological research — and jobs. collect sales tax, but it has not gained The battle pitted Democrats and the could easily have lost. tee, said that the caucus has not asked When the tax code was rewritten in much traction. California Retailers Association Left unmentioned by either side for tax breaks. 1954 — nearly 20 years before the first Legislatures around the country, against Amazon and Republicans, was the possibility that Amazon might But industry officials say they even- commercially successful video game supported by struggling bricks-and- who called attempts to collect the tax be trying to buy some time. If it moves tually hope to persuade Congress to was released — Congress included a mortar stores, have been seizing on a tax increase. Consumers are sup- several small subsidiaries out of the make video game companies eligible for new break allowing companies to de- the sales tax issue as a means of rais- posed to pay a use tax on material state, it could argue that it no longer the federal tax breaks now available to duct all laboratory-based research and ing much-needed funds. Amazon is they buy online, but few do. has the physical presence in Califor- film and television producers. Michael experimentation costs immediately. fighting in the courts against a New Under the deal, the referendum will nia that requires it to collect the tax. D. Gallagher, chief executive of the soft- Part of the intention was to simplify the York law compelling it to collect taxes, now be dropped. Amazon called the The measure now goes to Gov. Jer- ware group, said that the industry tax code. But with the cold war and nu- and has used the prospect of either new measure “win-win legislation” ry Brown, who has not spoken pub- would not push for the breaks now, giv- clear arms race making Americans opening or closing warehouses as a that would allow it “to bring thou- licly about it. The vote occurred Fri- en the nation’s budget problems, but fearful that the country’s technological bargaining chip in negotiations with sands of jobs and hundreds of millions day night, with only a few dissenters might do so later. edge was eroding, Daniel Reed, chair- Texas and South Carolina. of investment dollars to California.” in either chamber. “It certainly is a worthwhile policy man of the House Ways and Means goal,” Mr. Gallagher said. Nxxx,2011-09-11,A,014,Bs-BW,E2

14 Ø N THE NEW YORK TIMES NATIONAL SUNDAY, SEPTEMBER 11, 2011

The Tax Advantage next year to hire a prominent Washing- ton tax lobbying firm. Soon after the law Rich Tax Breaks Bolster Video game developers was signed, its lobbyist, Jonathan Tal- can take advantage of SOFTWARE MAKERS Section 174 of the Tax Code isman of Capitol Tax Partners, was government tax breaks granted a meeting with the Treasury provided to a number Companies like Microsoft and Department’s deputy assistant secre- Makers of Video Games; of different industries. Intuit can immediately deduct tary of tax policy — the same office Mr. all development costs instead Kohl once held — to ask that the de- Tax breaks for... of taking deductions for them over several years. duction be extended to video game com- panies and the revenues they earned Tech Value Is Questioned ESTIMATED ANNUAL COST from online subscriptions. When the $4.3 billion I.R.S. issued its final regulations, video committee, also promised the tax break From Page 1 games and their online revenues were would indirectly bolster national securi- ENTERTAINMENT INDUSTRY RESEARCH AND DEVELOPMENT specifically cited as qualifying for the pares to the official United States corpo- ty by stimulating “the search for new Section 41 of the Tax Code deduction. That deduction last year products and new inventions upon More than 20 states offer rate rate of 35 percent. video game developers VIDEO GAME Companies as diverse as Pfizer, equaled 9 percent of its production All told, the federal government gave which the future economic and military incentives similar to the DEVELOPERS Boeing and Apple can claim tax costs, offering E.A. significant tax sav- $123 billion in tax incentives to corpora- strength of our nation depends.” federal tax breaks given to credits for their annual ings. tions in 2010, according to the Joint In 1969, the I.R.S. expanded that tax movie companies. increases in research and Company officials point out that the Committee on Taxation, with breaks for break to allow companies to deduct the development spending. deduction is available to a wide range of cost of software development, which ESTIMATED ANNUAL COST groups and people as diverse as Nascar ESTIMATED ANNUAL COST industries. “The credit is not specific to track owners, mohair producers, hedge was a small part of a business that was N.A. INTELLECTUAL PROPERTY / $4 billion video games,” said Mr. Brown, the fund managers, chicken farmers, auto- then dominated by bulky mainframe spokesman. “It’s designed to encourage computers. When the video game in- ONLINE CONTENT PRODUCTION makers and oil companies. any domestic manufacturing in the dustry sprouted in the early 1970s, game Not explicitly covered by the Tax Code Many tax policy analysts say the United States — from soft drinks to developers reaped substantial tax sav- Companies like Google can license breaks for the video game industry — steel, to movies, music and newspa- ings because most of their costs were their products to subsidiaries in whose domestic sales of $15 billion a pers.” During Mr. Kohl’s seven years at for software development. lower-tax countries and then assign year now exceed those of the music the company, Electronic Arts also be- Electronic Arts, founded in 1982, has their profits overseas. Companies business — are a vivid example of a tax came more aggressive about assigning since become one of the world’s domi- with multiyear online subscriptions system that defies common sense. Most its intellectual property offshore, a nant video game companies — pro- can also defer part of their revenue. times, subsidies begin as a way to nur- move that often reduces a company’s ducing popular titles like SimCity, FIFA ESTIMATED ANNUAL COST ture a fledgling industry that will not be tax bill. Mr. Kohl, who declined to be in- soccer, Harry Potter and Madden NFL At least $60 billion profitable for years or to encourage a Sources: Joint Committee on Taxation; terviewed, is now running the tax de- — and has benefited mightily from that business activity deemed to have a Kimberly A. Clausing, Reed College partment at Amazon, which is leading tax incentive. broad benefit to society, like reducing the legal battle by Internet retailers pollution or improving public health. The company’s software develop- ment costs — including salaries for the who want to avoid collecting state sales But it’s a lot easier to create a tax taxes from customers. break than to eliminate it. That leaves a designers — have totaled nearly $6 bil- lion over the last five years, and the In 2003, before joining Electronic generous assortment of tax incentives Arts, Mr. Kohl co-authored a widely- available to all types of companies, like company says it deducted all but a small amount of those expenses imme- cited proposal urging the federal gov- Electronic Arts, with skilled accounting ernment to crack down on corporate tax departments. diately. Companies that produce movies or compact discs, by contrast, face avoidance, warning that “the tax shel- Electronic Arts has also lobbied suc- tighter restrictions which often require ter problem is simply too detrimental to cessfully for more tax assistance. The them to spread out the deduction on the tax system not to act.” As head of architect of the company’s strategies in most production costs over a number of tax at Electronic Arts, he became a not- recent years was Glen A. Kohl, a tax years. While video game makers have ed expert in using foreign subsidiaries lawyer colorful enough to publicly com- often compared themselves to movie to legally, and sharply, cut a corpora- pare himself to Bruce Springsteen and companies when seeking tax incentives, tion’s United States tax bill. As a co- to joke in the pages of The Wall Street the game developers’ ability to write off chairman of the Silicon Valley Tax Di- Journal that his dog, Rubin, shared the the vast majority of their development rectors Group, he also moderated a name of the Treasury secretary under costs immediately gives them a sub- seminar in 2010 that showed technology whom he served (Robert E. Rubin). stantial financial advantage over other companies how to use offshore subsid- After working in the Treasury De- entertainment companies in taxes and iaries to reassign the licensing of their partment during the Clinton adminis- cash flow. intellectual property and, in some cases, tration, Mr. Kohl entered the private intention was to simplify the tax code. But with breakthroughs that benefit society as a whole.Video game companies also get other reduce their effective federal tax rate sector and became head of E.A.’s tax de- research-related breaks. In 1981, as ABOVE, ELECTRONIC ARTS AND VISCERAL GAMES; BELOW, JONATHAN ALCORN/BLOOMBERG NEWS substantially from 35 percent. the cold war and nuclear arms race making Withinpartment a few in 2004,years, leading the thecredit company was being Americans worried that Japan’s grow- Electronic Arts has more than 50 Americans fearful that the country’s technolog- claimedas by it aggressivelybusinesses lobbiedwith little for a technological federal Dead Space 2, above, shipped more than two million copies in its first week. ing dominance in the auto business overseas subsidiaries, according to its tax break on domestic production and Below, E.A.’s area at the Electronic Entertainment Expo in June. ical edge was eroding, Daniel Reed, chairman background — fast-food restaurants, hair wouldstyl- be followed by a decline of the recent regulatory filings, many in low- set up a matrix of offshore subsidiaries, of the House Ways and Means committee, also ists and fashion designers. So Congress triedhigh-tech to industry in the United States, tax countries like Bermuda, Singapore many in low-tax countries. promised the tax break would indirectly bolster restrict what research would qualify. The credCongress- added another research and and Mauritius. The company has also As a result, the company with the de- development credit, this time specifi- accumulated more than $1.3 billion in national security by stimulating “the search for it was deniedfiant sales for slogan, social “Your science Mom research Hates callyand for companies that increased their profits offshore, where it will not be new products and new inventions upon which marketing.Dead The Space narrowest 2,” in effect definition, gets financial proposedR.& D. spending from the previous year. taxed by the United States unless it is help from moms and other United The hope was that by encouraging com- brought back into the country. the future economic and military strength of our by the ClintonStates taxpayers administration, to reduce was its federal to allow the nation depends.” credit only for research that produced an actualpanies to invest more in research, the Company officials say its overseas ac- tax bill. private sector might create the next tivities are not an attempt to avoid Unit- In 1969, the I.R.S. expanded that tax break to innovation,Company but that officials measure say they met have determined no Bell Laboratories and inspire the kind ed States taxes and instead reflect how allow companies to deduct the cost of software oppositionqualms from about business taking alllobbyists. the tax breaks By the timeof technological breakthroughs that much of its business takes place in other legally available to them. To do other- development, which was a small part of a busi- the Treasury Department ruled in 2002, anbenefit ap- society as a whole. countries. “E.A. is a global company wise would be like a consumer “in- Within a few years, the credit was be- with a majority of our customers and ness that was then dominated by bulky main- pointeesisting of President on paying George full price W. Bush during decided a ing to claimed by businesses with little roughly 50 percent of our revenue gen- frame computers. When the video game indus- drop it.store sale,” wrote Jeff Brown, a compa- technological background — fast-food erated outside of the United States,” Mr. ny spokesman. Even E.A.’s competitors restaurants, hair stylists and fashion Brown said. “Naturally we hire, build try sprouted in the early 1970s, game developers “It seemedacknowledge as though that its tax it would strategies be impossibleare- reaped substantial tax savings because most of to enforce,” said Pamela F. Olson, then the assisdesigners.- So Congress tried to restrict facilities, copyright our trademarks, in- n’t particularly aggressive compared what research would qualify. The credit vest and pay taxes in countries outside their costs were for software development. was denied for social science research of the U.S.” Electronic Arts, founded in 1982, has since and marketing. The narrowest defini- become one of the world’s dominant video game tion, proposed by the Clinton adminis- Jockeying for Developers tration, was to allow the credit only for companies — producing popular titles like Sim- research that produced an actual inno- As Congress and the Obama adminis- City, FIFA soccer, Harry Potter and Madden vation, but that measure met deter- tration wrestle with the next round of NFL — and has benefited mightily from that tax mined opposition from business lobby- eo game industry had failed to name a budget cuts this fall, and a possible ists. By the time the Treasury Depart- BUT NOBODY PAYS THAT technological breakthrough that had overhaul of the tax code, they will de- incentive. ment ruled in 2002, an appointee of Incentives for Video Games helped anyone beyond its shareholders, termine whether the types of subsidies The company’s software development costs President George W. Bush decided to employees or customers. offered to E.A. and other corporations — including salaries for the designers — have drop it. “The research credit benefits the are worth the billions in forgone reve- wrong companies and encourages the totaled nearly $6 billion over the last five years, “It seemed as though it would be im- Articles in this series are examining ef- nue annually to the Treasury. While possible to enforce,” said Pamela F. wrong kind of research,” said Mr. Rash- Britain and some nations in the Euro- and the company says it deducted all but a small forts by businesses to lowertheir taxes, Olson, then the assistant secretary for and the debate overhow to improve the kin, a tax expert and executive at Mar- pean Union have been paring back their vell Technology, a company based in amount of those expenses immediately. Compa- tax policy, and now a tax lawyer at tax system. tax subsidies for game developers, Can- nies that produce movies or compact discs, by Skadden, Arps, Slate, Meagher & Flom. Santa Clara, Calif. “By diverting fund- ada has been trying to lure them and ONLINE: ing and attention from where it could be contrast, face tighter restrictions which often “Because you couldn’t be certain that their jobs from below the border. In someone wouldn’t come back later and nytimes.com/businessday most useful, the credit is hobbling 2008, Ontario paid one game company a require them to spread out the deduction on challenge things, by saying that what American innovation.” subsidy of more than $321,000 for each most production costs over a number of years. seemed like an innovation at the time Yet, given the sharp decline in Ameri- job to relocate from the United States. had actually been discovered before.” can manufacturing jobs over the last More recently, Montreal persuaded the While video game makers have often compared Glen A. Kohl was the architect of the project to reduce the pollutants released The failed attempts to restrict the half century, subsidies for research and game company THQ to relocate 800 pro- from the smokestacks of a refinery in themselves to movie companies when seeking tax strategies at Electronic Arts. R.& D. credit to basic research have development still have wide support. duction jobs there, closing studios in Louisiana. Union Carbide failed to meet tax incentives, the game developers’ ability to been a boon for video game companies. The Obama administration has pro- New York and Phoenix, with a rich the experimental threshold for the cred- with others in the industry. Even when companies are merely cre- posed making the research and devel- package of incentives. write off the vast majority of their development tant secretary for tax policy, and now a tax law- it, though video game makers often Furthermore, Electronic Arts officials ating new versions of existing games — opment tax credit permanent (it has E.A. has 750 employees in Montreal, costs immediately gives them a substantial fi- yer at Skadden, Arps, Slate, Meagher & Flom. seem to have little trouble meeting the say that in recent years the company conducting research that would have lit- been renewed every two years since where all video game companies re- requirement. nancial advantage over other entertainment “Becausehas you paid couldn’ta substantial be portion certain of itsthat prof- someonetle value to anyone but themselves — 1981), and expanding it, at a cost of more ceive a tax credit equal to 37.5 percent of Video game industry officials say that companies in taxes and cash flow. its in taxes, but declined to discuss de- their development processes usually in- than $100 billion over the next decade. their payroll, and has announced plans wouldn’t come back later and challenge things, by improving technology, they are indi- tails of its financial reports. volve enough experimental uncertainty to hire more there. Over all, 4,500 of Video game companies also get other re- by saying that what seemed like an innovation rectly helping society at large. Several tax experts noted that one of to qualify for the tax break. Looking for More Electronic Arts’ 7,600 employees are in search-related breaks. In 1981, as Americans at the timethe company’s had actually biggest been tax advantages discovered beDuring- the last five years, Electronic Dean Zerbe, national managing di- the United States. rector at Alliantgroup, said that the mil- worried that Japan’s growing dominance in the fore.” is a tool available to all companies, a de- Arts has claimed tens of millions in tax Electronic Arts has not been content There are signs that more tax breaks itary had used some video game tech- duction related to the stock gains on op- savings from research and develop- to merely collect the many benefits may be in store for game manufactur- auto business would be followed by a decline The failed attempts to restrict the R.& D. nology to train soldiers and pilots. Elec- tions exercised by its executives. (Tax ment credits for its various games, ac- from existing tax breaks. Mr. Kohl, who ers. States have been offering an esca- of the high-tech industry in the United States, credit to basic research have been a boon for tronic Arts said it donated some games practitioners also said that the compa- cording to the company’s regulatory fil- had an extensive background in merg- lating collection of incentives to try to to the military, schools and charities. Congress added another research and develop- video gameny’s losses,companies. under generallyEven when accepted companiesings. (Company officials declined to ers and acquisitions law, arrived at the attract the companies — more than 20 ment credit, this time specifically for companies are merelyaccounting creating principles, new versions provided of the existingspecify how much of that total came Even those who support subsidies for company in 2004, the same year Con- states now offer video game developers technological research complain that that increased their R.& D. spending from the games —most conducting meaningful research picture and that reflected would havefrom the federal government.) gress passed a domestic production de- tax breaks to cover their wages, devel- the standard approach used by other At the same time, the I.R.S. and the the current research and development duction that was intended to cut taxes opment and manufacturing costs. previous year. The hope was that by encourag- little value to anyone but themselves — their credit is woefully designed — favoring companies.) United States Tax Court have denied on companies that export. When Presi- Several recent studies have raised big companies over start-ups and often ing companies to invest more in research, the developmentIndustry processes advocates usually say that involve without enoughthe credit for some projects that would dent George W. Bush signed the law in doubts about the effectiveness of sub- subsidizing businesses for research private sector might create the next Bell Lab- experimentalthese incentivesuncertainty the to United qualify States for thehave tax benefited the community as well October, it listed an assortment of in- sidies offered by state and local govern- would forfeit its technological edge — as the companies receiving it. In 2009, they would have done anyway. dustries eligible for the break, including oratories and inspire the kind of technological break. ments, and Michigan this year reduced and the 32,000 direct jobs in the gaming for instance, the federal tax court de- Michael D. Rashkin, author of “Prac- sound recordings and computer soft- its breaks for game developers. But industry — to countries like Canada, nied Union Carbide’s attempt to claim a tical Guide to Research and Develop- ware, but did not specify video games. Texas officials say its tax breaks for which offers video game developers research and development credit for its ment Tax Incentives,” said that the vid- Electronic Arts paid $60,000 early the game developers are more beneficial even greater tax subsidies. than those given other businesses, in “Software and high-tech industries part because the average salaries in the are the brain trust of the U.S.,” said industry exceed $80,000 a year. Shane T. Frank, chief operating officer California Lawmakers Give Amazon Tax Reprieve Game developers are pushing for of Alliantgroup, a consulting firm that more. John S. Riccitiello, the chief exec- helps video game companies and other By DAVID STREITFELD The deal with California might em- Lawmakers had hoped to collect utive of Electronic Arts, was among the businesses take advantage of the tax bolden other states, said Robert W. $200 million in taxes from Amazon business leaders who successfully lob- credit for research and development. SAN FRANCISCO — California law- Wood, a tax lawyer here. “Other and other online retailers for the cur- bied the City of San Francisco to drop its “We can’t afford to lose that knowledge makers overwhelmingly approved a states needing money will look and rent state budget. That money will payroll tax last year to help retain social and those high-paying jobs to India or compromise bill Friday night giving say, ‘It wasn’t a smooth process, but now have to be found elsewhere. Nev- media companies like Zynga, maker of anywhere else.” Amazon.com a one-year reprieve from having to collect a sales tax from California is going to come out ertheless, the legislators said they FarmVille and other games. The video its customers in the state. ahead,’” Mr. Wood said. were pleased. game industry’s trade group, the En- Trying to Lure Jobs Under the new measure, Amazon California lawmakers spent much of Loni Hancock, a Democratic state tertainment Software Association, this One reason Electronic Arts and other agreed to start collecting the tax in the summer trying to compel Amazon senator from Berkeley, said: “We year recruited 39 members of Congress video game companies have a bounty of September 2012 unless there was fed- to collect the tax, but the Seattle- would have liked them to begin col- to form the E-caucus, which will advo- tax incentives that other industries eral legislation on the issue. Senator based retailer aggressively resisted, lecting the tax already, but this is a cate for legislation to benefit game de- envy is that elected officials from across Richard J. Durbin, a Democrat from spending $5 million to gather a half- positive step forward.” She mentioned velopers. Representative Kevin Brady, the political spectrum find it hard to re- Illinois, has proposed a national law million signatures to take the matter another benefit: avoiding a noisy ref- a Republican from Texas who sits on the sist offering incentives to encourage requiring e-commerce companies to to voters in a referendum next June. erendum campaign that the state tax-writing Ways and Means Commit- technological research — and jobs. collect sales tax, but it has not gained The battle pitted Democrats and the could easily have lost. tee, said that the caucus has not asked When the tax code was rewritten in much traction. California Retailers Association Left unmentioned by either side for tax breaks. 1954 — nearly 20 years before the first Legislatures around the country, against Amazon and Republicans, was the possibility that Amazon might But industry officials say they even- commercially successful video game supported by struggling bricks-and- who called attempts to collect the tax be trying to buy some time. If it moves tually hope to persuade Congress to was released — Congress included a mortar stores, have been seizing on a tax increase. Consumers are sup- several small subsidiaries out of the make video game companies eligible for new break allowing companies to de- the sales tax issue as a means of rais- posed to pay a use tax on material state, it could argue that it no longer the federal tax breaks now available to duct all laboratory-based research and ing much-needed funds. Amazon is they buy online, but few do. has the physical presence in Califor- film and television producers. Michael experimentation costs immediately. fighting in the courts against a New Under the deal, the referendum will nia that requires it to collect the tax. D. Gallagher, chief executive of the soft- Part of the intention was to simplify the York law compelling it to collect taxes, now be dropped. Amazon called the The measure now goes to Gov. Jer- ware group, said that the industry tax code. But with the cold war and nu- and has used the prospect of either new measure “win-win legislation” ry Brown, who has not spoken pub- would not push for the breaks now, giv- clear arms race making Americans opening or closing warehouses as a that would allow it “to bring thou- licly about it. The vote occurred Fri- en the nation’s budget problems, but fearful that the country’s technological bargaining chip in negotiations with sands of jobs and hundreds of millions day night, with only a few dissenters might do so later. edge was eroding, Daniel Reed, chair- Texas and South Carolina. of investment dollars to California.” in either chamber. “It certainly is a worthwhile policy man of the House Ways and Means goal,” Mr. Gallagher said. During the last five years, Electronic Arts renewed every two years since 1981), and ex- has claimed tens of millions in tax savings from panding it, at a cost of more than $100 billion research and development credits for its vari- over the next decade. ous games, according to the company’s regula- tory filings. (Company officials declined to spec- Looking for More ify how much of that total came from the federal Electronic Arts has not been content to government.) merely collect the many benefits from existing At the same time, the I.R.S. and the United tax breaks. Mr. Kohl, who had an extensive back- States Tax Court have denied the credit for some ground in mergers and acquisitions law, arrived projects that would have benefited the commu- at the company in 2004, the same year Congress nity as well as the companies receiving it. In passed a domestic production deduction that 2009, for instance, the federal tax court denied was intended to cut taxes on companies that Union Carbide’s attempt to claim a research export. When President George W. Bush signed and development credit for its project to reduce the law in October, it listed an assortment of in- the pollutants released from the smokestacks of dustries eligible for the break, including sound a refinery in Louisiana. Union Carbide failed to recordings and computer software, but did not meet the experimental threshold for the credit, specify video games. though video game makers often seem to have Electronic Arts paid $60,000 early the next little trouble meeting the requirement. year to hire a prominent Washington tax lob- Video game industry officials say that by bying firm. Soon after the law was signed, its improving technology, they are indirectly help- lobbyist, Jonathan Talisman of Capitol Tax Part- ing society at large. ners, was granted a meeting with the Treasury Dean Zerbe, national managing director at Department’s deputy assistant secretary of tax Alliantgroup, said that the military had used policy — the same office Mr. Kohl once held — some video game technology to train soldiers to ask that the deduction be extended to video and pilots. Electronic Arts said it donated some game companies and the revenues they earned games to the military, schools and charities. from online subscriptions. When the I.R.S. is- Even those who support subsidies for tech- sued its final regulations, video games and their nological research complain that the current online revenues were specifically cited as quali- research and development credit is woefully de- fying for the deduction. That deduction last year signed — favoring big companies over start-ups equaled 9 percent of its production costs, offer- and often subsidizing businesses for research ing E.A. significant tax savings. they would have done anyway. Company officials point out that the deduc- Michael D. Rashkin, author of “Practical tion is available to a wide range of industries. Guide to Research and Development Tax Incen- “The credit is not specific to video games,” said tives,” said that the video game industry had Mr. Brown, the spokesman. “It’s designed to failed to name a technological breakthrough encourage any domestic manufacturing in the that had helped anyone beyond its sharehold- United States — from soft drinks to steel, to ers, employees or customers. movies, music and newspapers.” During Mr. “The research credit benefits the wrong Kohl’s seven years at the company, Electronic companies and encourages the wrong kind of re- Arts also became more aggressive about as- search,” said Mr. Rashkin, a tax expert and ex- signing its intellectual property offshore, a ecutive at Marvell Technology, a company based move that often reduces a company’s tax bill. in Santa Clara, Calif. “By diverting funding and Mr. Kohl, who declined to be interviewed, is now attention from where it could be most useful, the running the tax department at Amazon, which credit is hobbling American innovation.” is leading the legal battle by Internet retailers Yet, given the sharp decline in American who want to avoid collecting state sales taxes manufacturing jobs over the last half century, from customers. subsidies for research and development still In 2003, before joining Electronic Arts, Mr. have wide support. The Obama administra- Kohl co-authored a widely-cited proposal urg- tion has proposed making the research and de- ing the federal government to crack down on velopment tax credit permanent (it has been corporate tax avoidance, warning that “the tax shelter problem is simply too detrimental to the with a rich package of incentives. tax system not to act.” As head of tax at Elec- E.A. has 750 employees in Montreal, where tronic Arts, he became a noted expert in using all video game companies receive a tax credit foreign subsidiaries to legally, and sharply, cut equal to 37.5 percent of their payroll, and has a corporation’s United States tax bill. As a co- announced plans to hire more there. Over all, chairman of the Silicon Valley Tax Directors 4,500 of Electronic Arts’ 7,600 employees are in Group, he also moderated a seminar in 2010 that the United States. showed technology companies how to use off- There are signs that more tax breaks may shore subsidiaries to reassign the licensing of be in store for game manufacturers. States have their intellectual property and, in some cases, been offering an escalating collection of incen- reduce their effective federal tax rate substan- tives to try to attract the companies — more tially from 35 percent. than 20 states now offer video game developers Electronic Arts has more than 50 overseas tax breaks to cover their wages, development subsidiaries, according to its recent regulatory and manufacturing costs. filings, many in low-tax countries like Bermuda, Several recent studies have raised doubts Singapore and Mauritius. The company has also about the effectiveness of subsidies offered by accumulated more than $1.3 billion in profits off- state and local governments, and Michigan this shore, where it will not be taxed by the United year reduced its breaks for game developers. States unless it is brought back into the country. But Texas officials say its tax breaks for game Company officials say its overseas activi- developers are more beneficial than those given ties are not an attempt to avoid United States other businesses, in part because the average taxes and instead reflect how much of its busi- salaries in the industry exceed $80,000 a year. ness takes place in other countries. “E.A. is a Game developers are pushing for more. global company with a majority of our custom- John S. Riccitiello, the chief executive of Elec- ers and roughly 50 percent of our revenue gen- tronic Arts, was among the business leaders erated outside of the United States,” Mr. Brown who successfully lobbied the City of San Fran- said. “Naturally we hire, build facilities, copy- cisco to drop its payroll tax last year to help re- right our trademarks, invest and pay taxes in tain social media companies like Zynga, maker countries outside of the U.S.” of FarmVille and other games. The video game industry’s trade group, the Entertainment Soft- Jockeying for Developers ware Association, this year recruited 39 mem- As Congress and the Obama administra- bers of Congress to form the E-caucus, which tion wrestle with the next round of budget cuts will advocate for legislation to benefit game this fall, and a possible overhaul of the tax code, developers. Representative Kevin Brady, a Re- they will determine whether the types of subsi- publican from Texas who sits on the tax-writing dies offered to E.A. and other corporations are Ways and Means Committee, said that the cau- worth the billions in forgone revenue annually cus has not asked for tax breaks. to the Treasury. While Britain and some nations But industry officials say they eventually in the European Union have been paring back hope to persuade Congress to make video game their tax subsidies for game developers, Cana- companies eligible for the federal tax breaks da has been trying to lure them and their jobs now available to film and television producers. from below the border. In 2008, Ontario paid one Michael D. Gallagher, chief executive of the game company a subsidy of more than $321,000 software group, said that the industry would not for each job to relocate from the United States. push for the breaks now, given the nation’s bud- More recently, Montreal persuaded the game get problems, but might do so later. company THQ to relocate 800 production jobs “It certainly is a worthwhile policy goal,” there, closing studios in New York and Phoenix, Mr. Gallagher said. n