If we assume their previous income was covering their expenses (a reasonable assumption for a 18 year old company), the $7M from Steam would be pure profit.

Now I'm not sure about Washington (?) tax rates, but just for comparison: in Germany you would have paid about 35% taxes on company profits, and another 20% income/capital gains taxes if you just pay it all out to the owners. Not that this is the smartest choice, at that point you play games like keeping money in the company to spend on a company car. But if you don't care about optimizing your taxes 50% doesn't seem unreasonable.

Didn't Kitfox games did a lot of work on the Steam version (I assumed art, UI etc. were not done by Bay 12 games)? They must have incurred some expenses.

As I understand it, the figure quoted in the Bay 12 update is after Steam and Kitfox took their cut from the sales.

IIRC some of the types of corps (S-corp, the one that is NOT a corporate veil) lets you pass-through income and so you get hit by only one "tax".

But you still have state taxes and other such things. I assume they've retained a tax guy before this.