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Judge Rules Against Wal-Mart in North Carolina Tax Shelter Case
Wal-Mart has saved millions of dollars over the past few years by essentially paying rent to itself and then writing off the taxes. Unfortunately for Wal-Mart, a North Carolina judge thinks that this isn’t entirely legal. The company is using this strategy in dozens of states - several have already moved to close the loophole after Wal-Mart’s actions were exposed in a February article from the Wall Street Journal. The N.C. judge’s decision on Friday could mean that Wal-Mart might have to start paying its fair share of real estate taxes - a lot more than it’s used to - not only in North Carolina but in communities across the country. The Wall Street Journal’s Law Blog and financial bloggers at The Street provide further commentary.
Judge Rules Against Wal-Mart Over Its Tax-Shelter Dispute [Wall Street Journal]
A North Carolina state-court judge ruled against Wal-Mart Stores Inc. in a closely watched tax-shelter case involving an arrangement in which the retailer essentially paid rent to itself and then deducted the amount from its taxes.
In an attachment to an order filed Friday, but signed on Dec. 31, Emergency Special Judge of Superior Court Clarence E. Horton Jr. wrote that Wal-Mart’s structure had no “real economic substance” other than cutting taxes. The judge dismissed Wal-Mart’s suit, in which it sought a refund of $33.5 million in taxes, interest and penalties that it paid after state tax authorities determined it had underpaid by that amount.
The ruling is the latest setback for the tax maneuver. At least three other states are challenging Wal-Mart’s use of the tax strategy. Since a Wall Street Journal article on the topic last February, at least six states have passed laws seeking to prohibit the tax maneuver. In North Carolina, the judge’s order didn’t come after a trial but was based on motions for summary judgment by both sides.
Wal-Mart said it is studying the order and hadn’t decided whether to appeal. But the company said, “We believe that all taxpayers should have the right to rely on clearly defined tax laws that are reasonably and fairly enforced.”
The dispute arose from Wal-Mart’s use of a real-estate investment trust. A decade ago, the company transferred ownership of its stores to two REITs, of which Wal-Mart owned 99%, then paid tax-deductible rent to the REITs to use the stores.
REITs pay no corporate income tax as long as they pay at least 90% of their income to shareholders as dividends. However, those REITs were owned by Wal-Mart subsidiaries based in Delaware and therefore owed no tax on the receipt of those dividends. The result: Wal-Mart turned rental payments to itself into state-deductible expenses, even though the money never left the company.
For a four-year period, the setup saved the retailer an estimated $230 million on its tax bill in dozens of states.
In 2005, North Carolina tax authorities challenged the REIT tax benefits. Wal-Mart paid the bill sought by the state, and in March 2006 sued for a refund. The company argued the state didn’t have authority to combine the results of the subsidiary that did business in North Carolina with those of the Delaware-based unit and the REIT.
“Plaintiffs do not deny the facts demonstrating the circular journey taken by the “rents” paid by these plaintiffs, but contend that on each leg of the journey plaintiffs were only taking advantage of a lawful deduction afforded them by then-existing tax law,” wrote Judge Horton. “Such a piecemeal approach exalts form over substance, however ...”
“There is no evidence that the rent transaction, taken as a whole, has any real economic substance apart from its beneficial effect on plaintiffs’ North Carolina tax liability,” he added. “It is particularly difficult for the court to conclude that rents were actually ‘paid,’ when they are subsequently returned to the payor corporation.”
Posted by Alex Goldschmidt on Monday, January 07, 2008
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COMMENTS
WalMart-“We believe that all taxpayers should have the right to rely on clearly defined tax laws that are reasonably and fairly enforced.”
Translation:
WalMart- We are tax cheats scamming and gaming the tax code and legal system. Our greatest sense of accountability and responsibility is to dump the cost of local and state government onto others for our use of it. We based it on the notion that the law has no value if it is not enforceable. This is the real metric of fulfilling our civic duties and puts the states on notice again that the ‘love of money’ psychopath business model has real meaning in Bentonville patriotism.
WalMart- Slave More. Lie Better.
SanDiegoView in
Monday, January 07 at 01:59 PM
SDV
1. Do you pay income taxes
2. Do you have deductions to those income taxes?
3. Do those deductions result in a net lower payment of taxes?
If you answer yes to those questions then welcome to the world of “tax cheats scamming and gaming the tax code and legal system” as you call it. I’m so glad you “dump the accountablity and responsiblity for the cost of local and state government onto others for your use of it”. Nice job!!!
btw, I guess any tax payer would also be considered a “tax cheat scamming and gaming the tax code”. What an IDIOT you are!!!!!
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Monday, January 07 at 06:54 PM
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Renerrp in Indianapolis
Monday, January 07 at 07:48 PM
“MARY"- In your zeal to defend WalMart and their tax dodging scams and as the 1st major self evident taxpayer sucker of 2008, you won’t mind then personally paying back the $33.5 million WalMart stole from the people of North Carolina. Mary doesn’t mind cheating the people of North Carolina either. I don’t wonder why.
WalMart/Edelman- Our propaganda plan is working against the suckers. Mary could not define a tax cheat or a tax scam if it fell on her. The defense of WalMart by some is now so strange that we’ve got them believing WalMart is capable of doing no wrong. We the Bentonville/WalMart slobs got caught tax dodging in North Carolina by abusing the REIT shelter. It’s another corporate tax dodge that needs refinement to keep it ‘legal’. Get that bastard lawyer Tom Mars on it right away!
SanDiegoView in
Tuesday, January 08 at 02:41 AM
“It is particularly difficult for the court to conclude that rents were actually ‘paid,’ when they are subsequently returned to the payor corporation.”
The fact this hocus-pocus number crunching may be legal (for the time being) only illustrates my contention that corporations are coddled in this country.
And aren’t REITs inflationary? What incentive does Bentonville have to keep the rents down when whatever they charge is tax deductible?
Ken V in Texas
Tuesday, January 08 at 04:05 AM
“For a four-year period, the setup saved the retailer an estimated $230 million on its tax bill in dozens of states.”
The ultimate form of Bentonville corporate thefts is to rob the taxpayer suckers or shareholder suckers and leave them believing they have not been robbed.
“In an attachment to an order filed Friday, but signed on Dec. 31, Emergency Special Judge of Superior Court Clarence E. Horton Jr. wrote that Wal-Mart’s structure had no “real economic substance” other than cutting taxes.”
WalMart- The real problem here is,...we got caught.
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Rosexwc in Indianapolis
Tuesday, January 08 at 04:59 AM
Corporations and everyone else are badly overtaxed in this country. I don’t begrudge anyone who looks for loopholes to avoid being robbed less.
SanDiego, this certainly did not rob taxpayers or shareholders.
economic in e.g
Tuesday, January 08 at 05:35 AM
sdv all the ufcw union grocery stores and other retailers you love so much write off the same things on their taxes that wm does.funny we never hear you bitching and whining about them doing it how come?
matthew vantress in gresham oregon
Tuesday, January 08 at 06:07 AM
Hey matthew
Put your teeth back in when you speak to us.
R E M E M B E R
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Alex in Ontario, Canada
Tuesday, January 08 at 06:17 AM
put you own teeth back in moron.
matthew vantress in gresham oregon
Tuesday, January 08 at 03:53 PM
Corporations like WalMart in America are very undertaxed and defraud the taxpayers out of expenses that are the exclusive responsibility of corporations and their interests. Like paying for the corporate oil wars in Iraq and subsidizing Chevron and Exxon or the Saudi royal family billionaires, provoking and waging a proxy war against the Iranians then Iraqis and using Saddam Hussein as a dictator of convenience to blame, while then protecting terrorist financing and ideology with the oil bankers in Riyadh.
WalMart is little different in it’s exploitation of subsidies in the United States against American labor. It is just economic terrorism from Bentonville in the guise of ‘capitalism’ or ‘free enterprise’ while externalizing the cost of their doing business by dumping those costs onto the U.S. taxpayer.
Paying for WalMart’s responsibility to pay a living wage and cover employee health care is hardly the obligation of U.S. taxpayers while the Walton billionaires suck up the profits that were to go to pay for these supports to labor. Instead they make the taxpayers pick up the cost of doing WalMart’s business and then claim they have no obligation to social responsibility or accountablity for these things in their desperately needed piss poor propaganda efforts.
As the American people find out about what they are being charged as taxpayers to subsidize and make the Waltons billionaires, the tax code and the courts will show the clear intent and success of getting the money back.
When WalMart’s employees fall onto the welfare roles or subsidies are thrown as slop into the Walton billionaires pockets and millions are spent to lie to the American public with the Edelman ‘war room’ quislings, it does not take much for the U.S. public to realize WalMart and the Waltons are about tax dodges and that they are severely undertaxed.
WalMart- We stole from the taxpayers and from labor. The art of shifting our costs onto others… now that is the Bentonville billionaires ‘love of money’ psychopath method of doing business! We are ‘economic patriots’ ...to the suckers that fall for it!
SanDiegoView in
Tuesday, January 08 at 08:59 PM
SDV,
I think I’m going to need hip boots to visit this site soon, the BS is getting rather deep!!
“exploitation of subsidies in the United States against American labor. It is just economic terrorism”
Trying to keep your employees from unionizing, is now being called “economic terrorism”?
“Paying for WalMart’s responsibility to pay a living wage and cover employee health care is hardly the obligation of U.S. taxpayers”
Wal-Mart has NO such obligation to pay people ‘living wages’ or wages based on NEED!! Their ONLY obligation is to pay agreed upon wages (above the minimum wage level) and time and a half after 40 hours a week, anything else, is OPTIONAL BENEFITS!!
“while the Walton billionaires suck up the profits that were to go to pay for these supports to labor”
Cite the LAW, that says profits are to go to support labor, please!! Sorry, but agreed upon wages go to LABOR, profits go to STOCKHOLDERS!!
“piss poor propaganda efforts.”
Yeah, you sure do make up things and it is piss poor propaganda!! Show some PROOF, that what you say is the TRUTH and not just how you WISH things were!! It’s easy to say things, but, we only accept TRUTH, PROVE IT!!
“We are ‘economic patriots’”
RIGHT!! You are an ‘economic LIAR’, spouting lies as the truth!! Guess you believe that if you say something often enough, people will start to believe it!!
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