Tax Avoidance Strategies: Wal-Mart Sues N.Y. Town Over Property Tax Assessment

For every community that hangs its economic hopes on a big box retailer, let LeRay, N.Y., be a lesson. After LeRay assessed the local Wal-Mart supercenter at a taxable value of $13 million, Wal-Mart’s lawyers fired back, claiming the store’s value was less than half that. It’s a blatant attempt on the part of the company to avoid paying the taxes it rightly owes a small community.

This is just one of Wal-Mart’s many tax avoidance schemes (PDF), which it uses to cut expenses. The practice costs communities millions of dollars in lost revenue every year. Now, in addition to potentially losing more than $7 million in revenue, this small New York town is losing money in legal fees and town officials’ time. It’s not something towns would tolerate from smaller retailers, so why should the world’s largest get a free ride?

LeRay, N.Y., facing suit brought by Wal-Mart [Trading Markets]

The town of LeRay is facing a lawsuit by Wal-Mart contesting its assessment of the company’s supercenter on Route 11.

Wal-Mart Real Estate Business Trust and Wal-Mart Stores East LP is challenging its $13 million assessment in state Supreme Court, saying the actual assessment should be less than half that amount, about $5.7 million. The company filed the lawsuit in July.

However, town Assessor Terry L. Buckley argues that his assessment is fair and that the company is trying to get out of paying its share of taxes. “They’re just trying to get by and pay nothing,” he said.

Wal-Mart’s store, which opened in February 2006, and the lot in front of it are assessed at a combined $13,180,800 on the town’s 2007-08 tax rolls.

The company argues that assessments on other properties within the town are calculated at a rate not exceeding 75 percent of true value. Wal-Mart said that while its properties are assessed at $13.2 million, the true total value of the properties does not exceed $7.2 million, meaning the assessment, based on a 75 percent equalization rate, should be $5.7 million, or $7,480,800 less than the town claims.

According to Mr. Buckley, he used the values of other Wal-Mart stores in the area to complete his assessment. He said the LeRay store is assessed at less per square foot than some other stores.

Mr. Buckley said the LeRay Wal-Mart is valued at $63 per square foot, while stores in Malone and Lowville are each assessed at about $70 per square foot.

“I think I’ve got a very good assessment,” he said.

Town attorney Eugene J. Langone said he is in preliminary talks with Wal-Mart’s attorneys, Kavinoky Cook LLP, Buffalo, over the lawsuit. He said it is too soon to speculate what the outcome of the lawsuit will be. Mr. Langone said he hopes it can be settled without going to court.

However, Mr. Buckley said he is not interested in negotiating with the company.

“We’re going to trial,” he said.

According to court documents, the earliest trial date for the lawsuit would be this summer.

While there is no indication at this point who will win the lawsuit, Indian River Central School District already is preparing for a Wal-Mart victory.

According to district business manager James R. Koch, if Wal-Mart wins the challenge, the district will have to pay back up to $40,000 in excess taxes. He said district officials are planning to vote on creating a reserve fund in that amount within the next few weeks.

Mr. Koch said the district wants to put the fund in place so that money would not have to be cut from any programs in the school’s budget if it has to pay back taxes.

“That’s what we’re trying to avoid,” he said.

If the district approves the fund, the next step would be determining where in the budget the money should come from. Mr. Koch said residents would then have their say on it as part of the overall 2008-09 budget vote in May.

Neither the town nor the county has made any budget adjustments because of the lawsuit and has no plans to at this time. LeRay Supervisor Ronald C. Taylor said he was not concerned about its effect on town funds.

“I don’t think this is that serious of a challenge,” he said.

Posted by Alex Goldschmidt on Monday, February 25, 2008