Wal-Mart pays itself rent, gets large tax breaks Michael Roston Published: Thursday February 1, 2007 Wal-Mart, the nation's largest employer and the world's biggest retailer, is regularly paying itself rent and using the transaction to decrease the taxes it pays to state governments, according to a report in this morning's Wall Street Journal. The article by Jesse Drucker shows that Wal-Mart has saved hundreds of millions of dollars in taxes in 25 states, and may not be the only company using the practice. Drucker shows that state governments are finally getting wise and working to close a complicated tax loophole that the federal government discontinued years ago. Wal-Mart is using a tax loophole involving "real-estate investment trusts" to call "rent" it pays to itself a tax-deductible business expense, Drucker explains. A Wal-Mart subsidary will pay rent to a real-estate investment trust, which is owned by another Wal-Mart subsidiary. The trust hands the rent to the second subsidiary in the form of a dividend, which cannot be taxed. Additionally, Wal-Mart counts the initial rental payment as a business expense, which is deducted from taxes in the state where the store is located. In one four-year period, Wal-Mart avoided $350 million in taxes using this strategy, which was developed by the accounting firm Ernst & Young LLP. The loophole is getting attention in state governments. Newly installed New York Governor Elliot Spitzer said he would close the loophole in the hopes of adding $83 million to New York's state budget, and North Carolina is suing Wal-Mart for back taxes. Smaller companies using the same loophole, like Autozone and Fleet Funding, are also receiving more scrutiny. The full article can be accessed by subscribers at the Wall Street Journal website. An excerpt is provided below. # Wal-Mart could deduct from its state-taxable income the rent paid by Wal-Mart Stores East to the REIT. The REIT paid the majority of its rental earnings to its 99% owner, Wal-Mart Property Co., in the form of dividends. That company's base in Delaware gave it another way to avoid liability for state taxes, since some states do require that dividends a REIT pays to its corporate owner be taxed, as the federal government does. The Delaware subsidiary then paid the money back to Wal-Mart Stores East, the same subsidiary that made the payments to the REIT to begin with. Those payments to Wal-Mart Stores East weren't taxed either, because dividends paid to a corporation by a subsidiary normally aren't counted as taxable income for the parent company. The result of the circuitous transaction: Wal-Mart could effectively turn rental payments to itself into state level tax-deductions in most of the states where the payments have been made. Under typical circumstances, rent paid to a third-party landlord also would reduce taxable income. But that would ordinarily be cash out the door, like most other tax-deductible expenses. Here, the majority of the tax-deductible rental payments came straight back to Wal-Mart. The national tax savings have been significant. Over a four-year period, from 1998 to 2001, Wal-Mart and Sam's Club paid company-controlled REITs a total of $7.27 billion that eventually came back to Wal-Mart in states across the country, according to a North Carolina Department of Revenue auditor's report filed in court by Wal-Mart. Based on an average state corporate income tax rate of 6.5%, three accounting experts consulted by The Wall Street Journal estimated the REIT payments led to a state tax savings for Wal-Mart of roughly $350 million over just those four years. SEC filings show the company paid $1.18 billion in state taxes during that period. The loss of federal deductions that bigger state tax payments would have triggered brought the company's effective tax savings overall down to about $230 million. Wal-Mart declined to comment on the figures.
Tax Law Changes WalMart is not the only company. Just a valid point to the more tax code you add the more ways around it. Maybe it is time to simplify the tax code at the federal and state level.
oh yeah... lots of the companies do that! From large to small I think almost every place I have worked used that tatic... Wish I could do something like that at home! LOL
Wachovia doesn't pay any taxes either. The Walmart in Clayton has been over 3 years, the sign that shows how much they contribute to the clayton area has been the same since the day they opened.
Of course Wal-Mart is NOT the only company that gets over on the tax codes...duh!!!! What...you pray to the plastic Wal-Mart god or something? Get over it! THE POINT is.....the tax codes, both on the federal (which, if you read the article indicated has been changed!), and on a state level (some have already done it...and GO NORTH CAROLINA for filing suit....) have to be changed. It is NOT unfair for a company to make profits. Absolutely not! That's the capitalist way. But, it IS unfair that they do not pay THEIR FAIR share. (especially when you consider the number of jobs that have been moved overseas...where these same companies can exploit low wages and make BIGGER PROFITS at who's expense?) Oh well.....as a recent episode of South Park pointed out: (yeah, I know a rerun, I'm sure) the "heart" of Wal-Mart (and all the other huge corporate pirates) is US! Don't forget to file your taxes on time.......
Why? What, exactly, is their "fair share"? I don't see Wal*Mart sending jobs overseas. I see Wal*Mart providing jobs right here on US soil. But, as most anti-big business nuts, you just don't understand that no business pays taxes. Taxes charged to any business are paid by the customers of that business. If you raise taxes on Wal*Mart one of two things will happen (or maybe both). Prices will go up or people will get laid-off. Plain and simple economics. Wal*Mart will keep their bottom line profit as high as possible for their investors. To do this, they have to raise income or reduce expenses. Well, that explains a lot.
Actually after the forcing mom & pop stores out, the main complaint is that the Walmart business model drives jobs overseas.
So Mom and Pop are moving overseas because of Wal*Mart? I'm sorry, but you're going to have to explain that further. How can Wal*Mart drive jobs overseas? I understand that Wal*Mart sells a lot of off shore merchandise (unlike their original business plan, which was to sell only US produced merchandise), but so do the Mom & Pops. In order to make products affordable, off-shore production is necessary. Think about it, if Nike pays foreign workers $5 a day to make shoes, how much would those shoes cost if they were made by US workers demanding $50 a day?
You nailed it! Clif, I said the next biggest complaint after mom & pop stores being forced out is the complaint that the WalMart model is driving jobs overseas, but then you probably knew that and just posted to be silly! 8) http://en.wikipedia.org/wiki/Criticism_of_Wal-Mart
So then you would just buy shoes from who??? Someone else who paid foreign workers $5 a day? Or do we stop all imports?
Yes, the market does not set the prices, the companies do, that old economics theory about market based pricing is all wrong .. Companies do not pay wages, rents, or contribute to charities for the same reason .... the customers of those businesses pay those expenses too. When the company goes bankrupt it is the fault of those customers for not paying the prices as they were supposed to do. :shock:
