Taxes, Taxes Everywhere And Not A Dime To Spend
Posted on February 1, 2007 by webteam
The revelation earlier today in the Wall Street Journal that Wal-Mart is, yes, taking advantage of state tax loopholes to save itself millions shouldn’t necessarily come as a surprise. But again, because of its sheer size, it’s the amount of money that should be going to fund state highways, fire departments, police and the like that is instead going directly back into Wal-Mart’s pockets that is troubling, and why states need to take a closer look at their tax laws and the behavior of companies like Wal-Mart.
North Carolina took a proactive approach in 2005, auditing Wal-Mart for its use of a company-owned real estate company to shelter itself from paying state taxes, and claiming that Wal-Mart was distorting its true net income. Wal-Mart paid the fines and penalties, and then immediately challenged them, demanding a refund.
A copy of Wal-Mart’s complaint in North Carolina Wake County Superior Court can be viewed here (PDF), and in addition to providing a timeline of the case, also provides Wal-Mart’s arguments as to why funneling money to a wholly owned subsidiary to avoid state taxes – thereby allowing, as the Wall Street Journal points out, the “portion of state taxes borne by individuals” to steadily rise, by the way – is just fine and dandy.
According to the Journal and Standard and Poor’s Compustat, Wal-Mart has, on average, paid only about half of the statutory state tax rates over the past decade. Documents in the North Carolina case, Wal-Mart Stores East, Inc. v. Tolson, reveal that Wal-Mart, just between the years of 1998 and 2001, saved itself in the neighborhood of $230 million, and the numbers over the past five years could be even higher.
From the Wall Street Journal:
Underscoring that the rental payments were cashless Wal-Mart accounting moves, an affidavit filed in North Carolina by the company’s former controller, James A. Walker Jr., states that the payments were made by simply debiting the account of one subsidiary and then crediting the account of the other. “Wal-Mart Stores, Inc. served, in effect, as a bank for” both sides, the affidavit stated.
- Click here (PDF) to read Wal-Mart’s complaint filed in North Carolina Superior Court.
- Click here (PDF) to read the motion to dismiss from the North Carolina Secretary of Revenue.
