Posted on 02/01/2007 1:04:37 PM PST by MinorityRepublican
As the world's biggest retailer, Wal-Mart Stores Inc. pays billions of dollars a year in rent for its stores. Luckily for Wal-Mart, in about 25 states it has been paying most of that rent to itself -- and then deducting that amount from its state taxes.
The strategy is complex, but the bottom line is simple: It has saved Wal-Mart from paying several hundred million dollars in taxes, according to court records and a person familiar with the matter. And Wal-Mart is far from alone.
The arrangement takes advantage of a tax loophole that the federal government plugged decades ago, but which many states have been slower to catch. Here's how it works: One Wal-Mart subsidiary pays the rent to a real-estate investment trust, or REIT, which is entitled to a tax break if it pays its profits out in dividends. The REIT is 99%-owned by another Wal-Mart subsidiary, which receives the REIT's dividends tax-free. Wal-Mart gets to deduct the rent from state taxes as business expense, even though the money has stayed within the company.
Partly thanks to sophisticated financial strategies like these, states' tax collections from companies have been plummeting. On average, Wal-Mart has paid only about half of the statutory state tax rates for the past decade, according to Standard & Poor's Compustat, which collects data from SEC filings. The so-called "captive REIT" strategy alone cut Wal-Mart's state taxes by about 20% over one four-year period. Now several state regulators are trying to crack down on the strategy, used largely by retailers and banks, and some other states have changed their laws to try to end the practice. Yesterday, New York Gov. Eliot Spitzer included elimination of the loophole as part of his proposed budget, a fix he said would bring the state $83 million a year.
(Excerpt) Read more at online.wsj.com ...
I really have no problem with this. It's not illegal, it's just smart.
More proof that Wal-mart is eeevviiiil!
Oh, the humanity!
taxes are unethical
Ditto.
Well, of course.
Sound business model. Why would they do it any other way?
proof positive that the tax code is stupid.
unfortunate that the most likely answer will be to further complicate the code.
Ditto. That's an accountant that earned his/her bonus.
Good! Helps reduce costs. The less the gov't whacks Walmart, the less I pay.
This one reason that I have always hated accounting.
And, if they didn't, Shareholders would cry foul! They're being smart business managers.....sheesh. Only the idiots will find something wrong with this.....esp. MSM idiots!
I've always hated it because my mom and sister-in-law always speak in Accountese at the dinner table and I can't understand a word they're saying. But I suppose that's beside the point. :-)
What a scam. This is nothing more than bold-face theft.
It's common practice. A company I worked for years ago did a similar thing.......
They are stealing their own money?
anyone can do that in America
How so?
Do you maximize your tax exposure? Or do you take the deductions to which you are entitled?
I've structured a number of deals in a similar fashion. I ain't smart enough to be the first.
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