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Wal-Mart’s Friendly Landord Is- Wal-Mart! February 2, 2007

Posted by publicpolitics in Coporate Policies.
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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.

Jesse Drucker Wall Street Journal Online

Jessie Drucker’s report about a Wal-Mart tax strategy is available only by subscription to the Wall Street Journal, but Drucker’s content ensures that very soon the story will propagate to more open sources: Wal-Mart corporation, among others, has figured out a way to pay rent to itself and then to deduct its rent from corporate state income taxes.

This entirely legal strategy works as follows. One Wal-Mart store pays rent to a real-estate investment trust, or REIT, structures entitled to tax breaks as long as all profits are paid out in dividends. That REIT is owned by another Wal-Mart store or subsidiary, which receives the dividends sans any taxes. Notice that all the money remains within Wal-Mart, and almost none of it will find its way into state tax coffers, since Wal-Mart then proceeds to deduct the rent it paid to the REIT.

Clearly, we are in wonderland. Landlord and tenant are as one- no, they are one.

Court challenges are on the way: North Carolina argues that the ploy serves to distort the company’s “true net income”. Whatever the legal situation, as Drucker points out, state and local corporate taxes are on the wane, from an effective rate of a paltry 6.7% to a pitiful 5%.

These loopholes should be closed. What is legal is not always justifiable, or even ethical.

Tags: deducting | taxes | Strategy | saved | RETAILER | Rent | RECORDS | PAYS | familiar | dollars | court | billions | biggest | amount | according | Wal-Mart | stores | Politics | luckily

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