"Wal-Mart is currently in court in North Carolina, seeking to force a refund of the $30.2 million it claims the state owes it for improperly assessing corporate income tax. Wal-Mart has been using a "captive REIT" strategy to distort the company's true net income, and in the process cutting its state taxes by over 20% over one four-year period. Wal-Mart also sought - and was denied - a similar refund in Louisiana. · New York Governor Eliot Spitzer has included closing the REIT loophole as a priority in his 2007 budget proposal, a move estimated could raise as much as $104 million for the state in the next year. Massachusetts Governor Deval Patrick has discussed a similar proposal. Connecticut and Maryland have both announced recently they will examine the "captive REIT" strategy......
Regardless of outcome, these REIT cases illustrate exactly how much money corporations can hide by moving it around through subsidiaries instead of paying it in state tax. According to a N.C. Revenue Department auditor's report, over the four-year audit period, Wal-Mart and Sam's Club paid over $7 billion to company controlled REITs estimated to have saved the company approximately $230 million in state taxes nationwide.30 Not every state has the capacity to challenge these practices - Maryland, for example, acknowledged it could be losing millions of dollars, but prior to its recent announcement that it would investigate the practice, the Maryland Comptroller's Office had maintained that under existing law it is a legitimate tax shelter - so unless loopholes are closed or legal action taken many states will continue to lose money.....
As The Wall Street Journal revealed in excerpts from an Ernst & Young training manual, these contacts serve no business purpose other than "tax planning"..... Former New York Governor George Pataki proposed legislation similar to Spitzer's proposal in 2006 [to close the loophole}, but it too was rejected by the New York legislature. "
Jesse Drucker, "Wal-Mart cuts taxes by paying rent to itself," The Wall Street Journal, February 1, 2007.
N Nichols Chenango Business Services