Wal-Mart, the most profitable retailer in the world, is also the biggest retailer on welfare. Wal-Mart has used an elaborate array of tax subsidies and incentives to acquire land, build stores and infrastructure — at taxpayer’s expense. A recent report from Good Jobs First suggests that Wal-Mart has benefited from more than $1 billion in tax welfare. But that’s only the beginning. Wal-Mart has also taken advantage of what the Multistate Tax Commission calls an “exotic tax sheltering technique” costing state taxpayers tens of millions of dollars across the country. This “exotic” tax shelter is based on Wal-Mart’s creation of a separate corporation to house “intangibles”, for example, trademarks and licensing fees, and then diverting profits away from states where they do business, to states where the profits are not taxed. In Louisiana, for example, Wal-Mart is suing the state for requiring it to pay $15.4 million in state taxes that Wal-Mart paid under protest, and claims it does not have to pay. Under the tax loophole, Wal-Mart pays royalties to a sister company in Delaware (a state that has no corporate tax), and then claims the payment as a business expense that gets deducted from its state income tax. If a chain store in Louisiana makes a profit equal to 6% of its sales, but pays half of that to its sister company in Delaware, the company in effect is cutting its state taxes to Louisiana in half. In April of this year, a State District Court Judge in Baton Rouge refused a request by Wal-Mart to force the state to pay them back the $15.4 million in taxes, and ordered the case to go to trial. Wal-Mart says the payments it makes to its sister corporation in Delaware are business expenses that should not be taxed. Louisiana disagrees, saying Wal-Mart should not be allowed to shrink what it owes in state taxes by counting as expenses what it paid to a sister corporation. Other states have moved to close this tax shelter, like Maryland. Corporations in that state are no longer allowed to shift profits to holding companies in other states. The Multistate Tax Commission has estimated that corporations using this tax loophole have cost state taxpayers between $3 billion and $7.1 billion in 2001. The Center on Budget and Policy Priorities estimates that 16 states have adopted a reporting system that treats related corporate entities as one, using a formula to determine the amount of in-state taxable income. “It is apparent that various corporations are increasingly taking advantage of structural weaknesses and loopholes in the state corporate tax systems,” the Multistate Tax Commission wrote in a 2003 study on Corporate Tax Sheltering. Louisiana, the Commission found, lost between $44 and $94 million in 2001 due to corpate tax sheltering. The American Press newspaper in Lake Charles, Louisiana, called the loophole Wal-Mart used “nothing more than sophisticated shell games that allow corporations to hide profits from taxation by state governments.” Everyday low prices, and everyday low taxes. Wal-Mart wins, the working people of American lose.
Wal-Mart sells a lot of games on its shelves, but this tax shelter “shell game” is one you won’t find in their circulars. Wal-Mart’s use of corporate tax shelters gives new meaning to the phrase “free market.” For similar stories about big box tax breaks, search this database by “corporate welfare.”