Wal-Mart tries to sell itself as a tax generator, but officials in North Carolina have seen the opposite side of the retailer. Wal-Mart, the world’s largest retailer, with $11.2 billion in profits last year, and Sam’s Club, have both filed lawsuits in Wake County, North Carolina, Superior Court, charging that state taxpayers owe the company a whopping refund for overpayment of corporate income tax. Wal-Mart wants the money back from state taxpayers, and says the state combined Wal-Mart’s state income tax return with the tax returns of two other companies that Wal-Mart owns. One of those businesses, Wal-Mart says, doesn’t operate in North Carolina. Sam’s Club is seeking $3.5 million back as part of the lawsuits. The suit was filed on behalf of Wal-Mart Stores East, which is the Wal-Mart subsidiary that operates 112 stores in North Carolina. The state calculated Wal-Mart’s tax bill by combined the discount store’s tax return with the Wal-Mart Real Estate Business Trust, and Wal-Mart Property Co. Wal-Mart owns the Wal-Mart Property Co., which owns Wal-Mart Real Estate. The state consolidated the tax returns of all three companies, claiming that only by so doing could the state capture the company’s “true earnings on its business carried on in the state.” Wal-Mart East filed its own return, and Wal-Mart Real Estate did the same. Wal-Mart Property didn’t file at all. When Wal-Mart filled out its state taxes, it deducted the rent that it paid to its own company, Wal-Mart Real Estate, which owns and subleases stores back to the company. Dividends that Wal-Mart Property paid out to Wal-Mart were not declared on Wal-Mart East’s tax return. Wal-Mart told the News Observer newspaper that the Property Company and the Real Estate Trust are “part of a larger company-wide restructuring to more effectively and efficiently manage our business, including our ever-growing real estate portfolio.” In other words, its a creative way to avoid paying taxes.
Wal-Mart has been involved in many wrangles with state and local authorities over the taxes it pays. It has taken local cities and towns to court over disputed property tax bills, and here it is trying to reduce its taxes by $34 million, a cost that other taxpayers will have to pick up if Wal-Mart doesn’t pay it. Wal-Mart clearly is using corporate creations to try to circumvent taxpaying, by writing off the rent that it pays to one of its subsidiaries. It’s trying to use creative corporate dodges to get out of paying taxes. What if American families tried to imitate Wal-Mart, and created corporations that owned their home, and allowed them to deduct their rent payments from their taxes. The taxpayers of North Carolina will lose if Wal-Mart wins — and that’s a dynamic that local officials should remember when Wal-Mart files an application to build a superstore in their town.