Wal-Mart, the retailer with ‘everyday low prices,’ paid nearly a quarter of a million dollars last year to a small army of 9 lobbyists to push its agenda with Massachusetts lawmakers in 2007, including opposition to legislation filed by the Governor that would close a lucrative income tax loophole for the retailer. Wal-Mart’s ‘high-priced’ lobbying tab for 2007 came to $208,678 — five times what the company spent the previous year. According to research conducted by Sprawl-Busters, Wal-Mart hired three separate lobbying firms, plus its own Public Affairs Manager, Christopher Buchanan, as lobbyists. In 2005, Wal-Mart spent only $40,800 on lobbying in Massachusetts, and in 2006 only $43,220. But in 2007, the retailer unlocked the corporate treasury. According to Sprawl-Busters, 2008 will again be a record-setting year because of the company’s efforts to block legislation that would force it to pay its fair share in state income tax. Wal-Mart retained at least 9 lobbyists to ply its issues on Beacon Hill, which ranged from legislation regulating the retailer’s credit cards, to preventing big box stores from selling gasoline below cost. Wal-Mart weighed in on bills related to electronic identity theft, the use of radio frequency identification devices, private check cashing services, and the creation of limiting health clinics in their stores. But the retailer also paid two lobbying firms to work against H. 3756, Massachusetts Governor Deval Patrick’s “Act Improving the Fairness of the Tax Laws.” The Governor’s bill contains a provision that would require Wal-Mart to pay millions of dollars in state income taxes that the retailer has dodged by creating “sham transactions” that it pays to itself. H. 3756 would close this tax loophole, forcing Wal-Mart to pay at much as $5 million in state taxes that it has previously dodged. Patrick refiled his legislation in January, 2008, saying, “Under the current system, small businesses are at a disadvantage, while larger corporations avoid paying their fair share.” One of the main larger corporations not paying its fair share is Wal-Mart. And the corporation is paying an ‘everyday high price’ to lobbyists to keep it that way. According to the Governor’s office, closing this one loophole would generate another $271 million in revenues for the Commonwealth in FY 2008. On December 28, 2007, the Commonwealth’s Study Commission On Corporate Taxation, reported that multi-state corporations like Wal-Mart were allowed to “shift income out of corporations engaged in business in the Commonwealth to affiliates in low-tax jurisdictions, thus reducing Massachusetts taxes paid.” The legislation opposed by Wal-Mart eliminates this shifting of income by adopting “combined reporting,” under which affiliated corporations engaged in unitary business activities combine their incomes and apportionment factors and file as one entity.” The Study Commission concluded that “combined reporting would modernize the corporate tax structure in the Commonwealth and would reduce opportunities for tax avoidance through transactions among affiliated corporations.” Wal-Mart is using the money it makes from selling cheap Chinese goods to Massachusetts residents, to underwrite the cost of its lobbying to avoid paying the income tax that its customers pay.
Twenty other states have adopted combined reporting. States that have recently adopted combination include Vermont, New York, and West Virginia, and its adoption has been proposed in Maryland, Michigan, New Mexico, North Carolina, and Pennsylvania. North Carolina recently won a combined reporting tax verdict in state courts that will cost Wal-Mart $33 million. The retailer has appealed that decision. In Massachusetts, according to Sprawl-Busters estimates, the retailer says it paid nearly $19 million in state and local taxes in 2006. Assuming roughly $11 million of that was state income tax, the retailer also avoided $5.4 million by deducting the rent it paid to its Delaware-based company as a business expense, lowering its taxable income. The company also cost taxpayers $7.2 million in health care costs for 6,000 Wal-Mart workers and dependents on Medicaid. Based on a scheme developed by its accounting firm, Ernst & Young, for a “local tax reduction strategy,” Wal-Mart’s financial self-dealing allows it to pay rent to itself through a maze of eight corporate subsidiaries created in November of 1996, including Real Estate Investment Trusts (REITs). The rent appears as an expense on state tax forms, and is thus deducted from its taxable revenues. Under the agreement with itself, Wal-Mart pays 2.5% of gross sales monthly as rent to its own REIT, which then wires the money quarterly to Wal-Mart Property Company in the form of a dividend, which is then paid to Wal-Mart Stores as a tax-exempt “dividends received.” All of these transactions are handled through a “cash management agreement” between all the parties. Neither the REIT nor the Property Company ever had any employees. The REITs don’t pay taxes, as long as they pay 90% of their income out in dividends to shareholders. In Wal-Mart’s case, the REITs are owned by Wal-Mart subsidiaries which are registered in Delaware, a state that has no corporate income tax. Wal-Mart gets the benefit of the rent expense, but also gets the benefit of the non-taxed dividend, on the same monies. The dividends escape taxation, and the original rent that created the dividends is deducted from taxable income in the states where the “expense” is incurred. The rent, in essence, goes from one Wal-Mart pocket, into another. This is a major loophole that Wal-Mart doesn’t want closed. It’s more cost-effective for the company to shell out a couple hundred thousand dollars in lobbying fees to protect several million in tax avoidance. But the rest of Massachusetts taxpayers are the ones who pay for Wal-Mart’s slack. Readers are urged to call the man who oversees Wal-Mart’s lobbying in Massachusetts, Walter L. Sutton, Jr. at (479) 277-0425. Tell him, “Stop lobbying against Governor Deval Patrick’s corporate tax reform bill, and start paying your fair share of state income taxes. Instead of hiring an army of lobbyists, use that money instead for your frontline workers.”