Wisconsin Accuses Walmart Of Dodging Taxes

The Wisconsin Department of Revenue is irritated with Walmart. They’ve just noticed that Walmart has been charging itself rent in a (successful) attempt to avoid paying taxes. Teehee!

From the Journal-Sentinel:

Wal-Mart Stores Inc. has avoided millions of dollars in state taxes by paying rent on 87 Wisconsin properties in a way that the state Department of Revenue calls an “abuse and distortion of income.”

As a result, state tax auditors say, Wal-Mart owes more than $17.7 million in back corporate income taxes, interest and penalties for 1998, 1999 and 2000. More could be due for later years.

Revenue Department lawyer Mark Zimmer argues that the world’s largest retailer is not paying its fair share of taxes that support public schools, local police and fire departments and the highways it uses to transport what it sells in Wisconsin.

As a result, Wal-Mart shifts the burden of paying for those services “to individuals and small businesses who are unable to set up such elaborate mechanisms,” Zimmer told the Tax Appeals Commission, which is considering the matter.

Walmart doesn’t deny that they’re shafting the cheeseheads, they say they’re just “taking advantage of an overlap of state and federal tax laws.”

“Anything Wal-Mart can do to lawfully lower its costs allows the company to pass it along through lower prices,” said company spokesman John Simley. “This is a lawful (tax) structure in Wisconsin.”

Time to change your tax laws, Wisconsin. Walmart is too clever for you.

Wal-Mart owes back taxes, state says [Journal-Sentinel]
(Photo:Morton Fox)

Comments

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  1. NickRB says:

    You can’t blame them for taking advantage of a stupid law. Now, the law should be changed immediately and they should pay their fair share.

  2. ChrisC1234 says:

    And does this really surprise anyone? Large corporations always find the loopholes in the laws.

  3. thepounder says:

    While it smells of sheistiness, if it’s legal (for now) then have at it. Like NICKRB, I’d say the state needs to change that law with quickness.

    It must be nice to have a gang of staff lawyers searching for loopholes…

  4. phobs says:

    Wasn’t this standard practice for a lot of big companies for years? I’m pretty sure I heard about this a few years ago.

  5. @phobs: Some had different ways of cookin’ the books. Some went as far as to offload their debt into other companies so it looked like they were making profit (Enron).

  6. ArtDonovansDrunkenLovechild says:

    This WAS a big story a couple of years ago. Companies putting the property under a seperate entity and paying itself rent was all the rage. Usually, if I recall correctly, you saw this a lot with Walmarts and Grocery Stores because they were often freestanding or owned thier own shopping center.

    I love how they say that Kohls and Sears dont do this… Mainly cause they rarely own thier own properties.

  7. jerseyjokeboy says:

    @ChrisC1234:
    I concur. Their shady schemes and tactics should not surprise anyone. They’re just like any other major corporation, avoiding taxes like fire.

  8. ChrisC1234 says:

    @jerseyjokeboy: Yeah, but I think they have better luck (or just better lawyers) at avoiding taxes than they do fire (anyone in Mississippi knows of the fun shopping at Hudsons).

  9. Falconfire says:

    @ArtDonovansDrunkenLovechild: Hell its the rage for not just taxes. Exxon did this in Linden to skate out of paying millions in environmental cleanup costs. They sold their Bayway refinery, which allowed the “company” that bought it the ability to not have to clean up the land, THEN bought the company they sold it to which wiped the slate clean for them.

  10. chili_dog says:

    Corporations DO NOT pay taxes, even if they remit money to the government. Any tax burden is passed onto the consumer.

  11. rolla says:

    it doesnt matter anyways…cause if walmart starts paying taxes, theyre just going to raise the prices on their items. Either way, the public gets screwed.

  12. Major-General says:

    And? Really, if you don’t like the loophole, change the legislature.

  13. grouse says:

    To all you are saying that Wal-Mart is just taking advantage of a legal loophole: the State of Wisconsin Department of Revenue is saying this loophole does not exist. If the appeals commission agrees, there is no need to change the law because what Wal-Mart is doing is already illegal.

  14. doctor_cos wants you to remain calm says:

    @grouse: Don’t be posting such heathen nonsense! wallyworld may be shady and out to screw over the planet, but illegal?
    We start expecting them to pay taxes that they owe, next you’ll want them to start offering **ACTUAL** health insurance to **ALL** their employees, even the ones that are 1/2 hour short of “FULL TIME”, then they’d have to cut out the Chinese overtime, etc. etc. etc. NEVER GOING TO HAPPEN.

  15. Squeezer99 says:

    like 6 months ago the wall street journal had an article on this. most major corporations were doing this, so I don’t know why you are singling out walmart. besides, no business ultimately pay taxes anyway, they just roll the taxes into the price of their goods and services, so the consumer pays them anyway. so whats the difference if the consumer pays it through higher property taxes or higher goods and services? it all ends up being the same dollar amount.

  16. “Revenue Department lawyer Mark Zimmer argues that the world’s largest retailer is not paying its fair share of taxes that support public schools, local police and fire departments and the highways it uses to transport what it sells in Wisconsin.”

    Gotta love the ridiculous spin. I’m not a Wal-mart lover but c’mon, way to frame taking advantage of tax law (which EVERYONE does, even that lawyer) around trying to exploit children, abuse cops and firemen, and shirk on responsibility.

  17. yooper1019 says:

    Just because something is legal doesn’t mean its ethical!

  18. spinachdip says:

    @pfblueprint: That’s the idea behind paying taxes though, right? A business makes money from the local consumer base while enjoying:
    1) the protection of the local police and fire departments;
    2) a workforce educated by local schools (not that Wal Mart wants a particularly well educated workforce, but stay with me here), and
    3) roads to transport its goods and bring in customers (more so if infrastructure improvements were necessary to get the Wal-Mart built)

    Yeah, it’s a rather transparent tug at the heart, but it’s not inaccurate either. A business not paying taxes is no different from a consumer not paying for goods and services.

  19. Mojosan says:

    There is a big difference between avoiding taxes and evading taxes.

    If they did attepted to evade taxes they will pay more they they would have ended up paying in the first place.

    But trashing them because they avoided taxes is no different than you claiming your personal exemption on your 1040.

  20. revmatty says:

    To those commenting that they’d heard stories about companies doing this sort of thing back in the 90’s, I believe it was a FAIR or Mother Jones article specifically about Wal-Mart doing this, often in violation of state law (as they appear to be doing now). Wal-Mart being shady? Say it ain’t so!

  21. DjDynasty says:

    Wal-Mart does this nationwide. They don’t corporately own a single building, they have a dummy corporation that owns the properities, they pay very low rent prices, and then the real estate corporation usally refuses to allow anything to move into an old wal-mart. Also because they don’t own the building, they aren’t liable for the crime that goes on in their parking lots, which cities that have wal-marts report that a majority of the crime occurs in their city, at wal-mart. Most small towns have a police station outpost located at wal-mart because of that statistic, and they handle wal-mart’s security needs for them in exchange for free rent. Guess what? Wal-Mart then doesn’t have to pay for security to drive the lots on gas guzzling cars, most of the time blocking traffic.

  22. ChristopherDavis says:

    This is reminiscent of Toys R Us’s attempt to avoid state taxes by paying royalties (for use of the logo, mascot, and so forth) to a separate holding company, then claiming that since the holding company didn’t have any presence in South Carolina they didn’t owe SC any taxes on that income.

    Unsurprisingly, the SC courts disagreed; the Supreme Court declined to review the decision.

  23. TechnoDestructo says:

    @chili_dog:

    Just like you don’t pay taxes, that’s passed to your employer, who doesn’t pay you, that’s passed on to the consumer.

    It’s money they would have immediately (without the time it takes to decide they have to raise prices and the potential risk of doing so) if they didn’t pay it to the government. THEY PAY TAXES. Or…they’re supposed to.

    What I didn’t see explained in the article is why the REIT doesn’t pay taxes. Does it get only what the payments and maintenance costs on the property are, no more, no less? (So no profits?) Isn’t that money that wouldn’t be taxed anyway? Or are Walmarts entirely self-financed, all this “rent” is payed to just have that money taxed at a lower rate because the REIT isn’t making as much profit as the Walmart? Or are taxes only calculated AFTER dividends? (that strikes me as unlikely, but what do I know?)

  24. kpfeif says:

    It’s interesting that our governor, “Diamond” Jim Doyle, has decided to go after Wal-Mart for essentially following the letter of the law while other Wisconsin-based businesses do the exact same thing.

    I can’t imagine the crap Menard’s is getting away with in this state.

  25. FinanceGuru says:

    @squeezer99: No, most large corporations aren’t doing this. Some large corporations are doing this. For example, MSFT does not have a REIT to own its portfolio of corporate owned real estate. Neither does INTC, which, btw, has a policy of owning its own “dirt.” A significant number of corporations lease most of their real estate because it’s generally better balance sheet management.

    @djdynasty: It’s not a dummy corporation. It’s a real corporation.

    Wal-Mart is using a captive REIT structure. A REIT is a special kind of corporation that was created by the US Congress to encourage the passive ownership of real property. You may have read about a large REIT, Equity Office, being sold to Blackstone recently. Most REITS are publicly traded; some are “captive” or “private” meaning their shares are not traded on a public exchange.

    REITs do not generally pay federal income tax on their net taxable income, provided they (1) meet a substantial number of organizational, asset, and gross income tests, and (2) distribute at least 90% of their federal taxable income in the form of dividends to their shareholders.

    The shareholders are required to include the dividends on their own federal income tax returns. Essentially, this results in a so-called “single layer of tax” on the earnings of the REIT.

    I don’t think WI DOR has much of an “abuse” argument, given language of the statute in WI. That said, it’s a pretty easy legislative fix to say, in so many words, that nonpublicly traded REITs are not eligible for the dividends paid deduction for WI state income tax purposes. Then they’re back to being treated as taxable C corporations for WI purposes.

  26. CumaeanSibyl says:

    @grouse: Right! I love how everybody says “Oh, well, the Wal-Mart lawyer says it’s legal, of course it must be the state’s fault.”

    OF COURSE the Wal-Mart lawyer says it’s legal. That has absolutely no bearing on whether or not it IS. What are we, five years old here? Come on.

    @Squeezer99: They’re singling out Wal-Mart because Wisconsin is going after Wal-Mart. If you can find stories about states going after the other companies that do this, I’d like to see those covered too.

  27. Trai_Dep says:

    * Companies don’t really pay taxes since they charge consumers to pay them.

    * Employees don’t really pay taxes since they demand salaries high enough to net them what their labor is worth

    * Landlords don’t really pay taxes since they charge renters to pay them

    * Renters don’t really pay taxes since they find something that they can afford including their landlord’s taxes

    >> No one pays taxes – gov’t funded by unicorns and flittering butterflies! <<

    Guys, go to your local community college. Take an Econ 101 course. Don’t rely on wingnut internet sites as your sole source of information. It’s embarressing.

  28. andrewsmash says:

    “Anything Wal-Mart can do to lawfully lower its costs allows the company to pass it along through lower prices,” said company spokesman John Simley. “This is a lawful (tax) structure in Wisconsin.”

    Lawful, yes. Moral, no. I love how they say they support local communities, and then completely trash the infrastructure. Really, I hate them, I really, really do.

  29. RISwampyankee says:

    Midwest Nice meets Corporate Slime–guess who wins?

  30. primechuck says:

    @andrewsmash: Frankly, it is really a bunch of crap. This is common practice in Wisconsin, depending on how the wholey own subsidiary is structured. Morally, I don’t think I can convince you that saving people money, forcing other businesses to increase their image or reduce their prices, creating areas of economic boom for an area (Or do you hate Walmart Tag Alongs too like Aldi, Toys’r’us, Quiznos, Subway, Lowes, Home Depot (and in Wisconsin Menards).

    Back on topic. They are already collecting 5% to 6% on all items they sell and giving it to the state. They are paying employees who pay income tax to the state. They are paying dividends to the owners who pay income tax to the state…you seeing how the consumer’s advocate isn’t the government here. However, like all other government taxes, the person who is gonna get the shaft is generally the consumer. The spin coming from the WDFI and WDR is nothing less than, “Think of the Children”. It probably is legal, and certainly isn’t immoral.