Watchdog: Wal-Mart Skirted More Than $2 Billion in State Taxes

According to a new report by a corporate watchdog group, Wal-Mart has used a tax loophole to wriggle out of paying more than $2 billion in state taxes since 1999. The report was prepared by Citizens for Tax Justice (CTJ), a nonpartisan research and advocacy group that fights for tax fairness.

“Wal-Mart avoided $2.3 billion in state income taxes, cutting its payment to state governments almost in half between 1999 and 2005,” notes the CTJ report. “Over those seven years, Wal-Mart reported $77.4 billion in pretax U.S. profits to its shareholders. But it reported a total state income tax bill of only $2.4 billion, just 3.16 percent of those profits. Had Wal-Mart paid taxes at the statutory state corporate tax rates for the same period, it would have paid $4.7 billion in state income taxes.”

In February, the Wall Street Journal reported that the mega-corporation was aggressively using a “captive Real Estate Investment Trust,” or REIT, based in Delaware. Says CTJ: “It works like this: an individual buys a house, and then rents it back to himself to save on taxes but a scheme like this would land ordinary Americans in jail for tax evasion. But by essentially paying rent to itself and then deducting that cost as a business expense in states where it should be paying taxes, Wal-Mart has avoided paying $2.3 billion.”

“Wal-Mart is rigging the system to avoid paying its fair share,” said Robert McIntyre, CTJ’s executive director. He said the scheme should be a “wake-up call for states to update their laws and require corporations to report the combined nationwide profits of all their subsidiaries, so that schemes and loopholes don’t disguise big corporations’ real profits.”

Added Greg Tarpinian of the labor group Change to Win, “Wal-Mart is hurting working families in cash-strapped states by walking away with public money needed for emergency rooms and new schools. Wal-Mart has been cutting legal and ethical corners on our backs, and it’s time for responsible businesses to join working families in calling on Wal-Mart to change.”

The solution, advocates say, is for states to institute “combined reporting” measures for tax collection, which would prevent companies from shifting profits from state to state to avoid tax implications.

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