Tax Relief and Trusts: How Wal-Mart Avoids Taxation
Posted on | December 31, 2009 |
The Wall Street Journal has unraveled a scheme used by the giant retailer to avoid the imposition of state taxes in as many as 25 states. The simple graph of how the scheme works can be viewed here. Basically, Wal-Mart pays rent to its real estate trust and that trust then pays dividends to Wal-Mart Property Co (therefore avoiding state taxes) and Wal-Mart Property Co. pays dividends to its parent, which deducts them from its state taxes because they come from a subsidiary. Unlike most tax deductions that involve cash being paid for expenses, this strategy by Wal-Mart actually allows them to keep a majority of the rental payments.
The tax savings to Wal-Mart are likely in the billions of dollars, even though the loophole was long ago closed at the federal level. Several states are now challenging this structure in court, and more are likely to follow. The full article can be viewed here, and a Wal-Mart watchdog has compiled a list of tax avoidance schemes by Wal-Mart with updates on how states are counteracting them.
Tags: asset protection > Business Planning > corporations > real estate > taxes > trust
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