ANOTHER TWISTED TAX TALE FROM WAL-MART…
Did you know that Wal-Mart had entered Italy? I didn’t. Not with a Supercenter. Not with one earlier model stores. Not even with one of its down-sized neighborhood markets. No, Wal-Mart opened a real estate office in Florence.
So it could cheat the citizens of Illinois out of $26.4 million in taxes.
More than 4,500 miles separate a small Wal-Mart Stores Inc. office in Florence, Italy, from the company’s dozens of Illinois retail outlets. But thanks to a convoluted tax arrangement, court records show, Wal-Mart’s Italian operation has helped the giant retailer cut its state tax bill in Illinois by millions of dollars a year.
Wal-Mart set its affairs so that its Italian outpost is the only operating unit of a real-estate subsidiary that controls billions of dollars of the retailer’s property in Illinois and other states. Because technically its only employees are based in Italy, the real-estate unit claims its operations are foreign, exempt from Illinois corporate income taxes.
When we started this blog, the major issue was the way in which Wal-Mart was sucking up state tax dollars by foisting its health care responsibilities of on Medicaid. While that continues, states, like North Carolina and Illinois, are catching on to how Wal-Mart also avoids paying its way in the first place.
Wal-Mart’s 80/20 structure worked like this: The company first transferred its Illinois stores to its in-house [real-estate investment trusts], paid rent to the REITs and then deducted those payments from its taxes. The REITs, in turn, paid that money to their 99 percent owner, a Wal-Mart unit based in Delaware.
Ordinarily, Illinois’s combined-reporting rules wouldn’t permit a company to cut its taxes by shifting income to a Delaware unit. But in late 2001, Wal-Mart formed a Delaware subsidiary called WMGS Services LLC, records show. WMGS, with offices in Florence, was a wholly owned subsidiary of Wal-Mart Property Co., which also was 99 percent owner of Wal-Mart’s main REIT.
In its filing, Wal-Mart contends that Property Co.’s ownership of the Italian unit converted Property Co. into an 80/20 company. In other words, at least 80 percent of its employees and its property were overseas, exempting its income from taxes.
Though Property Co. is the 99 percent owner of the REIT — which owns dozens of stores in Illinois — Wal-Mart says Property Co. owns no real estate itself. And although Wal-Mart has more than 48,000 employees in Illinois, the firm contends Property Co. has no employees in the state, either.
The only employees of Property Co. were in Italy, the company says. Property Co. was set up to own the majority of the shares of Wal-Mart’s main REIT and has no employees anywhere, Wal-Mart has said in court records elsewhere.
How long will it be before Lee Scott and the rest of the crew just move to Bermuda?
[...] before about how good Wal-Mart is at dodging its taxes. The most odious scheme was having Wal-Mart pay itself rent and then launder the money in such a way as to render it tax-free [...]