Printable Version Tell a friend

Research Shows Wal-Mart Rigs System to Dodge $2.3 billion in State Taxes

Thursday, April 19, 2007

(Change to Win)

• 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%
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.

The research was compiled by Citizens for Tax Justice, along with Change to Win, a labor
coalition that represents 6 million workers.

Corporations are not required to report what they pay in state taxes on a state-by-state basis,
preventing a state-by-state breakdown of how Wal-Mart rigs the system. But one state,
Wisconsin, does disclose the taxes that corporations pay annually, providing insight into how
other states are individually hurt by Wal-Mart’s $2.3 billion in tax avoidance over the past seven years:

• On an estimated $852 million in Wisconsin profits between 2000 and 2003, Wal-Mart
paid only $3 million in Wisconsin taxes.
• That’s a tax rate of only 0.35 percent — a tiny fraction of the 7.9 percent statutory
corporate tax rate which big corporations are supposed to pay in Wisconsin.

Interestingly, Wisconsin is one of 30 states that do not require “combined reporting” of corporate profits. This failure facilitates numerous corporate tax shelters, under which Wal-Mart and other large multi-state corporations take advantage of state laws to account for various subsidiaries as separate, unrelated corporations -- and shift profits (on paper) from states like Wisconsin to other states where those profits aren’t taxed.

The Wall Street Journal reported in February 2007 that Wal-Mart has aggressively used a “captive Real Estate Investment Trust” or REIT, which is based in Delaware. 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, Executive Director of the independent, non-partisan Citizens for Tax Justice. “Wisconsin should serve as 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.”

By requiring “combined reporting,” Wisconsin would join the 20 states that have already adopted this comprehensive approach to fixing the system, including, California, Illinois, and Texas. Most recently, New York and West Virginia passed combined reporting legislation and several other states including Iowa, Michigan, Massachusetts, Maryland, and North Carolina are currently exploring ways to do the same.

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

More information is available from Citizens for Tax Justice and Change to Win