Wal-Mart’s tax dodge comes at the expense of other businesses

    The front page reports that Wal-Mart owes nearly $18 million in back taxes to the state of Wisconsin is infuriating – but hardly a new story.

    The Milwaukee-based Institute for Wisconsin’s Future said as much back on April 15 in a report timed to tax day 2007. The group released a study showing how Wal-Mart used a variety of tax avoidance schemes to cut millions from its state tax bill.

    Using public records, the group determined that Wal-Mart pocketed $852 million in net profits in Wisconsin off value-hungry consumers between 2000 and 2003. But over that same period, Wal-Mart paid only $3 million in corporate income tax here. That’s a tax rate of 0.35 percent, a fraction of the 7.9 percent base rate for corporations doing business here.

    Unfortunately, much of the state’s mainstream media failed to pick up on the report. The Capital Times did run it, however, which prompted an immediate response from Wal-Mart attorneys saying the story was "recklessly ill-informed" and "misleading."

    Now, four months later, comes news that Wisconsin auditors have calculated Wal-Mart Stores owes $17.7 million in back corporate income taxes, interest and penalties for 1998, 1999 and 2000. Even more could be owed for later years.

    The Department of Revenue said the firm avoided millions of dollars in state taxes by having an out-of-state subsidiary own its real estate so Wal-Mart can in effect pay rent to itself, deducting those costs as a business expense. Attorneys for the state agency call it an "abuse and distortion of income."

    Of course, Wal-Mart claims it has done nothing wrong but is merely 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," company spokesman John Simley told the Associated Press.

    The question of corporate taxes has also become part of the impasse over the next state budget being worked on by a legislative conference committee.

    Democrats who control the state Senate want to close the tax loophole, but Republicans would apparently rather protect corporate tax avoidance while cutting programs like the Homestead renters credit that actually help low-income people in Wisconsin.

    You wonder about those who jump to the defense of corporations trying to skirt their responsibilities. They seem to forget that every dollar in taxes that goes unpaid by big business ends up getting paid by everybody else, including Wisconsin’s small businesses.

    Moreover, corporations suck resources from local economies not only with tax gimmicks but also because they use their own accountants, lawyers and real estate people. Locally-owned firms, on the other hand, tend to use local services, with those dollars circulating back into the community.

    But in fairness, Wal-Mart certainly isn’t alone in cooking up complicated tax avoidance schemes.

    Kohl’s Corp., for example, ended up settling with state tax collectors in 2004 over a gimmick where it used a Delaware subsidiary to shelter income. In that case, Kohl’s paid itself for use of its trademark name and then deducted it as a business expense.

    Banks in Wisconsin have pulled similar tricks, using dummy subsidiaries in states like Delaware and Nevada, which have no corporate income tax, to lower their payments here at home. The state has collected some $30 million in back taxes from that one.

    In the case of Wal-Mart, the timing couldn’t be worse. The firm has been struggling to maintain its sales dominance and has seen its share price (WMT) fall to $43 from $52 over the past months.

    And it certainly doesn’t need the bad publicity right now with a Supercenter slated to open soon at South Towne and talks continuing over a mega-store in Stoughton.

    Geez, if Wal-Mart customers knew the real story, they might be inclined to spend their hard-earned money elsewhere.

    Mike Ivey is a business writer with The Capital Times in Madison.


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