I’ve been remiss in my blogging about Wal-Mart.  The Wall Street Journal reported a few weeks ago on the Arkansas behemoth’s use of real estate investment trusts to avoid paying state corporate taxes.  

Wal-Mart did make a good move in Cleveland this week. They had gotten involved in a real estate development project on some formerly-polluted land, putting them in line for a substantial local property tax credit under a state development law. The city of Cleveland was unaware that this was the case. Surprisingly, Wal-Mart is now foregoing the credit and paying the city.  Good for them. One of the issues highlighted by this case is that state government is often quite happy to give away school districts’ tax bases without giving the district the right of refusal.  It’s a major problem and one that Greg LeRoy at Good Jobs First has taken on.

For Wal-Mart, the move in Cleveland was good PR that comes after a Wall Street Journal story on their use of a complex tax avoidance scheme that prevents states from collecting millions in corporate taxes that Wal-Mart would otherwise be paying. The strategy involves creating a subsidiary to actually own the property that Wal-Mart uses for its stores.  Wal-Mart then pays the subsidiary “rent” for the use of its stores. This “rent” is then counted as a business expense when filing corporate income taxes, allowing Wal-Mart to utilize the tax benefits of being a renter and an owner all at the same time. If you could get a tax break by reaching into your pocket, taking out a quarter, and putting it in a different pocket and calling it a transaction, you’d be working the same game.

The Journal got a hold of some internal documents from Wal-Mart’s advisors at Ernst and Young on this strategy. They included the following Q&A:

Q: What's the business purpose?

A: Reduction in state and local taxes.

Q: What if the press gets wind of this and portrays us as a "tax cheat"?

A: That's a possibility....If you are concerned about possible negative publicity, you can counter it by reinvesting the savings in the community.

Corporate tax avoidance based on this sort of practice has reached epidemic proportions. It's getting so that one tax lawyer I know compares the state corporate tax to a charity, meaning that corporations, not the people, decide how much they will contribute to the civic coffers.  If you want to know more about this, check out Citizens for Tax Justice’s look at how the most profitable companies in America pay no corporate income tax.  (Hat tips to State Tax Notes and Wal-Mart Watch).

Special Wal-Mart followup: I see from Ezra Klein that economist and Tobacco Institute hired gun Richard Vedder has a book out about the virtues of Wal-Mart published by the American Enterprise Institute press.  I wonder if you get more or less money for this sort of research than for research on climate change?  Also in the news, the AFL-CIO is asking the New York Stock Exchange to investigate Wal-Mart's compensation practices. This is part of the AFL's campaign for corporate responsibility on behalf of participants in union pension programs.