| One of the big-ticket items in Governor Patrick's proposal to close corporate tax loopholes is "combined reporting," which prevents multi-state corporations from shifting income among its affiliates, thereby unfairly depriving states like MA of tax revenue that they should be receiving.
As we know, Speaker DiMasi is not a big fan of combined reporting or of the other loophole-closures in the Gov's bill. Turns out, though, it's not just DiMasi's desire for a "good business climate" -- there's an awful lot of money behind the effort to keep those loopholes wide open. Here's Wal-Mart Watch:
Wal-Mart paid nearly a quarter of a million dollars last year to a small army of 8 lobbyists to push its agenda with Beacon Hill lawmakers in 2007. The retailer's 'high-priced' lobbying tab for 2007 came to $208,678---five times what the company spent the previous year....
Wal-Mart retained at least 8 lobbyists to ply its issues on Beacon Hill, which ranged from legislation regulating the retailer's credit cards, to preventing big box stores from selling gasoline below cost. Wal-Mart weighed in on bills related to electronic identity theft, the use of radio frequency identification devices, and private check cashing services.
But the retailer also paid Bay State Strategies and Holland & Knight to lobby against H. 3756, Governor Deval Patrick's "Act Improving the Fairness of the Tax Laws." The Governor's bill contains a provision that would require Wal-Mart to pay millions of dollars in state income taxes that the retailer has dodged by creating "sham transactions" that it pays to itself.
H. 3756 would close this tax loophole, forcing Wal-Mart to pay at much as $5 million in state taxes that it has previously dodged.
Here's how Wal-Mart does it:
Based on a scheme developed by its accounting firm, Ernst & Young, for a "local tax reduction strategy," Wal-Mart's financial self-dealing allows it to pay rent to itself through a maze of eight corporate subsidiaries created in November of 1996, including Real Estate Investment Trusts (REITs). The rent appears as an expense on state tax forms, and is thus deducted from its taxable revenues.
Under the agreement with itself, Wal-Mart pays 2.5% of gross sales monthly as rent to its own REIT, which then wires the money quarterly to Wal-Mart Property Company in the form of a dividend, which is then paid to Wal-Mart Stores as a tax-exempt "dividends received." All of these transactions are handled through a "cash management agreement" between all the parties. Neither the REIT nor the Property Company ever had any employees.
The REITs don't pay taxes, as long as they pay 90% of their income out in dividends to shareholders. In Wal-Mart's case, the REITs are owned by Wal-Mart subsidiaries which are registered in Delaware, a state that has no corporate income tax. Wal-Mart gets the benefit of the rent expense, but also gets the benefit of the non-taxed dividend, on the same monies. The dividends escape taxation, and the original rent that created the dividends is deducted from taxable income in the states where the "expense" is incurred. The rent, in essence, goes from one Wal-Mart pocket, into another.
Is Sal DiMasi seriously defending this kind of crap? Why is he so in thrall to Wal-Mart's Ernst & Young strategy -- and to Wal-Mart's lobbyists? Wait ... maybe I don't want to know the answer to that ... |
