Bill Targets Corporate Tax Cheats

Lawmakers Expose Retailer's Misuse of REIT Tax Shelter

(DENVER) State Representative Claire Levy (D-Boulder) today unveiled a bill targeting a tax evasion scheme used by Wal-Mart and other large corporations. Rep. Michael Merrifield (D-Colo Springs) and Senator Jennifer Veiga (D-Denver) joined Rep. Levy as sponsors of the legislation.

The bill implements the long-standing policy in Colorado that corporate profits earned in the state are subject to state tax, and it distinguishes between valid Real Estate Investment Trusts and Captive REITs such as Wal-Mart's. The bill requires corporations to declare the use of suspect transactions on their corporate tax return.

“These companies are abusing the public trust,” said Rep. Levy. “By sending their Colorado profits overseas and back through a series of shell corporations, they avoid paying their fair share of taxes."

Rep. Levy explained that federal tax law created REITs to allow small investors to participate in real estate markets that would otherwise require very large amounts of capital. Legitimate use of REITs is not affected.

"This is a scam,” said Rep. Levy. “Tax accountants dreamed up this idea and sold it to Wal-Mart on the sole basis that it would avoid the clear intent of the tax laws. This scheme has no other purpose. Wal-Mart avoids paying its rightful tax bill by hiding its profits. This bill gives us the tools to find those hidden profits."

The Wall Street Journal and others have noted that Wal-Mart pays itself rent and calls that a tax-deductible business expense, thus skirting payment of standard taxes.

“This bill does not create a new tax. These are taxes that are rightfully owed.  The people of Colorado pay taxes; so should corporations. Wal-Mart can certainly afford to pay their fair share. Wal-Mart sends its profits on a European vacation and then leaves the honest Colorado taxpayer stuck with the bill," said Rep. Levy. "It is time to put a stop to this sham."

The Wall Street Journal indicates that Wal-Mart avoided paying $350 million in state taxes between 1998 and 2001. Many other states have taken action against the company in recent years.

-- Posted by staff