February 23, 2007

Wal-Mart... not quite the great corporate citizen

Apparently, Wal-Mart is not alone nor is Texas the only state in which this is happening. Vince at Capitol Annex has more on this loophole in tax law that allows a parent company to 'rent' space from a REIT subsidiary, which then passes the profits back to the corporate parent. The kicker? The corporate parent gets to use the 'rent' as an expense, thereby reducing it's tax liability.

New York is currently devising laws to correct this problem. Republicans there are spinning it as a new tax when in fact it's simply the closure of a loophole (as it would be in Texas as well). Spitzer is having none of it.

"Our definition of a tax loophole is a provision that is taken advantage of by a few sophisticated taxpayers to reduce their fair tax liability in a way that was never intended at the time the provision was enacted," said Spitzer's budget director, Paul Francis. "Given Gov. Spitzer's pledge not to raise taxes, we carefully scrutinized all of our proposals to make sure they met this definition."

"When we are asking other parts of the state budget to make sacrifices, it is only fair to ask that all taxpayers play fairly under a simple set of clearly understood tax rules," said Francis, former CFO of Priceline.com.

New York is estimating that it could bring in more than $400 Mn annually. I haven't seen an estimate for Texas yet but would be willing to bet it's more than that, possibly as much as $1 Bn annually.

Posted by mcblogger at February 23, 2007 02:07 PM

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