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Cracking Down on Wal-Mart's Favorite Tax Loopholes

 

At the beginning of February, we reported on an expose of special loopholes used by Wal-Mart to slash its state taxes by hundreds of millions of dollars per year.  The scam involves Wal-Mart and other companies dividing themselves into separate subsidiaries, buying land and buildings, then deducting the rent paid to itself as a business expense.  But states are moving to eliminate the loophole and reclaim the lost revenue:

  • Maryland State Comptroller Peter Franchot announced plans to go after the loophole, arguing "It's an abuse that allows big companies to cheat on state taxes."
  • Connecticut Attorney General Richard Blumenthal announced an investigation into whether Wal-Mart and other companies were abusing the loophole and exploring what legislation would be needed to close it.
  • Legislation has been introduced in multiple states to deal with the loophole, including in New Mexico, Michigan, Maryland, Iowa, and North Carolina.  Most of the statutes are seeking to enact "combined reporting," an accounting rule which forces corporations to report all their subsidiaries in a unified report, shutting down a range of tax scams. 

Governor Spitzer in New York, Gov. Patrick in Massachusetts and Gov. Rendell in Pennsylvania have also recommended that their states adopt combined reporting as well. 

These states will hopefully soon be joining the twenty states that already use combined reporting -- and have largely avoided being scammed by the Wal-Mart style loophole.  

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