Comments on: Wal-Mart Rolls Back Tax Cuts http://www.taxgirl.com/wal-mart-rolls-back-tax-cuts/ tax news, tax info and tax policy Thu, 08 Jan 2009 19:47:09 +0000 http://wordpress.org/?v=2.7 hourly 1 By: Another Tax Geek http://www.taxgirl.com/wal-mart-rolls-back-tax-cuts/comment-page-1/#comment-3890 Another Tax Geek Thu, 10 Jan 2008 06:27:03 +0000 http://www.taxgirl.com/wal-mart-rolls-back-tax-cuts/#comment-3890 As much as everyone likes to hate Wal-Mart, I don't think this is quite that simple. I don't see this so much as a step transaction issue, as I do an economic substance issue. Even beyond that is the issue of whether a state can disregard the form of a transaction, and the ability of a taxpayer to organize their affairs in the most tax efficient means possible simply because it is tax efficient. No doubt the captive REIT structure was pushing the limits, and they definitely could have implemented it in a way that wouldn't have so blatantly waived the red flag in front of the DOR (note - all opinions based on the series of WSJ articles on this case). But REIT taxation is fairly well established, as is separate state taxation. IMO (following conceptual, high level logic - I'm not an expert on NC, Wal-Mart studied the rules, then organized themselves accordingly. NC could have closed the door by changing to a unitary tax system, or by specifically disallowing deductions paid to captive REITs (as many other states have now done). I would even argue that Wal-Mart had a fiduciary duty to their shareholders to pursue such an opportunity. How about economic nexus next? As much as everyone likes to hate Wal-Mart, I don’t think this is quite that simple. I don’t see this so much as a step transaction issue, as I do an economic substance issue. Even beyond that is the issue of whether a state can disregard the form of a transaction, and the ability of a taxpayer to organize their affairs in the most tax efficient means possible simply because it is tax efficient. No doubt the captive REIT structure was pushing the limits, and they definitely could have implemented it in a way that wouldn’t have so blatantly waived the red flag in front of the DOR (note - all opinions based on the series of WSJ articles on this case). But REIT taxation is fairly well established, as is separate state taxation. IMO (following conceptual, high level logic - I’m not an expert on NC, Wal-Mart studied the rules, then organized themselves accordingly. NC could have closed the door by changing to a unitary tax system, or by specifically disallowing deductions paid to captive REITs (as many other states have now done). I would even argue that Wal-Mart had a fiduciary duty to their shareholders to pursue such an opportunity.

How about economic nexus next?

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