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Wal-Mart Courts State Politicos

A new report shows that Wal-Mart has jacked up political contributions in states where it wants to reduce its tax bill

Wal-Mart Stores (WMT) has been sharply increasing political contributions in states where it is trying to cut its corporate tax bill. That's according to data just released from the National Institute on Money in State Politics, a nonpartisan, nonprofit group based in Helena, Mont.

Over the past four election cycles, the retailing giant has ratcheted up contributions in nine states that are key to its operations: Arizona, California, Florida, Illinois, Indiana, Michigan, North Carolina, Pennsylvania, and Texas. Its political contributions in those states rose from $139,822 in the 2000 election cycle to $879,441 in the 2006 election cycle, according to the institute. Wal-Mart's efforts to reduce its corporate taxes in those states have come to light as a result of a lawsuit that the attorney general of North Carolina filed against the company to challenge its tax-cutting strategies.

Local Officials' Expanded Role

"As Wal-Mart looks for ways to improve its bottom line, the public should be aware that their tax bill may increase as Wal-Mart's goes down," says Edwin Bender, executive director for the National Institute on Money in State Politics. Wal-Mart did not comment for this story.

Across the past four election cycles, Wal-Mart made a total of almost $2.5 million in state political contributions in the nine key states. That accounts for 65% of the company's campaign contributions at the state level, which totaled $3.8 million in 43 states.

As BusinessWeek first noted last year (BusinessWeek.com, 9/28/06), the giant retailer has been steadily boosting contributions to state and local politicians, just as such politicians have been taking on more important roles in deciding key issues concerning the company's operations. In recent years, state and local officials have been weighing in on everything from the local minimum wage and required health-care benefits to zoning for big-box retailers. Meanwhile, Wal-Mart has made contributions to everyone from California Governor Arnold Schwarzenegger and New York Governor Eliot Spitzer to former Maryland Governor Robert Ehrlich Jr. and Illinois state Senate President Emil Jones Jr.

Wal-Mart's Tax Bill

Wal-Mart has been working hard to reduce its taxes at the state level. As The Wall Street Journal reported on Oct. 23, Wal-Mart sent a letter in 2001 to accounting firms that began: "Wal-Mart is requesting your proposal(s) for professional tax advice and related implementation services in connection with minimization of state income taxes in the following states: Arizona, California, Florida, Illinois, Indiana, Michigan, Minnesota, and Pennsylvania." The company ultimately hired Ernst & Young to help it develop a series of complex strategies to reduce its state taxes. The newspaper reported that while state income tax rates for corporations average 6.9%, Wal-Mart has paid taxes equal to about half the statutory rate over the past decade.

One group of researchers tried to crunch the numbers on Wal-Mart's tax payments. Citizens for Tax Justice, a Washington-based nonpartisan group, and Change to Win, a labor coalition that represents 6 million workers, put out a research report that suggested its efforts helped cut payments to state governments almost in half between 1999 and 2005. Over those seven years, Wal-Mart reported $77.4 billion in pretax U.S. profits. But it reported a total state income tax bill of only $2.4 billion, or 3.16% of those profits. The researchers' report said that if Wal-Mart paid taxes at the statutory state corporate tax rates for the same period, it would have paid $4.7 billion in state income taxes.

Boosting Contributions to Cut Taxes

Wal-Mart has been increasingly generous with its political contributions. Of the $2.5 million that it gave in the nine key states, state-level candidates and party committees in those states received $2.2 million of that between the years of 2000 and 2006. In California, with a tax code that the Institute calls one of the "most stringent in the country," political party committees collected more than half of the total contributions.

The institute also noted that Wal-Mart gave an additional $205,622 in Texas, where Ernst & Young set up a limited partnership for Wal-Mart that allowed much of the company's earnings to be transferred out of state. This practice was used by enough companies that the Texas legislature has since changed the law.

In North Carolina, where the attorney general is challenging Wal-Mart's use of real estate investment trusts to cut taxes, candidates and party committees received $27,750.

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