January 5, 2008 / 12:14 AM / 12 years ago

North Carolina judge rules against Wal-Mart

In this file photo people walk in front of a Wal-Mart store before the start of a media tour of in Pleasant Grove, Arkansas May 31, 2007. A North Carolina state judge ruled against Wal-Mart Stores Inc in a tax shelter case where the retailer paid itself rent and later counted that amount as a tax deduction. REUTERS/Jessica Rinaldi

NEW YORK (Reuters) - A North Carolina state judge ruled against Wal-Mart Stores Inc (WMT.N) in a tax shelter case where the retailer paid itself rent and later counted that amount as a tax deduction.

Wal-Mart had transferred ownership of its stores to various in-house real-estate investment trusts (REITS), and then cut its tax obligation by taking deductions for rent payments that never left the company.

In a judgment signed on December 31, Emergency Special Judge of Superior Court Clarence Horton Jr. ruled “there is no evidence that the rent transaction, taken as a whole, has any real economic substance,” other than for cutting Wal-Mart’s taxes.

The judge dismissed the retailer’s suit, where it sought a refund of the $33.5 million in taxes, interest and penalties

it paid the state after authorities determined it underpaid by that amount.

“It is particularly difficult for the court to conclude that rents were actually ‘paid’ when they subsequently returned to the payor corporation,” the judge ruled.

Wal-Mart said it hasn’t decided on how it will proceed in the aftermath of the ruling, and declined to comment on the case’s specifics due to a possible appeal.

Reporting by Justin Grant

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