Wal-Mart: low prices, low wages, and very low taxes

My scholarship has focused, one way or another, on compliance issues--corporations that manipulate their income to avoid tax liability, practitioners who promote aggressive shelters and those who "customize" tax-motivated transactions for their clients.  I am concerned that big corporations, and the tax practitioners that assist them in structuring their transactions, have so thoroughly adopted the "tax minimization norm" that they have lost sight of their responsibilities to comply with the tax law--including, I would say, with the spirit of the tax law.

So I found very interesting the new information about Wal-Mart, reporting on Tax Prof yesterday, here, and its profitable state tax dodge--deducting rent that Wal-Mart pays to "captive REITs" (i.e., controlled  real  estate investment trusts) that are 99% owned by Wal-Mart.   Add this to the other ways that Wal-Mart evades reasonable social responsibility for the giant corporate power that it wields.

By the way, doesn't this suggest that something needs to be done by Congress about the REIT world?  REITs were supposedly invented to permit broad-based ownership in real estate assets by ordinary people who don't have the wherewithal to buy multimilliondollar real estate holdings.  The idea of a REIT was pooling--lots of little owners could pool their money and do what wealthy individuals do in reaping real estate rewards.  But the real estate world has found it much easier to let the little guys own a tiny percent of the business, and then hold the rest right where all the real estate has always been held--in the hands of those with lots of money.  Wouldn't it be interesting if Congress would abolish these "captive REITS" by requiring all REITS to have fully distributed ownership, with no single shareholder owning more than 1% (using broad constructive ownership rules to attribute ownership)? 

Comments

[andy]

"I would say, with the spirit of the tax law."

How is it, exactly, that a tax practitioner is to advise a client on the "spirit" of the tax law? It is hard enough trying to figure out what the Code means, as is. Should one also assume that there is an always-present "spirit" out there that may contradict the meaning of Congress's laws? As Justice Kennedy observed, "The problem with spirits is that they tend to reflect less the views of the world whence they come than the views of those who seek their advice."

To some, the "spirit" of the tax Code may be to ensure a highly progressive system that ensures distributional equity. To others, the "spirit" may be to raise the minimum amount of revenue needed to operate government, but without interfering with the economic system (think Ronald Reagan).

I can't think of any a priori reason to favor one "spirit" over another; both sides have good arguments, I think. With that in mind, I think the task of the attorney is to apply the law, not conjure a "spirit" that suits his/her own policy preferences.

[chris]

Andy,

You act as if the spirit of the law is some grim spector, an imaginary spook. Are you more comfortable with the term intention? Is it your contention that there are not intentions behind laws? In order to apply the law you must try to understand the spirit, yes spirit, behind the law. However, you are correct in the sense that one should not let personal bias obstruct or distort the true intent of the law. Why not conjure up a teeny little spook, one that you can handle, and one that has nothing to do with the real beast (corporate greed).

[andy]

"You act as if the spirit of the law is some grim spector, an imaginary spook. Are you more comfortable with the term intention? Is it your contention that there are not intentions behind laws?"

If the alleged "spirit" of the tax code weren't so obviously one-sided, I'd be more ready to accept its legitimacy. But the "spirit" of the tax code is always the same thing; rich people and corporations have to be taxed up the wazoo, and poor people should never be taxed. that may very well describe a good or ideal code, but that does not describe the code that congress has enacted.

the tax code has all kinds of competing "spirits"...some provisoins are blatant giveaways to special interests, some are grounded in sensible economic principles. when i hear people invoke "spirits," it's usually done to state a conclusion, and not to present an argment (not to say that the wal-mart post did that-- obviously we are moving well away from the original topic).

[LindaMBeale]

When I say "the spirit of the tax law" I am referring to something I have written extensively about--the interpretative stance that views the Code, as far as possible, as a coherent system and applies the rules within the framework of that understanding. Without that coherentist approach, gaps manufacture themselves and aggressively creative attorneys stay one step ahead of Congress and tax administrators in "inventing" and advising positions based on taking provisions beyond their scope. Again, as in so many legal questions, interpretative approaches tend to either condone hyper-literalism (which distorts by disregarding purpose) or depend on coherentism (which permits some uncertainty at the margins). Many tax practitioners simply assume, as you have, that hyper-literalism is the "correct" interpretive approach--without providing a coherent argument.

Andy seems to confuse (i) concerns about abuses of the system, (ii) normative ideals about the workings of a tax system that will support democratic institutions, and (iii) statements about particular taxpayer transactions. A number of academicians think that wealthy taxpayers (people and corporations) are the primary source of tax abuse--in part because they have the most to gain from it and the greatest opportunity to achieve it and in part because each instance of their cheating tends to cost the fisc large sums. Saying that doesn't condone, however, the efforts of anyone who is in the lower distribution quintiles and takes it upon himself to "invent" a tax break (ie, to cheat).

I do support policy positions--and urge Congress to consider using such positions to develop tax provisions--that would exempt more of the poor and near poor from taxation. That, of course, is an entirely different matter from condoning abuse.

Wal-Mart's gimmicks are of interest because Wal-Mart is a global giant. Its behavior has repercussions throughout this country and other countries. Any time it engages in aggressive gamesmanship with tax codes--we all know that rental income isn't intended to be deductible when paid to ourselves--it is exemplying the worst of corporate citizenship while continuing to reap all the benefits.

By the way, none of the postings here suggest that "rich people and corporations have to be taxed up the wazoo." That's a straw-man argument. In fact, the wealthy hold so much power in today's integrated financial marketplace that any such scheme would be born dead on arrival. There's a big difference between that kind of overboard categorization and the reality being suggested in reasoned discussion of what constitutes a fair share.

In fact, the opposite characterization may be much nearer to truth. Some wealthy taxpayers are mounting an ideological attack on the federal fisc, through various think tanks and other groups--such as the effort to repeal the estate tax, which has been funded in large part by a relatively small number of extraordinarily wealthy families (see various postings about the estate tax on A Taxing Matter).

[andy]

"Many tax practitioners simply assume, as you have, that hyper-literalism is the "correct" interpretive approach--without providing a coherent argument."

I'm not sure what "hyper-literalism" is, but suggesting that "hyper-literalism" is the opposite of "purposivism" is a straw-man argument as well. i think statutory terms should be given their ordinary meaning, not their literal meaning, and surely not their hyper-literal meaning; people do not talk to each other "literally," and I don't see think "literal" interpretations are appropriate.

I agree with you that the laws should be read "coherent[ly] (which permits some uncertainty at the margins)," but i do not think that statutes should be given a meaning that their words cannot bear. it is beyond argument, i hope, that statutes should be read with regard to surrounding statutes, but it's a whole different thing to say that a statute can be disregarded (as some would say) just because it does "fit" within the code's deep structure or underlying intent or whatever it is that they are calling it these days.

"(which distorts by disregarding purpose)"

whose purpose should one regard, and whose should one disregard? even a single code section does not present a coherent purpose. there is usually a broad general rule, which furthers one particular purpose, but then scores of exceptions which scale back the achievement of that purpose. i do not know if you make this argument, but i do know that courts have routinely interpreted code sections in accordance with the "purpose" of the general rule rather than the "purpose" of the exceptions. I don't see the sense of that approach. as posner observes, "The purpose of a statute may be clear enough,
but may have been blunted, as the bill made its way through the legislative mill to enactment, in order to obtain majority support. If so, then using the purpose to resolve ambiguities might give the supporters of the statute more than they could have achieved in the legislative process." that bothers me.

"Andy seems to confuse (i) concerns about abuses of the system, (ii) normative ideals about the workings of a tax system that will support democratic institutions, and (iii) statements about particular taxpayer transactions."

I wouldn't really say I've "confused" them so make as I've "conflated" them. my initial post grabbed on a reference to "spirits" and that's about it. i am not even purporting to interpret *your* view, as i have not read your relevant work. i just thought the reference to "spirits" was interesting and went off a bit. i don't know much about wal-mart's transaction even, and don't particularly care to learn. just, as a general matter, i think that suggesting that its transaction violates the "spirit" of the tax laws regardless of what the law says is wrong. i dont know that you made that argument, but probably some of your readers have, and so i brought the topic up.