Judge Rules Against Wal-Mart Over Its Tax-Shelter Dispute

The dispute arose from Wal-Mart's use of a real-estate investment trust. A decade ago, the company transferred ownership of its stores to two REITs, of which Wal-Mart owned 99%, then paid tax-deductible rent to the REITs to use the stores.

REITs pay no corporate income tax as long as they pay at least 90% of their income to shareholders as dividends. However, those REITs were owned by Wal-Mart subsidiaries based in Delaware and therefore owed no tax on the receipt of those dividends. The result: Wal-Mart turned rental payments to itself into state-deductible expenses, even though the money never left the company.

For a four-year period, the setup saved the retailer an estimated $230 million on its tax bill in dozens of states.