The decision, reported in
The Wall Street Journal
, marks a setback for the giant retailer's strategy of paying tax-deductible rent to itself via two real estate investment trusts. The REITs own Wal-Mart's stores, but through subsidiaries, Wal-Mart owns 99% of the REITs.
The arrangement saved Wal-Mart some $230 million over four years in dozens of states, according to the
Clarence F. Horton Jr., a North Carolina state-court judge, wrote in an order that "there is no evidence that the rent transaction, taken as a whole, has any real economic substance," other than reducing Wal-Mart's taxes, according to an
report. The order was signed Dec. 31 but not filed until Friday.
Wal-Mart said it was studying the decision and hadn't decided whether to appeal, according to the media reports.
North Carolina said in 2005 that Wal-Mart could not deduct the REIT payments from its taxes, and Wal-Mart paid what the state said it owed, the
report noted. But the retailer filed a lawsuit in March 2006 challenging the state's decision.
Wal-Mart shares ended Friday down 66 cents at $45.72.
This article was written by a staff member of TheStreet.com.