Captive REITs pay taxes in N.H.

While recent news articles have detailed how retail giant Wal-Mart and other corporations appear to have dodged paying millions of dollars in various states’ taxes through the use of an income-tax shelter, such a strategy probably would not work in New Hampshire.

Wal-Mart, AutoZone Inc., Bank of America Corp. and Regions Financial Corp. all have been reported as using captive real estate investment trusts, or captive REITs, to exploit the trust’s tax-deductible nature by paying rent to the REIT, thereby decreasing their state tax burden.

In Wal-Mart’s case, the company saved $230 million over four years, according to one report.

Such a strategy would be unlikely in New Hampshire, according to CPA and tax attorney Richard Maloney of Maloney & Kennedy PLLC in Auburn because of two rather novel New Hampshire tax laws.

“In New Hampshire, Wal-Mart would probably have to file as a unitary group,” said Maloney, “in which case, all entities would file a single return for business profit tax purposes.”

According to the state Department of Revenue Administration, a unitary business is “one or more related business organizations engaged in business activity both within and without this state among which there exists a unity of ownership, operation and use; or an interdependence in their functions.”

Also, said Maloney, “because the New Hampshire state Constitution does not allow us to discriminate against taxpayers,” a REIT, as well as partnerships and S-corporations, must still pay taxes. In other states, these types of entities may be exempt from paying certain taxes.

“New Hampshire assesses taxes at the entity level,” said Maloney.

While not unheard of, both New Hampshire laws are fairly rare. Maine, Vermont and about a dozen other states also require corporations to file combined income tax returns.

In Maryland and Connecticut, however, the captive REIT loopholes still exist, prompting officials in those states to take a closer look at the use of captive REITs as corporate tax shelters after learning of Wal-Mart’s practices. — CINDY KIBBE

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