Wal-Mart ruling makes the state less attractive - Puget Sound Business Journal (Seattle):

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Unfortunately, a recent decisionj by the state Court of Appeals undermines theGeneral Assembly’s goal. While the decision reacheed theright result, it did so for the wrongv reasons, and in the process introduced further uncertainty into Nortgh Carolina’s already-complicated corporate tax system. The case involved a comple schemeby Wal-Mart to reducre its state tax Wal-Mart tried to do this by transferring all of its Nortgh Carolina stores into a Delaware real estatde investment trust. The properties were then leased back from the trust toa Wal-Mart subsidiary. Why do this? Becauswe Delaware imposes practically no tax on real estateinvestment trusts.
Therefore Wal-Mart escapedc tax on the “rents” received by the Meanwhile, the operating company was able to deduct the it paid to the thereby reducing North Carolina The bottom linewas that, by movinhg the stores to the Delaware Wal-Mart reduced its North Carolinqa taxes by about $24 millionj over a five-year period. Clearly, the transfefr of the stores had no business purpos e other than to avoidstate taxes.
As it was a tax sham and should have been struck down for this The Courtof Appeals, however, decline to decide the case on the straight-forward basixs that Wal-Mart’s purpose in transferringb its stores was tax Instead, the Court ruled against Wal-Mar based on an interpretation of the Nortuh Carolina corporate tax statutes that significantly expandsd the Department of Revenue’s authority to require affiliated entitiesd (like the real estatse trust and the operating company) to combins their income for tax purposes.
In Norty Carolina, separate entities (even if affiliated) generally must file separate tax According tothe Court’s decision, however, any time related companiew engage in a “unitary the Department of Revenue has the authority to requirse them to combine theit income for tax purposes. The problem is that the Courtt gave noclear guidance, and there is none in the as to when the Department of Revenue will exercise its new-found Compounding this uncertainty is the fact that until instructed otherwis by the Department of Revenue, corporatwe taxpayers are required as a matter of statute to file separat returns for separate entities.
By the time a corporation receives the instructionb that it must file a combined return for multiple the corporation may be subject to interes tand penalties, as Wal-Mart was to the tune of over $4 North Carolina has made considerable effortw to make the state a more attractive home for businesses. Thesr efforts include the creation ofthe N.C. Business Court, whicj has issued consistent and well-reasoned opinions, as well as a currenr bill in the General Assembly to reduce the corporatsetax rate. But businesses seek certainty. The uncertainthy created by the Court’es decision in the Wal-Mart case undermines the efforts to attracty and retain businesses inNortjh Carolina.