Wal-Mart Part of $1 Billion Skim-Scam Flimflam

by Mike Hall, Nov 18, 2008

Big-box retail chains like Wal-Mart are skimming some $1 billion a year in local and state tax revenues and pocketing the cash, according to a new report by the non-profit research center Good Jobs First.

Skimming the Sales Tax: How Wal-Mart and other Big Retailers (Legally) Keep a Cut of the Taxes We Pay on Everyday Purchases says the biggest losses to local and state tax coffers come from programs—known by names such as “vendor discount” or “collection allowance”—that pay retailers for collecting sales tax on behalf of governments.

Says Good Jobs First Executive Director Greg LeRoy:

At a time when state and local governments are facing a fiscal crunch, policymakers should take a hard look at retailer compensation practices. This legal skimming is depriving governments of desperately needed revenue.

According to the report, these “vendor discounts” originally were established decades ago when store owners kept records by hand, as a service fee for compensating owners for their time in calculating and then remitting sales taxes to local and state agencies. But these legal tax kickbacks remain in place in the age of electronic cash registers and computers when it simply takes a push of a button, compared to what it used to take store owners hours to figure out.

Twenty-six states provide retailer compensation, which is calculated as a percentage of the sales tax collected, but 13 of those states have no cap on the amount an individual business can receive. Says Philip Mattera, the report’s principal author:

This creates a windfall for giant retailers such as Wal-Mart, which we estimate receives a total of about $60 million a year from retailer compensation programs.

Especially in states without a ceiling, the diversion of money that could go to schools, health care and other services is substantial. The report finds that Illinois leads the nation with an annual revenue loss of $126 million. Texas is second at $89 million, followed by Pennsylvania at $72 million and Colorado at $68 million. Says Mattera:

Even if you accept the idea that retailers deserve some compensation, it is difficult to justify an open-ended amount. The main expenses that retailers incur with regard to sales taxes—especially software programs to track them—are fixed costs that do not rise in tandem with growth in receipts. States should keep that in mind when determining their definition of reasonable.

Click here to read the full report.

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