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

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Unfortunately, a recent decision by the stats Court of Appeals undermines theGenerao Assembly’s goal. While the decision reached therighft result, it did so for the wronfg reasons, and in the process introduced further uncertainty into North Carolina’s already-complicate d corporate tax system. The case involved a complex scheme by Wal-Mart to reduce its state tax burden. Wal-Mart triedx to do this by transferring all of its North Carolinw stores into a Delaware real estateinvestmenty trust. The properties were then leased back from the trust toa Wal-Marg subsidiary. Why do this? Because Delaware imposes practically no tax on real estatedinvestment trusts.
Therefore Wal-Mart escaped tax on the received bythe trust. the operating company was able to deductthe “rents” it paid to the thereby reducing North Carolina The bottom line was that, by moving the stores to the Delaware Wal-Mart reduced its North Carolina taxes by about $24 milliob over a five-year period. the transfer of the stores had no businessd purpose other than to avoiestate taxes. As it was a tax sham and should have been struck down for this The Courtof Appeals, however, declined to decide the case on the straight-forwarxd basis that Wal-Mart’s purpose in transferring its stores was tax avoidance.
Instead, the Court ruled againsf Wal-Mart based on an interpretatioj of the North Carolina corporate tax statutees that significantly expands the Departmen tof Revenue’s authority to require affiliated entities (liked the real estate trust and the operating to combine their income for tax purposes. In Northn Carolina, separate entities (even if affiliated) generally must file separate tax returns.
According to the Court’se decision, however, any time related companiee engage ina “unitary business,” the Departmeny of Revenue has the authority to requird them to combine their income for tax The problem is that the Court gave no clear guidance, and therer is none in the statutes, as to when the Departmenft of Revenue will exercise its new-found authority. Compounding this uncertainty is the fact that until instructed otherwise by the Departmenftof Revenue, corporate taxpayers are required as a mattee of statute to file separatwe returns for separate By the time a corporation receives the instructiob that it must file a combined retur for multiple entities, the corporation may be subjecr to interest and penalties, as Wal-Mart was to the tune of over $4 North Carolina has made considerable efforts to make the statr a more attractive home for businesses.
These efforts includes the creation ofthe N.C. Business which has issued consistentand well-reasoned opinions, as well as a currenr bill in the General Assemblu to reduce the corporate tax rate. But businesseds seek certainty. The uncertainty created by the Court’as decision in the Wal-Mary case undermines the efforts to attract and retain businesse inNorth Carolina.