TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, November 24, 2012

NY Times: Walmart's Acceleration of Dividend by Six Days Will Save Walton Family $180 Million in Taxes

Walmart LogoNew York Times:  Early Dividend for Wal-Mart Is Latest Move in Tax Tactics:

The Walton family, which founded Wal-Mart, could save as much as $180 million in federal income taxes after the huge retailer announced Monday that it would pay out its quarterly dividend on Dec. 27 instead of Jan. 2, as was scheduled.

The change will allow the family and other Wal-Mart shareholders to record the income this year, when the federal tax rate on dividends tops out at 15%. Next year, if the Obama administration and Republicans are unable to reach a compromise, that rate is set to jump sharply to 39.6%. High earners will have to pay an additional 3.8% on most investment income to help pay for the new federal health care law, bringing the total possible tax bite to 43.4%.

Wal-Mart is the biggest company to accelerate its dividend payments this year in anticipation of higher taxes next year, following such manufacturing companies as Leggett & Platt and Myers Industries. ...

Like several of the companies making these moves, Wal-Mart has board members who own a large portion of the company’s shares and who stand to benefit from the change. In Wal-Mart’s case, the Waltons own 48% of Wal-Mart’s stock, or 1.6 billion shares, and control three of the company’s 16 board seats. Steve Wynn, who owns about 10% of Wynn Resorts, is leading his company to issue a one-time dividend for $750 million this week.

Two recent studies [Michelle Hanlon (MIT) & Jeffrey L. Hoopes (Michigan), What Do Firms Do When Dividend Tax Rates Change? An Examination of Alternative Payout Responses to Dividend Tax Rate Changes; Markit, Spike in Special Dividends Projected for Q4 2012] ... found that companies where board members own a large percentage of the company’s shares have been more likely to make dividend maneuvers aimed at helping shareholders avoid higher taxes.

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Was a study really necessary to tell us what common sense otherwise will, that we will always change our behavior in order to pay the least amount of taxes possible? If any of the directors voted for Obama, they should be "patriotic" and be willing to pay their fair share" by waiting until January.

Posted by: Linda C. | Nov 25, 2012 4:17:53 AM