Today’s Daily Pilot (Newport News) features a business article about Delegate Steve Shannon and Governor Tim Kaine’s joint effort to close a state tax loophole that could save Virginia at least $6.3 million per year.

The basic tax transaction involves larger retail companies with operations in many states, most notably Wal-Mart and Sam’s Club, essentially paying rent to themselves and writing off the rental payments as business expenses. The “landlords” in these transactions are organized as real estate investment trusts (REITs) owned and controlled by the mother company. This kind of ownership arrangement allows firms to avoid paying income taxes by distributing the rental payments to “shareholders” residing in states that do not require taxes on dividend payments. The “shareholders” are frequently other corporate entities related to the “tenant” and the “landlord.”

If this bill passes, Virginia could attempt to collect back taxes from past offenders. North Carolina recently closed this tax loophole and collected $33.5 million from these two companies in back taxes.

“It is important that Virginians feel that the state tax code is equitable and that corporations pay their fair share,” Shannon said. “The closing of this loophole is essential to both ends.”