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ORLANDO, Fla. -- Circle K could be using a loophole to avoid paying Florida's corporate-income tax.
According to a report by the Orlando Sentinel, a portion of the sales rung up at Florida Circle K convenience stores for at least a decade was passed on to a company subsidiary in Delaware, putting the money beyond the reach of Florida's corporate-income tax.
If the allegations are true, Circle K was paying "royalties" to itself, with the company's Florida business paying its Delaware subsidiary for the right to use the corporate logo on store signs, plastic mugs and paper napkins. The arrangement allowed Circle K Stores Inc. to shield $56 million in profits from Florida's income tax during a three-year period and saved the company as much as $3 million in taxes, the newspaper reported.
Circle K is one of at least 100 companies that have used similar intracompany payments in recent years, according to records obtained by the Orlando Sentinel.
However, the move is legal because of a loophole in Florida's corporate income tax law that was exposed during a lawsuit between Circle K and state tax authorities. Unless the Florida Legislature acts, the judge in that case ruled, he and others are helpless in stopping the practice.
Circle K is a division of Alimentation Couche-Tard. Representatives from both companies did not respond to the newspaper's requests for comments.
According to the report, Circle K Stores, which owned and licensed stores in Florida, paid royalties equal to 1.5 percent of its total sales to "Circle K Enterprises," which owned the trademarks. Under Florida law, companies are generally allowed to ignore the money they make from royalties when computing their state-income-tax bill. However, miners, oil drillers and other mineral-producing companies are required to count royalty income while doing their taxes -- partly because royalties can be a major revenue stream for mining and drilling companies.
Lawyers for Circle K argued that because Florida specifically said mineral companies had to include royalties in their taxes, nobody else had to. The judge agreed. He said Circle K Enterprises was subject to Florida's tax laws -- but also ruled that those very laws meant it owed no tax, the newspaper reported.
"I don't know why they [lawmakers] put it the way they did it, but clearly royalties have not been something that the Legislature said we're going to tax, except on the mining situation," state Circuit Judge Charles A. Francis said during a December 2011 hearing.
Florida settled with Circle K before the judge could enter a potentially precedent-setting written ruling. The terms of that settlement were sealed, the report added.