The state Court of Appeals ruled Tuesday against Wal-Mart Stores Inc. and its efforts to get a $33 million tax refund, upholding a trial judge's ruling that found a complex corporate structure was used primarily to avoid corporate income taxes.

In a unanimous opinion, the three-judge panel said the state revenue secretary has the authority to combine the finances of multiple subsidiaries when determining the discount retailer's tax bill in North Carolina.

Wal-Mart said it did nothing illegal. The appeals court rejected its definition of true taxable earnings in state law while determining Wal-Mart Stores and its Sam's Club warehouse division are not entitled to refunds.

"The language of the statute is broad, allowing the secretary to require combined reporting if he finds as a fact that a report by a corporation does not disclose the true earnings of the corporation on its business carried on in this state," Judge Donna Stroud wrote for the court.

Wal-Mart is reviewing the decision, which could wind up at the state Supreme Court, although an appeal isn't offered automatically.

"We feel all taxpayers should be able to rely on clearly defined laws that are reasonably and fairly enforced," company spokeswoman Daphne Moore said.

The case has received attention because it may signal the extent in which North Carolina and other states are able to evaluate revenue subject to state tax law even when profits generated in
North Carolina are shifted to tax shelters.

In the mid-1990s, the Bentonville, Ark.-based company began to shift its corporate structure as a method to reduce its state taxes, according to court documents.

It created a captive real estate investment trust, which served as a landlord to Wal-Mart retail stores. The stores, operating as a corporation called Wal-Mart Stores East, paid rent to the trust. The rent was tax-deductible for Wal-Mart Stores East.

The rent money was then paid out as dividends to another Wal-Mart subsidiary based in Delaware, providing the company another tax break.

That subsidiary then returned the earnings to Wal-Mart Stores East. Such dividends paid by a subsidiary to a parent corporation aren't counted as taxable income.

The state Revenue Department audited the tax returns for Wal-Mart Stores East from 1999 through 2002 and by examining two other subsidiaries ordered additional income tax payments for the company.

Stroud, along with Judges Sanford Steelman and Barbara Jackson, also upheld interest and penalties tacked on to the tax bill.