Walmart defeats Puerto Rico’s efforts to single out Walmart for an unfair higher tax

Walmart, rightfully so, wins fight against Puerto Rico after Puerto Rico attempted to unfairly single out Walmart to tax them and them alone at far higher rates than anyone else.  Had Puerto Rico been successful, then Walmart would have likely closed many if not all of their stores.  If not, they would have had to raise prices, passing on the tax increase to consumers.  Government should not be forcing a company to operate at a loss, as no rational company would continue doing so for long.  It is improper to unfairly single out people or corporations with higher taxes.  Puerto Rico should not be punishing companies simply because they have the most revenues or profits.  Punishing the successful, merely for being successful, would turn Puerto Rico into Venezuela where the providers of goods and services, tired of being attacked, simply stopped producing.  Venezuela has shortages of basic items like toilet paper even.  Unfortunately, the shortages of thousands of products in Venezuela are widespread, such that people are needlessly dying such as for a lack of medical supplies.

If you spend all your money, it is wrong to rob your neighbor.  Instead, you need to stop wasting your money, stop spending more money than you have, whether you are an individual, company, or government entity.  Overspending is a sign of irresponsibility and poor leadership.

  • “Puerto Rico’s AMT, on its face, clearly discriminates against interstate commerce,”
  • The court found that the increase was “designed to capture Wal-Mart PR, the biggest fish in the pond,”

“Puerto Rico’s AMT, on its face, clearly discriminates against interstate commerce,” wrote U.S. District Court José Antonio Fusté finding in favor of retail giant Wal-Mart Puerto Rico, Inc. (Wal-Mart PR) in its legal battle over new tax laws in Puerto Rico.

In December of 2015, Wal-Mart PR, the Puerto Rico arm of the venerable Wal-Mart chain, filed a lawsuit against the Commonwealth of Puerto Rico in a bid to overturn certain new tax laws the retailer claimed were discriminatory and violated federal laws and the U.S. Constitution. Today, the U.S. District Court formally agreed in Wal-Mart Puerto Rico Inc. v. Zaragoza-Gomez, 15-cv-3018, U.S. District Court, District of Puerto Rico (San Juan), reciting the conclusion reached by one of the expert witnesses at the hearing that “[A]t the end of the day, the Commonwealth should not rely on revenue that it’s not entitled to, to try to pay for essential services.”

According to the lawsuit, Wal-Mart PR is Puerto Rico’s largest private employer. Wal-Mart PR operates 55 Walmart Stores, Walmart Supercenters, Sam’s Clubs, Super Ahorros, and Amigos stores, employing nearly 15,000 people in Puerto Rico. Wal-Mart PR also claims to collect more sales tax on behalf of the Commonwealth than any other company or entity, collecting approximately $100 million in sales tax annually. That, the company claims, made it a target for unfair and unconstitutional taxes.

The court agreed. In the 109 page opinion, which delved into the technical at times, Judge Fusté ultimately declared:

The court hereby permanently enjoins and declares invalid, under both federal constitutional and statutory law, section 1022.03(b)(2) and (d) of the Puerto Rico Internal Revenue Code of 2011, which is codified at 13 L.P.R.A. § 30073(b)(2) and (d)… The injunction shall go into effect immediately.

One of the changes brought on by the new law had been an increase in the Tangible Property Component (TPC) of the corporate Alternative Minimum Tax (AMT). Like the federal AMT, Puerto Rico’s AMT is payable whenever the “tentative minimum tax” exceeds the taxpayer’s “regular” income tax: in other words, you figure the tax both ways and pay the higher amount.

Specifically, the TPC piece of the AMT imposes a tax on the value of property transferred to an entity doing business in Puerto Rico from a related party outside of Puerto Rico. Under the new tax scheme, the rate of tax (previously 2%) was boosted: the rate of tax now varies from 2.5% to 6.5%, depending on an entity’s gross revenues inside the Commonwealth. Property transferred from a related party located in Puerto Rico is exempt from the TPC which means that it only affects commerce flowing into Puerto Rico from outside of the Commonwealth.

The court found that the increase was “designed to capture Wal-Mart PR, the biggest fish in the pond,” which is why many referred to the tax as “a Wal-Mart tax.” The single purpose of the tax increase was to help resolve Puerto Rico’s dire financial situation, which has not improved since the initial filing of the suit. The opinion noted that “Secretary Zaragoza agrees that Puerto Rico will run out of cash before the end of June.” It was clear to the court – and indeed, almost anyone paying attention – that Puerto Rico would not have the funds to repay Wal-Mart PR in the future while the matter worked its way through an admittedly inefficient process. For that reason, the court found that immediate injunctive relief was an appropriate remedy for Wal-Mart PR, rather than continuing to pay the tax and filing for a refund in the future.

While another corporate taxpayer could, in theory, also be subject to the top tax bracket under the new law, Secretary Zaragoza admitted at the hearing that so far as he was aware, “the top tax rate under the tangible property component of [the AMT] is a Wal-Mart tax only.” Secretary Zaragoza also admitted that the Puerto Rico Treasury had “no reason to believe that [Wal-Mart PR and Wal-Mart Stores] have been using any, what we call in the tax area, base erosion techniques” or more commonly, abusive profit shifting. Yet, continued compliance with the new tax laws would have been, according to Wal-Mart PR, “astonishing and unsustainable.” The court agreed.

After the ruling, Lorenzo Lopez, a Walmart spokesperson, issued the following statement:

Today’s ruling is a victory not only for Wal-Mart Puerto Rico but also for our customers, our more than 14,000 Puerto Rican associates, and the many Puerto Rican suppliers and farmers who depend so heavily on us. The unconstitutional tax enacted in Act 72 was very harmful to our business, confiscating more than 100% of our profits. Because we want to remain in business in Puerto Rico and to be part of the solution to the current fiscal crisis, we are grateful that the court acted so promptly in hearing this case and striking down the tax.

The Puerto Rico Justice Department did not indicate whether it planned to appeal the decision.

Wal-Mart PR is ultimately owned by Wal-Mart Stores WMT +0.18% Inc., a Delaware corporation headquartered in Bentonville, Arkansas. The corporate family is collectively referred to as “Wal-Mart” (sometimes referred to as “Walmart”). Wal-Mart operates retail stores in various formats around the world. It is ranked at #20 on Forbes’ list of the World’s Most Valuable Brands and #16 on Forbes’ list of the World’s Most Valuable Companies with an estimated value of $261.3 Billion.

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