Walmart in Tax Fight with Puerto Rico

By Walsh, Mary Williams | International New York Times, February 5, 2016 | Go to article overview

Walmart in Tax Fight with Puerto Rico


Walsh, Mary Williams, International New York Times


Walmart said a change to the island's tax law last year was discriminatory and resulted in an effective income tax of 91.5 percent for the chain.

The last thing Puerto Rico would seem to need is another fight about money.

But the island's government, already facing multiple battles over billions of dollars in debt, was in yet another courtroom on Wednesday, locked in a legal dispute with its biggest sales-tax collector and its biggest private employer -- the mighty retailer Walmart.

This time the dispute is not about bond payments, but taxes: the taxes that Puerto Rico is charging Walmart for the goods it brings from its distributors off the island -- including in the United States -- to sell in its stores in Puerto Rico.

In May, the island raised the special tax on those goods to 6.5 percent from 2 percent for the largest retailers. Walmart filed suit in December, saying the increase left it with an effective income tax of 91.5 percent.

The tax "sentences Walmart in Puerto Rico to death, for a crime there is no evidence it committed," Walmart's lawyer, Neal S. Manne, told the court.

"No business can operate for long in an environment where 91.5 percent of its net income is confiscated through taxes," the company said in its complaint.

Walmart argues that the tax is illegal -- a violation of both the Commerce Clause and the Equal Protection Clause of the United States Constitution. Walmart says it was singled out for the tax increase and is the only entity in Puerto Rico subject to such a high tax burden.

Puerto Rico has countered that Walmart can well afford to pay the tax and should because of the profits it reaps on the island.

Both sides of the dispute are making oral arguments this week before Judge Jose Fuste, of the United States District Court in San Juan, who agreed to an expedited hearing of the case, at Walmart's request.

Suppose, the company said in seeking a quick ruling, that it pays the tax now but it is later found to be unconstitutional. Given Puerto Rico's perilous financial situation, the government will have surely spent the money by then, or even be bankrupt, the company posited. Then Walmart would not be able to get a refund.

The fight is not just playing out in a courtroom. It has engaged residents as well, who have a classic love-hate relationship with the retailer.

Some love it because it employs them, sells some of their locally made products and gives them access to goods they might not otherwise find on the island. Others hate it because, they say, it crowds out local competition and disrupts Puerto Rican neighborhoods and daily routines. Walmart has 55 stores in Puerto Rico, including some operated under different names, and it employs almost 15,000 people.

And now that Puerto Rico's government is nearly out of cash and still has a $72 billion debt to be paid, some are incensed that Walmart is balking at the tax, contending that as one of the largest retailers in the world, it can well afford to pay. They hooted at the notion that the tax was a "death sentence."

"They have a lot of money," said Antonio Hernandez Brignoni, 83, wheeling a shopping cart through a bustling Walmart parking lot in the small city of Hatillo on a recent day. "Come here at midnight and you'll see how much money they make."

Midnight, he explained, was when Walmart's managers would be counting the cash in the till.

But the company counters that the tax rate is "three times the average effective tax rate that Walmart's affiliated companies pay worldwide," making it one of the highest taxes in the world. …

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