Paul L. Caron

Saturday, February 6, 2016

Walmart Sues Puerto Rico Over 91.5% Tax Rate Applicable Only To Walmart

Walmart Logo (2013)New York Times, Walmart Sues Puerto Rico, Claiming an Unfair and Onerous Tax Burden:

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.

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Central planners can't hep themselves. When faced with the failure of their policies, they have no choice but to double down. To do otherwise would be to admit they are a failure.

Posted by: Dale Spradling | Feb 6, 2016 10:11:13 AM

“sentences Walmart in Puerto Rico to death

Too bad it can't do that for the whole evil company.

Posted by: Gindy51 | Feb 6, 2016 11:24:10 AM

It would be nice if you explained where the other 85% tax comes from. A 6.5 percent special tax is not the story here...the 91.5 percent tax is the story.

Posted by: jehosefatz | Feb 6, 2016 12:03:59 PM

The NY Times article is a more than a bit muddled. Left unclear is how raising some ill-defined "special tax" from 2% to 6.5% constitutes "an effective income tax of 91.5%.

I can only assume that's a tax on retail sales that can't be passed along as a sales tax and that the added 4.5% is almost all WalMart's markup.

Given Puerto Rico's $72 billion debt, its corrupt politics, and what seems to be an attitude in the country that it's OK to tax a business almost out of business, I fail to see the sense in the U.S. retaining a special relationship with what ought to be its own sovereign nation. Then its problems would be its problems.

There's actually a good parallel in the separation of the Czechs and the Slovaks. The former, I've been told, had grown tired of being taxed to subsidize the latter, hence the separation. But the result has actually proved good for both. Not having the Czechs to mooch on, the Slovaks changed their ways and have become prosperous on their own.

In much the same fashion, with no hope that the U.S. will bail them out, perhaps the Puerto Ricans will throw the crooks out and clean up their government.

They're certainly not going to attract new business and new employment by taxing large companies three times as much as small ones. They'll be lucky if Walmart doesn't just pack up and leave.

Posted by: Michael W. Perry | Feb 6, 2016 12:13:06 PM

The 6.5% tax is on a gross amount, not on net income. I'm not clear on whether or not Walmart is claiming is not permitted or not able to pass on the tax to customers by increasing prices. Singling out one company for a tax has the look of a bill of attainder, though.

Posted by: AMT buff | Feb 6, 2016 1:37:26 PM

If Wal-Mart's the islands largest employer....the answer is easy.

Close all their stores for 6 months for "extensive remodeling" and lay off all the employees, who will then need the Puerto Rican government to pay them unemployment . I'd bet $100 the special tax would be rescinded within a month.

Posted by: Eric Ramondo | Feb 6, 2016 1:49:11 PM

In my younger halcyon days, I used to be a Walmart hater. After selling some of my stuff on Ebay, I learned how damned hard it is to sell shit. Folks wanted their money back and would bitch when something wasn't perfect even though they received a bargain. Walmart is not a social service agency. Walmart jobs are jobs to work FROM, not to. It is a stepping stone, not a career.

Posted by: Captain Hruska Carswell, Continuance King | Feb 6, 2016 6:57:55 PM

From a reasoning standpoint, seems like you're living your halcyon days now, Capt.!

Posted by: Mike Petrik | Feb 7, 2016 7:02:03 AM

@Gindry51 - I don't understand Walmart haters. Study after study has shown Walmart raises the standard of living of a community when they open a store, particularly in urban poor areas. Not only do they offer jobs, but lower prices on consumer goods.

And if you argue the China Syndrome, you better be prepared not to buy anything, including flying on Boeing aircraft.

If you don't like it, don't shop there. It's called a free market, or what's left of one anyway. Me, I just brought a car battery at Walmart.

Posted by: Dale Spradling | Feb 7, 2016 7:23:46 AM

Puerto Rico puts sanctions on It's citizens, by forcing walmart out.

Posted by: Simmerjet | Feb 7, 2016 5:40:26 PM

Puerto Rico is not beholden to the U.S. Constitution, and in fact has their own.

Posted by: N9NJA | Feb 7, 2016 8:26:59 PM

In response Walmart will increase its prices. The only losers in this game are the customers of Walmart, who will ultimately pay this tax.

Posted by: Bori | Feb 8, 2016 1:53:15 AM

@N9NJA Wiki could be wrong, but I don't think so -- "The Puerto Rico Constitution is bound to adhere to the postulates of the U.S. Constitution due to the Supremacy Clause, and of relevant Federal legislation due to the Territorial Clause."

Posted by: Mike Petrik | Feb 8, 2016 4:15:04 AM