Puerto Rico’s effort to deal with its mounting debt crisis by raising revenue has run up against a considerable foe: Wal-Mart Stores Inc. The retailer’s Puerto Rican affiliate sued the U.S. commonwealth Friday over legislation that would more than triple the tax bill for large American corporate subsidiaries on the island that import goods from their mainland parent companies.
Wal-Mart Puerto Rico Inc. argued in the lawsuit that the tax hike unfairly burdened the company, as it was the only entity to break into the top tax margin of $2.75 billion in gross revenue. The levy would bring the Wal-Mart unit’s total income-tax burden to “an astonishing and unsustainable 91.5 percent of its net income,” it said in the suit, which argued that the new tax violated the U.S. Constitution.
Wal-Mart is the largest employer in Puerto Rico. In October, the island had an unemployment rate of 12.4 percent, more than double that of the 50 states.
Puerto Rico is struggling to manage public debts totaling more than $70 billion. The U.S. Supreme Court has agreed to hear a case that would allow the commonwealth to restructure some of those debts. Meanwhile, U.S. courts ?lbet have ruled that the law forbids Puerto Rican municipalities from declaring bankruptcy.
Although Wal-Mart acknowledged the crisis Puerto Rico is facing, the company argued in its lawsuit that the tax would threaten the firm’s ability to operate in the commonwealth. “No business can operate for long in an environment where 91.5 percent of its net income is confiscated through taxes. No government should be permitted to drive a company — the largest private employer — out of business through a special tax applicable at its highest rate only to that company,” it said.
Agencia EFE reported on the lawsuit, which was filed in the U.S. District Court for the District of Puerto Rico. The suit — Wal-Mart Puerto Rico Inc. v. Zaragoza-Gomez, 15-cv-3018 — lists Puerto Rico’s Treasury Secretary Juan Zaragoza as a defendant.
Wal-Mart Stores Inc. recorded revenue of $469 billion in 2013, more than four times Puerto Rico’s gross domestic product of $103 billion the same year.
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