Dive Brief:
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Puerto Rico, in the midst of a financial crisis, is in federal court battling Wal-Mart Stores Inc. over a new hike in taxes on goods that retailers bring to the island to sell.
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The island government raised the tax from 2% to 6.5% in May, and Wal-Mart responded with a lawsuit contending that the tax is aimed at it in particular and effectively makes its income tax burden 91.5%.
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Wal-Mart is using the arguments made by Puerto Rican lawmakers when they instituted the tax, who said that by imposing higher rates on larger retailers, smaller independent ones could be spared. That, argues Wal-Mart, is proof that the tax is discriminatory.
Dive Insight:
This case will be heard this week, and this issue could become moot if Wal-Mart prevails. But it calls to mind the struggle that many lawmakers have in areas where Wal-Mart dominates. The retailer is often seen as pushing out smaller local independent stores.
Wal-Mart is arguing that the tax violates the Commerce Clause and the Equal Protection Clause of the United States Constitution and has asked for an expedited ruling according to reporting from the New York Times, which looked at court records in the dispute. The retailer is concerned that the island’s precarious finances could lead it to spend the money or go bankrupt before it could get back to Wal-Mart in the event it’s declared illegal, noting that the island has previously been unable to issue even smaller tax refunds.
Walmart runs 55 stores on the island and employs some 15,000 workers there, according to the New York Times. That makes it a major employer in the U.S. territory, as well as a major source of goods for consumers, as it is in many areas of the U.S.
Interviewed by the Times, one Wal-Mart shopper in Puerto Rico says he’s a fan and wouldn’t want to see his local Wal-Mart close, but also said the tax was fair.
“They are selling more, so they should pay more taxes,” Rómulo Soto told the Times. “Right now, all the money that they generate here just goes back to the States. If they pay more taxes here, it’s going to help our whole society.”
