Walmart wins suit against Puerto Rico; tax declared invalid

SAN JUAN — Retail giant Walmart won a legal victory on yesterday in a fight over tax revenue with the government of Puerto Rico.

A federal judge in the US island territory found that a modified tangible-property tax is invalid. The ruling was issued as the island seeks new sources of revenue while struggling through a decade-long economic crisis.

A spokeswoman said Puerto Rico's Justice Department is considering whether to appeal the decision.

Walmart is Puerto Rico's largest private employer and had argued in a lawsuit filed in December that the tax was unconstitutional.

Federal Judge Jose Antonio Fuste agreed in his 109-page ruling and said the island's treasury secretary must immediately stop levying, collecting and enforcing the tax. He noted that Puerto Rico legislators had increased the tax by 325 percent in May 2015 during what he called a brisk approval process so they could capture revenues from Walmart. The 6.5 percent tax would have applied to every piece of inventory Walmart received from its stores even if it wasn't able to sell it, Fuste said.

He noted that if the tax were to remain in effect, it would generate more than $40 million in "unconstitutional taxes...to an insolvent government without any hope that the victimized taxpayers will be reimbursed in the foreseeable future. That is the very definition of an inadequate remedy," he wrote, adding that $10 million of that revenue would have been from Walmart alone.

Fuste also reflected on the island's financial situation and said the government is in urgent need of more transparency.

"The people deserve to know the truth about how we got to where we are, and we can go from here," he wrote. "The residents of the island most affected by this crisis deserve the very transparency whose absence helped caused the crisis."

Rep. Luis Vega Ramos said the tax does not violate any laws and argued that it is not discriminatory because it is based on sale volume.

"The company that is suing...has $3 billion in annual sales and is complaining about paying $45 million in taxes," he said. "In times of a fiscal crisis, those who have the most must contribute according to their actual earnings."

Government officials have warned the US territory will run out of money in June. Puerto Rico has a $70 billion public debt load that the governor says is unpayable and needs restructuring.

The ruling comes as Walmart prepares to close seven stores in Puerto Rico as part of a plan to shutter 269 stores worldwide.