A few years back, Puerto Rico’s government came up with a list of demands for retail giant Walmart as part of an effort to improve the economy. Nothing more was heard of the list; maybe the demands were presented and maybe not. But that didn’t mean that Puerto Rico gave up on getting some help from Walmart. As the largest private employer in the territory, Walmart represents a large economic opportunity.
So Puerto Rico decided to create a special tax for Walmart.
Retailers in Puerto Rico pay just 2% in taxes on goods bought from the mainland and imported into Puerto Rico. At 11%, Puerto Rico’s sales tax is the highest in the nation, but the tax for retailers is low. A new law enacted last May raised that tax to 6.5%, more than tripling the tax burden. The catch is, the new tax rate was only for retailers with more than $2.75 billion in annual revenue.
There is exactly one such company in Puerto Rico bringing in more than $2.75 billion each year: Walmart.
Walmart, unwilling to pay a tax that was created just for Walmart, sued Puerto Rico Treasury Secretary Juan Zaragoza Gómez. They claimed that 114% of their profits would go to taxes if the change took place, and argued that the tax was “onerous” and unsustainable. They said the tax discriminated against them, but their main legal argument was that it interfered with interstate commerce, making it unconstitutional.
Puerto Rico is not a state, but Federal Judge José Antonio Fusté agreed with Walmart and struck down the law this week. The judge said he was sorry to have to throw the law out, given Puerto Rico’s difficult financial position, and Puerto Rico plans to appeal.
Realistically, though, Walmart would not stay in Puerto Rico if their 48 stores became unprofitable. Either prices would rise, a decision which could affect the people of Puerto Rico, or Walmart would leave — costing Puerto Rico both jobs and the largest sales tax revenue payments the Island receives.
Tax tricks haven’t saved Puerto Rico yet, and they probably never will. The solution for Puerto Rico’s woes is simple: statehood. 32 territories have become states and gained prosperity. Puerto Rico can do the same.
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