Wal-Mart Sues Puerto Rico over Tax Hike

SAN JUAN, Puerto Rico — Wal-Mart's Puerto Rico operation is asking the federal court in San Juan to void what it calls an "onerous" and "unconstitutional" tax that unfairly targets the U.S. retail giant.

It said in court papers filed Friday that the increased levy on purchases from U.S.-based Wal-Mart distribution centers by its island entities constitutes one of the world's highest taxes and pushes its effective tax rate to 91.5 percent of net income. The tax increase will cost Wal-Mart $155 million over six years and make its Puerto Rico business unsustainable.

The suit says that Puerto Rico's Act 72 specifically targets "megastores" such as Wal-Mart that have U.S. mainland-based related entities because local operations are exempt from the tax. It said Treasury Secretary Juan Zaragoza and other top government officials untruthfully accused it of evading taxes by manipulating the prices paid between related entities to underreport Puerto Rico income.

"In addition to punishing multi-national corporations for assumed tax evasion, Act72's precursor also had an additional purpose: To protect and promote local businesses," the suit states.

Puerto Rico Treasury Department officials did not immediately respond on Saturday to requests for comment.

The lawsuit argues the tax violates the interstate commerce and equal protection clauses of the U.S. Constitution and Federal Relations Act. It asks the court for swift action because the commonwealth's fiscal crisis may impede its ability to refund tax payments found to be unconstitutional.

The government announced in June it would seek to restructure its nearly $72 billion debt with an economy that has been declining for more than a decade.

Wal-Mart said its island operations consist of 55 stores that employ 15,000 people. It collects $100 million in sales tax annually, more than any other entity, and buys $1.6 billion in products from Puerto Rican suppliers, the suit stated.