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Amid debt crisis, Wal-Mart sues Puerto Rico over tax hike

The company risks losing "“an astonishing and unsustainable 91.5% of its net income.”

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Wal-Mart Puerto Rico, a branch of the powerhouse U.S. chain, has sued the island’s commonwealth over an “astonishing and unsustainable” tax increase.

The lawsuit comes at the height of Puerto Rico’s economic death spiral. The commonwealth currently faces a debt exceeding $70 billion. Last week, it was able to meet deadline on a payment of over $350 million and therefore avoid defaulting, but both economists and the island’s government say that the total sum of the debt is “unpayable.”

The tax at the crux of Wal-Mart PR’s suit was intended to boost revenue for the cash-strapped commonwealth.

Back in May 2015, Puerto Rico Governor Alejandro García-Padilla signed an act into law that bumped up taxes in two ways: by imposing an “alternative minimum tax” as well as a property transfer tax for foreign businesses operating in Puerto Rico. Forbes has an in-depth breakdown of the taxes. But in short, the plan was characterized by García-Padilla himself as a way to “tax on transfers of foreign stores.”

Wal-Mart PR’s complaint says that the new tax unfairly targets a corporation that otherwise provides significant work and revenue for the island.

The new tax, according to the complaint, would dock “an astonishing and unsustainable 91.5 percent of [Wal-Mart PR’s] net income.”

Wal-Mart PR notes that it is the largest private employer in the commonwealth, providing jobs to nearly 15,000 people across 55 stores — including standard Walmart stores, Walmart Supercenters, Sam’s Clubs, Super Ahorros, and Amigos stores. Moreover, the company collects upwards of $100 million in annual tax revenue for the commonwealth.

The new tax scheme represents ““a very real and crushing burden” for interstate companies like Wal-Mart PR, according to the complaint. The company also warned that the new policies allows for increases, which could mean a 100-percent loss of income in the future.

Wal-Mart PR filed the suit directly against the commonwealth in the U.S. District Court. Forbes reports that the company did not consider filing in a lower court because “not only would it take awhile but was potentially dangerous considering Puerto Rico’s current financial status.”

Per the complaint: “There is a substantial risk that the Commonwealth, even if ordered to do so by the Puerto Rico courts, will be unable to refund the $155 million of unconstitutional tax payments that Wal-Mart PR would be forced to make during its six-year process of requesting a refund through Puerto Rico’s administrative and court systems.”

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