Federal appellate judges in Boston affirmed a lower court’s ruling striking down a tax in Puerto Rico that targeted the crisis-stricken island’s largest businesses—one that would have exclusively impacted Walmart.
The First Circuit Court of Appeals said Wednesday that a Federal District Judge in Puerto Rico was correct earlier this year, when he declared the levy to be unconstitutionally discriminatory.
The tax at the heart of dispute was passed by the Puerto Rican government in 2015, as part of efforts to raise money amid a $72 billion public debt crisis. It would have increased, to 6.5 percent from 2 percent, tax rates on firms with more than $2.75 billion in revenues and business with “related parties” off the island, according to Reuters.
The appellate court on Wednesday affirmed this violated the Commerce Clause of the US Constitution, the wire service noted. The provisions grant the US government significant authority when regulating interstate business activities.
In March, Federal District Judge Jose Fuste had ruled that the tax “on its face, clearly discriminates against interstate commerce.” While noting the island’s fiscal problems, Fuste called the law “the very definition of an inadequate remedy.”
Walmart, which had filed the lawsuit, had claimed the measure would have seen 114 percent of its net taxable income on Puerto Rico go to government coffers.
Unlike state governments, Puerto Rico doesn’t have the ability to restructure its debt in the court system through Chapter 9 of US Bankruptcy Law. The territory was specifically exempted from the rules by congress in 1984.
Earlier this summer, with defaults looming, Congress passed a law granting Puerto Rico the right to renegotiate its debts.
The legislation, however, was blasted by many Democrats, for establishing an unelected board to oversee the territory’s finances, and for exempting younger Puerto Ricans from federal minimum wage laws.
In parliamentary discussion on the floor of the Senate, in June, Sen. Bernie Sanders (I-Vt.) described the bill as “colonialism at its worst,” and Sen. Bob Menendez called it “the ultimate neocolonialism that we as a Congress would be passing.”
“It treats the citizens of Puerto Rico like subjects, not like citizens,” Menendez said.
The first board members are expected to be appointed to this oversight council in September, Reuters noted.
CORRECTION: A previous version of this article said Congress exempted Puerto Rico from Chapter 11 bankruptcy in 1984.
