A Beleaguered Wal-Mart Sues A Broke Puerto Rico For "Astonishing" Tax Hike

It’s always amusing when unforeseen circumstances conspire to bring two previously disparate stories together in one hilarious boondoggle. 

As regular readers are no doubt aware, Puerto Rico is broke. "Let us be clear: We have no cash left,” governor Alejandro Garcia Padilla told Congress last week, after the commonwealth used an absurd revenue clawback end-around to avoid defaulting on some $345 million in debt that came due on Tuesday. 

The island owes another $300 million on January 1st and what might this week’s payment so important was that of the $354 million coming due, around $273 million was GO debt, and defaulting on that would mean a cascade of ugly litigation. 

Of course the use of the clawback - which effectively allows the island to divert revenue earmarked for other bonds to GO debt repayments - is a bit like Greece tapping its IMF reserves to pay the IMF. That is, there’s a palpable sense of desperation here and the situation is going to get immeasurably worse without some manner of federal intervention. 

Ok, so that’s Puerto Rico. 

Regular readers are also no doubt aware that Wal-Mart has gotten itself into trouble this year after bowing to calls for increased wages for its lowest-paid employees. Those wage hikes (which are set to cost the retailer around $1.5 billion over two years) pinched margins, prompting the company to tighten the screws on suppliers with a series of measures that culminated in Wal-Mart demanding that its vendors pass on any savings they might have derived from the yuan deval. 

The company also learned that when you hike wages for some employees but not others, the wage hierarchy gets thrown out of whack prompting workers higher up the ladder to either quit, or demand more money to restore the compensation pecking order. 

Unable to cope and unable to squeeze anything else out of the supply chain without triggering a veritable vendor mutiny, Wal-Mart was forced to cut hours and then, to cut jobs at the Bentonville office. 

It all fell apart in October when the retailer slashed its guidance, triggering a harrowing decline in the stock. 

Well don’t look now, but a beleaguered Wal-Mart is suing a beleaguered Puerto Rico after the latter’s attempt to lift government revenue by raising taxes pushed the company's tax burden in the commonwealth to nearly 92% of net income.

As Bloomberg reports, “Puerto Rico’s Act 72-2015 increases to 6.5 percent from 2 percent the tax on goods imported from offshore affiliates to local companies with gross revenues of more than $2.75 billion.” 

Wal-Mart “biggest private employer and hands over more sales tax to the island government than any other business,” Bloomberg continues, before noting that the company is “asking a federal judge to declare the new measure unconstitutional and block its enforcement.”

“The new levy raised the estimated cumulative income tax on Wal-Mart Puerto Rico Inc. to an astonishing and unsustainable 91.5% of its net income!”, the company exclaimed, in a complaint filed Friday in San Juan.

We're sure they'll be any number of amusing anecdotes to report once this case gets going, but for now we'll simply close by saying that if you work at a Wal-Mart in Puerto Rico, you probably shouldn't expect much in the way of wage gains from this point forward because apparently, the island is so broke that it now needs the company to turn over nearly all of its profits in order to make sure you have public services.

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