Wal-Mart Puerto Rico, Inc. v. Zaragoza-Gomez
2016 U.S. App. LEXIS 15592
| 1st Cir. | 2016Background
- Puerto Rico amended its corporate alternative minimum tax (AMT) in May 2015 (Act 72), adding graduated rates for a tangible‑property component and removing a transfer‑pricing exemption; the top rate (6.5%) effectively targeted Wal‑Mart Puerto Rico (Wal‑Mart PR).
- Wal‑Mart PR operates 48 stores in Puerto Rico, purchases substantial inventory from related mainland entities, and estimated its AMT liability for Fiscal Year 2016 would rise from prior years (~$19M) to roughly $46–47M (≈$31M attributable to the AMT).
- Wal‑Mart PR sued the Puerto Rico Secretary of the Treasury seeking injunctive and declaratory relief under 42 U.S.C. § 1983, challenging the AMT under the dormant Commerce Clause, the Federal Relations Act, and the Equal Protection Clause.
- The district court enjoined enforcement of the AMT, finding it violated the dormant Commerce Clause and that federal jurisdiction was proper because Puerto Rico no longer provided a "plain, speedy, and efficient" local remedy given statutory caps and prioritization rules limiting recovery of large tax‑refund judgments.
- The First Circuit affirmed: it held federal jurisdiction exists because Puerto Rico’s Fiscal Sustainability Act and Treasury guidance made a full, timely refund effectively unavailable, and the AMT is a facially discriminatory tax failing dormant Commerce Clause scrutiny.
Issues
| Issue | Plaintiff's Argument (Wal‑Mart PR) | Defendant's Argument (Secretary) | Held |
|---|---|---|---|
| Standing / Ripeness | Legally compelled estimated AMT payments confer injury; suit ripe despite no return filed | No standing because no tax return filed; estimated payments inadequate | Standing and ripeness satisfied: mandatory estimated payments are cognizable injury and case was ripe |
| Butler Act / TIA exception (jurisdiction) | Butler Act exception applies because Puerto Rico courts cannot provide a "plain, speedy, and efficient" remedy given statutory $3M cap and priority rules | Butler Act bars federal suit; even if procedural remedy exists, adequacy is limited to process, not collectability | Exception applies: local refund process is effectively inadequate because judgments would be delayed/insufficiently paid |
| Comity / Abstention | Federal adjudication appropriate because local remedy is inadequate; comity doesn't bar suit | Comity counsels dismissal despite jurisdiction because tax matters implicate local interests | Comity does not bar jurisdiction where local remedy is inadequate and federal and local courts have equal remedial competence here |
| Dormant Commerce Clause (merits) | AMT discriminates against interstate commerce by taxing only related‑party transfers from outside Puerto Rico; no narrowly tailored means to achieve legitimate goal | AMT targets profit‑shifting and is a permissible proxy to recapture shifted profits; alternative approaches are administratively infeasible | AMT is facially discriminatory and fails heightened scrutiny; less‑discriminatory alternatives exist, so statute invalid under dormant Commerce Clause |
Key Cases Cited
- Puerto Rico v. Franklin Cal. Tax‑Free Tr., 136 S. Ct. 1938 (acknowledging Puerto Rico's fiscal crisis)
- Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503 (TIA's "plain, speedy and efficient" exception interpretation)
- Matthews v. Rodgers, 284 U.S. 521 (inability of collecting officer to respond to judgment can render state remedy inadequate)
- Stewart Dry Goods Co. v. Lewis, 287 U.S. 9 (state insolvency can make refund procedure inadequate)
- United Haulers Ass'n, Inc. v. Oneida‑Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330 (framework for scrutinizing facially discriminatory laws under dormant Commerce Clause)
- Comptroller of Treasury of Md. v. Wynne, 135 S. Ct. 1787 (internal consistency test for state tax discrimination)
- Container Corp. of Am. v. Franchise Tax Bd., 463 U.S. 159 (legitimate state interest in fairly apportioning multistate corporate income)
- Levin v. Commerce Energy, Inc., 560 U.S. 413 (comity doctrine and federal restraint in tax‑related matters)
- Fair Assessment in Real Estate Ass'n, Inc. v. McNary, 454 U.S. 100 (comity and adequacy of state remedies)