Society

Wal-Mart Avoids Paying Fair Share In Tax Dispute

| by Nik Bonopartis
Wal-MartWal-Mart

As Puerto Rico deals with a crippling financial crisis, and every taxpayer shoulders their share of the burden, a federal judge seemingly just let Wal-Mart off the hook. Some are saying the retail giant should not get special treatment.

In debt by more than $70 billion, Puerto Rico's leaders have raised taxes across the board in an attempt to increase revenue and prevent a government shutdown. That shutdown could come as early as June, and it would impact essential services that people on the island depend on.

As part of its efforts to avoid a shutdown, Puerto Rican government leaders raised taxes on big-box stores. Previously, companies with annual revenues of more than $2.75 billion paid a 2 percent tax on inventory. That rate was raised to 6.5 percent.

Because Wal-Mart is the only company doing business in Puerto Rico with that kind of revenue, the company's attorneys argued the tax hike unfairly targeted Wal-Mart.

Popular Video

A police officer saw a young black couple drive by and pulled them over. What he did next left them stunned:

Popular Video

A police officer saw a young black couple drive by and pulled them over. What he did next left them stunned:

On March 28, a federal judge in San Juan agreed, saying the tax hike was unlawful. The island's government leaders weren't pleased.

"The judge just took away $100 million from the people of Puerto Rico and gave it to Wal-Mart," said Gov. Alejandro Garcia Padilla of Puerto Rico. "Now I have to look for that money somewhere else. Of course I'm going to appeal the decision, and immediately."

With that decision the judge, Jose Antonio Fuste of the United States District Court in Puerto Rico, gave a big break to Wal-Mart, a break no other entity on the island will enjoy. As The New York Times points out, businesses, labor unions, bondholders and others will have to pay higher taxes, then request refunds from the government. Wal-Mart won't have to do that, thanks to the March 28 decision.

On the one hand, it feels dirty to side with an inept territorial government that hasn't been able to manage its own finances successfully in more than a decade. No one, not even Fuste, can argue that Puerto Rico didn't create its own mess. Fuste said it pained him to let Wal-Mart off the hook, The New York Times noted.

Similarly, taxes aren't a real solution. Hiking taxes to cover every shortfall is unsustainable, and will cripple the island's economy even further. It's going to take creative solutions and significant belt-tightening for Puerto Rico to get itself out of this mess.

And yet, we're talking about Wal-Mart, a company that has destroyed entire sectors of American retail, a company whose heirs have more wealth than the bottom 40 percent of Americans combined. That's a statistic verified by PolitiFact and a favorite talking point of Democratic presidential candidate Sen. Bernie Sanders of Vermont.

When it comes to hiding revenue, exploiting tax loopholes and finding creative ways to understate profits, Wal-Mart and its army of lawyers reportedly make other companies look like amateurs.

A 2015 report by Americans For Tax Fairness said Wal-Mart hid $76 billion in subsidiaries set up in tax havens. The company hid the existence of those subsidiaries, the report concluded, keeping them a secret from the public and the IRS. Wal-Mart's network included 78 subsidiaries scattered throughout the world's tax havens, the report said, including 22 subsidiaries hiding some $45 billion in Luxembourg, a country that doesn't have a single Wal-Mart store.

Hiding money in tax havens is a lucrative practice for Wal-Mart, which paid only 1 percent in taxes on revenue hidden in Luxembourg, according to critics.

Wal-Mart is also notorious for employing an army of low-wage workers who don't receive benefits or health insurance. Those people, the working poor, turn to the U.S. government for assistance, which costs taxpayers more than $6 billion annually, a 2014 report by the taxpayer advocacy group found.

The company also uses subsidiaries to cheat on domestic taxes, according to reports in the Wall Street Journal. Taking advantage of poorly written state laws, the company reportedly pays rent to itself via those subsidiaries, then deducts the rent from state taxes. The result? Wal-Mart allegedly avoids paying hundreds of millions of dollars in taxes in around 25 states.

No one can keep a straight face and argue Wal-Mart is paying its share of taxes. As critics have convincingly argued, the company actually costs taxpayers money. And for what? So founder Sam Walton's children, grandchildren and great-grandchildren can live like kings and queens for generations?

Maybe the Puerto Rico tax hike was unlawful. Maybe directly targeting a company is unconstitutional. But Wal-Mart is once again avoiding paying its fair share, even as it closes stores in Puerto Rico, where it's the second-largest employer after the territorial government.

As governor, Garcia should employ some brilliant accounting and legal minds of his own, and go after Wal-Mart until it pays its fair share.

Sources: The New York Times, Reuters, BloombergThe Wall Street Journal / Photo credit: Wikimedia Commons

Do you agree with the judge's decision favoring Wal-Mart?
Yes - 0%
Yes - 0%