Does the Commonwealth of Puerto Rico’s Corporate AMT Violate the Dormant Commerce Clause?

• In Event: Tax Issues, International and More

Abstract

In Wal-Mart Puerto Rico, Inc. v. Juan C. Zaragoza-Gomez, the U.S. District Court for the District of Puerto Rico recently permanently enjoined and declared unconstitutional the tangible-property tax, the expenses tax, and the list of exemptions to the tangible-property tax which comprise the second measure of tentative minimum tax under the Commonwealth of Puerto Rico’s corporate alternative minimum tax. It ordered all levying, enforcement, and collection of the AMT under the enjoined subsections, including as an estimated payment, to immediately cease. The court ruled that the invalid portions of the AMT violated the dormant commerce clause of the United States Constitution, which precludes discrimination between transactions on the basis of some interstate element. The court opined that the AMT clearly discriminates against interstate commerce on its face; thus, it is per se invalid. Also, it held that the AMT fails the internal consistency test as recently set forth by the U.S. Supreme Court in Comptroller of the Treasury of Maryland v. Wynne. The court found the exemption for intrastate transactions especially integral to what makes the law unconstitutional.
The district court’s decision has a monumental effect on the ability of Puerto Rico to generate tax revenues as a means to balance its constitutionally mandated balanced budget, provide operating funds for essential services, service its debt obligations, and restructure its debt. The situation in Puerto Rico and the court’s decision serve as a warning to the U.S., its states and localities, and its territories with regard to their debt obligations and the limitations on the ability to tax interstate commerce to generate operating funds for the provision of essential services and the servicing of debt.

Author

• Mark Aquilio, St John's University