Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca1-16-01406/USCOURTS-ca1-16-01406-0/pdf.json

Parties Involved:
Wal-Mart Puerto Rico
Appellee
Juan C. Zaragoza-Gomez
Appellant

Document Text:

United States Court of Appeals

For the First Circuit

Nos. 16-1370

 16-1406

WAL-MART PUERTO RICO, INC.,

Plaintiff, Appellee,

v.

JUAN C. ZARAGOZA-GOMEZ, in his official capacity as 

Secretary of the Treasury of the Commonwealth of Puerto Rico,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. José Antonio Fusté, U.S. District Judge] 

Before

Lynch, Thompson, and Kayatta,

Circuit Judges.

Margarita L. Mercado-Echegaray, Solicitor General, Department 

of Justice, Commonwealth of Puerto Rico, and Susan Seabrook, with 

whom H. Marc Tepper, Buchanan Ingersoll & Rooney PC, and Susana 

Peñagaricano-Brown, Assistant Solicitor General, Department of 

Justice, Commonwealth of Puerto Rico, were on brief, for appellant.

Joseph S. Grinstein, with whom Neal S. Manne, Shawn Rabin, 

Steven M. Shepard, Susman Godfrey LLP, Juan A. Marqués-Díaz, 

Francisco G. Bruno, Alejandro J. Cepeda-Diaz, and McConnell Valdés 

LLC were on brief, for appellee.

August 24, 2016

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LYNCH, Circuit Judge. Wal-Mart Puerto Rico, Inc. ("WalMart PR") brought this suit against the Puerto Rico Secretary of 

the Treasury to challenge the lawfulness of Puerto Rico's corporate 

alternative minimum tax ("AMT"), as amended in May 2015. The 

district court held that it had jurisdiction over the suit and 

enjoined the enforcement of the AMT after concluding that the AMT

violates the dormant Commerce Clause; the Federal Relations Act, 

48 U.S.C. § 741a; and the Equal Protection Clause. Wal-Mart P.R., 

Inc. v. Zaragoza-Gómez, No. 3:15-CV-03018, 2016 WL 1183091, at *51

(D.P.R. Mar. 28, 2016).

We affirm, which continues the injunction against 

enforcement of the AMT against Wal-Mart PR. The federal district 

court did have jurisdiction because Wal-Mart PR, at the time of 

suit, lacked a plain, speedy, and efficient remedy in the Puerto 

Rico courts due to changes in legislation and regulation. As 

applied to these facts, those changes imposed a maximum recovery 

limit of $3 million per year against a potential tax reimbursement 

judgment by the Puerto Rico courts of over $200 million total ($30 

to $40 million a year) and an estimated 4.6 years to judgment. 

Even that annual $3 million would not have been guaranteed to be 

paid, especially in light of mandated priorities putting other

debts ahead of taxpayer debt. As to the merits of the Commerce 

Clause challenge, the AMT is a facially discriminatory statute 

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that does not meet the heightened level of scrutiny required to 

survive under the dormant Commerce Clause.

I. Facts

The Commonwealth of Puerto Rico is in dire financial 

straits. Puerto Rico v. Franklin Cal. Tax-Free Tr., 136 S. Ct. 

1938, 1942 (2016); Puerto Rico Oversight, Management, and Economic 

Stability Act ("PROMESA"), Pub. L. No. 114-187, 130 Stat. 549

(2016). As the district court summarized its findings:

[T]he Commonwealth is being crushed under the 

weight of a public debt that is larger than 

its gross national product, Puerto Rico's 

annual budget is running a structural deficit 

that is about [to] explode into the 

multibillion-dollar range, the government's 

cash reserves are about to dry out, its credit 

rating is at junk status, it has started to 

default on its debt obligations, and it has no 

place to turn for external funding, including 

the possibly-insolvent Government Development 

Bank.

Wal-Mart P.R., Inc., 2016 WL 1183091, at *8.1

A. The Amended AMT

Against this backdrop, the Puerto Rico legislature, in 

an effort to raise more tax revenue, amended the AMT in May 2015,

as part of Act 72 of 2015. We begin by discussing the general 

 

1 We take judicial notice of the fact that since the 

district court judgment, the sum of Puerto Rico's official debt 

has only increased. On July 1, 2016, the Commonwealth defaulted 

on over $800 million in debt payments.

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structure of the AMT in order to explain the two ways in which Act 

72 amended the AMT.

The AMT is a tax equal to the amount (if any) by which 

a corporate taxpayer's tentative minimum tax exceeds its regular 

tax on income. P.R. Laws Ann. tit. 13, § 30073(a).2 The tentative 

minimum tax is defined as the higher of two measures. Id.

§ 30073(b). The first measure, which is not relevant here, is 

calculated from the corporate taxpayer's income. Id.

§ 30073(b)(1). The second measure, which is at issue here, is 

calculated from the value of goods and services sold or otherwise 

provided to the corporate taxpayer by a related entity or home 

office located outside of Puerto Rico. Id. § 30073(b)(2).

This second measure is the sum of two components: an 

expenses tax and a tangible-property tax. Id. The expenses tax 

is a 20% tax on services provided to the corporate taxpayer by a 

 

2 The most recent official English translation of the AMT 

statute predates the 2015 amendment at issue in this case. We 

rely instead on a certified English translation of the statute 

that the parties provided to the district court and reproduced in 

the addendum to the Secretary's brief on appeal. The parties agree 

that the translation is complete, accurate, and up-to-date.

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related party3 or home office4 outside of Puerto Rico. Id.

§ 30073(b)(2)(A). The tangible-property tax is a tax on the goods 

sold or transferred to the corporate taxpayer by a related party 

or home office outside of Puerto Rico. Id. § 30073(b)(2)(B). 

Prior to the 2015 amendment, the tangible-property tax was a 2%

flat tax. The 2015 amendment provided new graduated rates for the 

AMT's tangible-property tax, with a top rate of 6.5% for corporate 

taxpayers with $2.75 billion or more in gross sales in Puerto Rico.

The Secretary acknowledged that the purpose of the 

expenses and tangible-property taxes is to prevent multistate 

corporations doing business in Puerto Rico from shifting profits 

off the island by purchasing goods and services from related 

mainland entities at artificially inflated prices. The concern is 

that by manipulating prices for such transactions between related 

entities, a multistate taxpayer can shift profits to another 

jurisdiction with a lower tax rate and thereby artificially deflate 

its Puerto Rico income tax burden. The AMT accordingly applies 

 

3 An entity and a corporate taxpayer are "related parties" 

when they are both members of the same controlled group of 

corporations; one of them owns, directly or indirectly, 50% or 

more of the other's stock; or a single person owns, directly or 

indirectly, 50% or more of each of their stocks. P.R. Laws Ann. 

tit. 13, § 30045(b).

4 Puerto Rico law does not define "home office," but it 

appears to mean the headquarters of a "branch engaged in trade or 

business in Puerto Rico." P.R. Laws Ann. tit. 13, 

§ 30073(b)(2)(B).

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only to transactions between a Puerto Rico taxpayer and a related 

entity located outside of Puerto Rico.

The absence of a potential problem of profit-shifting 

from a Puerto Rico taxpayer to a related entity outside of Puerto 

Rico may be indicated by a transfer price that is the same as the 

price at which unrelated parties would arrive through arm's-length 

negotiation. As such, prior to the 2015 amendment, the AMT statute 

provided that the Secretary could tax a related-party transaction 

at a lower rate if he found that the transfer price paid by the 

taxpayer to the related entity was "equal or substantially similar 

to the [price] for which such related party sells such property to 

an unrelated party." Id. § 30073(d)(4). In addition to the new 

graduated rates for the tangible-property tax, the second 

significant change in the 2015 AMT amendment was the elimination 

of this exemption.

The Secretary conceded in testimony before the district 

court that the amended AMT is no longer targeted at profit-shifting 

through transfer-pricing abuse but is instead simply "a revenue 

raising measure." The district court credited this testimony and 

found that the amendment to the AMT was intended to raise tax 

revenues from multistate mega-retailers like Wal-Mart PR. WalMart PR further alleges, and Puerto Rico does not dispute, that it 

is the only corporation that meets the sales threshold for the top 

tangible-property tax rate of 6.5%. Indeed, the new top rate under 

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the amended AMT is alleged to be essentially a "Wal-Mart tax,"

passed to raise a specific level of revenue from Wal-Mart PR in 

light of Puerto Rico's budget crisis.

B. Wal-Mart PR

Wal-Mart PR is the largest private employer in Puerto 

Rico. It operates forty-eight stores in Puerto Rico and employs

around 14,300 people. Each year, it buys around $1.6 billion of 

inventory locally and over $700 million of inventory from its 

parent company, Wal-Mart Stores, Inc., and related mainland 

entities. Each year, Wal-Mart PR earns roughly $3 billion in sales 

in Puerto Rico.

Wal-Mart PR's tax year begins on February 1. The tax 

year commencing February 1, 2015 and ending January 31, 2016 (which 

we will call Fiscal Year 20165) was the first year in which WalMart PR was subject to the new graduated tangible-property tax 

rate in the amended AMT.

In Fiscal Year 2012, Wal-Mart PR's total income tax 

liability to Puerto Rico was $19.9 million. The following year, 

it was $18.6 million. But in Fiscal Year 2016, Wal-Mart PR's total 

tax liability rose to approximately $46.5 million, of which

approximately $32.9 million would have been attributable to the 

 

5 "Fiscal Year 2016" actually consists of eleven months 

that were in calendar year 2015. Nonetheless, we adopt this 

nomenclature because it is what Wal-Mart PR chooses to use.

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amended AMT had the district court not enjoined that tax.6 WalMart PR alleges that the amended AMT, if enforced, would have made

its total tax liability 132% of the company's total annual income. 

The AMT makes this percentage possible because the AMT taxes the 

transfer of goods and services to the corporate taxpayer, and it 

is not keyed to the taxpayer's income. For a retailer like WalMart PR that engages in a high volume of transactions with low 

profit margins on each item sold, this feature of the AMT can 

result in a particularly high tax liability relative to income.

Wal-Mart PR estimates that in future years, it will pay 

$40 million per year as a result of the amended AMT and that its 

annual effective tax rate will be over 300%.

II. Procedural History

On December 4, 2015, Wal-Mart PR commenced this action

against Puerto Rico Secretary of the Treasury Juan Zaragoza-Gómez 

in his official capacity. Wal-Mart PR sought, under 42 U.S.C. 

§ 1983, an injunction against the continued enforcement of the AMT 

against it and a declaration that the AMT is unlawful under the 

 

6 On August 15, 2016, Wal-Mart PR submitted a Rule 28(j) 

letter notifying the court that it had filed its tax return for 

Fiscal Year 2016. Before this date, Wal-Mart PR had estimated 

that its tax liability for Fiscal Year 2016 would be $47 million, 

with $30.9 million of that sum attributable to the AMT. We note 

that Puerto Rico objects to our use of the information that WalMart PR provided in its 28(j) letter and that Puerto Rico has not 

yet audited Wal-Mart PR's tax return for Fiscal Year 2016.

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dormant Commerce Clause; the Equal Protection Clause; the Bill of 

Attainder Clauses; and the Federal Relations Act, 48 U.S.C. § 741a.

On December 21, 2015, the Secretary filed a Rule 12(b)(1) 

motion to dismiss for lack of subject matter jurisdiction. The 

district court deferred resolution of the motion, citing the need 

for jurisdictional discovery. Following an expedited discovery 

period, the district court held an evidentiary hearing from

February 2 to 5, 2016.

On March 28, 2016, the district court issued an order 

stating its findings of fact and conclusions of law. Fed. R. Civ. 

P. 52(a)(1). The district court held that: (1) it had jurisdiction 

under the Butler Act because of the lack of a "plain, speedy and 

efficient remedy" in Puerto Rico courts; (2) the AMT violates the

dormant Commerce Clause; (3) the AMT violates the Federal Relations 

Act; (4) the AMT violates the Equal Protection Clause; and (5) the 

AMT does not violate the Bill of Attainder Clauses. As for the 

relief entered, the court "permanently enjoin[ed] and declare[d] 

invalid, under both federal constitutional and statutory law, 

section 1022.03(b)(2) and (d) of the Puerto Rico Internal Revenue 

Code of 2011." Wal-Mart P.R., Inc., 2016 WL 1183091, at *51. The 

court ordered the injunction to go into effect immediately.

This appeal followed.

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III. Jurisdiction

Before we reach the constitutionality of the amended 

AMT, we must address three threshold matters raised by the 

Secretary: whether lack of standing or ripeness bars this suit, 

whether the Butler Act bars the exercise of federal district court

jurisdiction in this case, and whether the principle of comity 

requires dismissal of this case. We take each in turn.

A. Standing and Ripeness

The Secretary argues that Wal-Mart PR had no standing to 

bring this suit because it had not filed a tax return prior to 

filing its complaint. The Secretary makes essentially the same 

argument in ripeness terms, arguing that the district court erred 

by treating Wal-Mart PR's payment of estimated quarterly taxes as 

sufficient to meet justiciability requirements. Our review is de 

novo. Summers v. Fin. Freedom Acquisition LLC, 807 F.3d 351, 355 

(1st Cir. 2015); Sullivan v. City of Augusta, 511 F.3d 16, 24 (1st 

Cir. 2007).

Even though Wal-Mart PR had not filed its tax return at 

the commencement of this suit in the district court, it had already 

begun paying estimated quarterly taxes under the amended AMT 

statute prior to filing suit. Those estimated quarterly payments 

were required by law, and nonpayment was subject to penalty. P.R. 

Laws Ann. tit. 13, § 30263(a), (h). Moreover, Puerto Rico law 

provides that "[p]ayment of the estimated tax . . . shall be 

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treated as payment on account of the tax for the taxable year." 

Id. § 30263(g). Wal-Mart PR suffered a sufficiently cognizable 

injury in fact by the legally compelled payment of estimated taxes. 

And the fact that, at the time of adjudication before the district 

court, the exact tax figure was subject to adjustment upon the 

filing of the tax return did not prevent this case from being ripe 

for adjudication. The Secretary never contested that Wal-Mart PR 

was subject to some level of tax liability under the challenged 

version of the AMT, and no further factual development was 

necessary. See Verizon New Eng., Inc. v. Int'l Bhd. of Elec. 

Workers, Local No. 2322, 651 F.3d 176, 188 (1st Cir. 2011).7 

Accordingly, we hold that Wal-Mart PR had standing to bring this 

suit and that the case was sufficiently ripe.

B. The Butler Act's Jurisdictional Bar

1. Does the Butler Act contain an exception to its 

jurisdictional bar? 

The Secretary argues that even if standing and ripeness 

requirements are met, the Butler Act's jurisdictional bar deprives 

the Puerto Rico federal district court of jurisdiction over this 

 

7 At oral argument, we asked the Secretary to provide us 

with citations to what the Secretary claimed was a line of Supreme 

Court cases holding that estimated tax payments do not suffice to 

confer Article III standing to challenge a tax. See Fed. R. App. 

P. 28(j). The case citations that the Secretary submitted, 

however, related to federal statutory prerequisites to filing a 

federal tax-refund suit and were entirely irrelevant to the 

question of Article III justiciability. We have conducted our own

search and found no such cases either.

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action. Wal-Mart PR, as the party invoking federal jurisdiction, 

has the burden of proving its existence. Calderón-Serra v. 

Wilmington Tr. Co., 715 F.3d 14, 17 (1st Cir. 2013). We review 

the district court's findings on jurisdictional facts for clear 

error, but review its ultimate legal conclusion on jurisdiction de 

novo. See United States ex rel. Ondis v. City of Woonsocket, 587 

F.3d 49, 54 (1st Cir. 2009); Valentin v. Hosp. Bella Vista, 254 

F.3d 358, 365-66 (1st Cir. 2001). Puerto Rico does not contest 

the factual findings made, but contests the conclusions drawn from 

those facts.

The Butler Act states: "No suit for the purpose of 

restraining the assessment or collection of any tax imposed by the 

laws of Puerto Rico shall be maintained in the United States 

District Court for the District of Puerto Rico." 48 U.S.C. § 872. 

The parties agree that this jurisdictional bar contains an unstated 

exception: it presumes that the Commonwealth itself provides a 

"plain, speedy and efficient" remedy for a taxpayer harmed by the 

imposition of an unconstitutional tax. Our own court has 

repeatedly acknowledged the likely existence of such an exception, 

but we have never found it applicable. See, e.g., Coors Brewing 

Co. v. Méndez-Torres, 562 F.3d 3, 13 & n.5 (1st Cir. 2009), 

abrogated on other grounds by Levin v. Commerce Energy, Inc., 560 

U.S. 413 (2010); Carrier Corp. v. Perez, 677 F.2d 162, 164 (1st 

Cir. 1982). Nor have we explained in any detail why the exception 

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does exist. Because we ultimately find the exception applicable 

in this case and because the existence of jurisdiction is a matter 

that we must raise and ascertain sua sponte, see McCulloch v. 

Vélez, 364 F.3d 1, 5 (1st Cir. 2004), we begin by explaining why 

we agree with the parties that this appeal turns on whether the 

exception applies, not on whether it exists.

Long before the enactment of the Butler Act, federal 

courts of equity refused to interfere with the collection of state 

taxes. See, e.g., Great Lakes Dredge & Dock Co. v. Huffman, 319 

U.S. 293, 299 (1943). Nonetheless, the common law recognized an 

exception for those cases in which "the threatened injury to the 

taxpayer [wa]s one for which the state courts afford[ed] no 

adequate remedy." Id.; see also Union Pac. R.R. Co. v. Bd. of

Cty. Comm'rs, 247 U.S. 282, 285 (1918) (collecting cases for the

proposition that if state revenue laws provided a "plain, adequate 

and complete remedy at law" to refund tax payments, "relief by 

injunction [wa]s not admissible").8 

 

8 In fact, while interpreting a similar, seemingly 

absolute statutory provision, which is currently codified at 26 

U.S.C. § 7421 and states that "no suit for the purpose of 

restraining the assessment or collection of any tax shall be 

maintained in any court," the Supreme Court emphasized that 

"never," since that statute's enactment in 1867, had it "held the 

rule to be absolute, but ha[d] repeatedly indicated that 

extraordinary and exceptional circumstances render its provisions 

inapplicable." Miller v. Standard Nut Margarine Co. of Fla., 284 

U.S. 498, 509–10 (1932) (collecting cases dating back to 1916); 

see also Allen v. Regents, 304 U.S. 439, 449 (1938) ("The statute 

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Against this backdrop, Congress enacted the Butler Act

of 1927. In light of the longstanding common-law recognition of

an exception to the general jurisdictional bar, the Butler Act is 

presumed to include that exception. See Norfolk Redev. & Hous. 

Auth. v. Chesapeake & Potomac Tel. Co. of Va., 464 U.S. 30, 35–36 

(1983) ("It is a well-established principle of statutory 

construction that '[t]he common law . . . ought not to be deemed 

to be repealed, unless the language of a statute be clear and 

explicit for this purpose.'" (alterations in original) (quoting 

Fairfax's Devisee v. Hunter's Lessee, 11 U.S. (7 Cranch) 603, 623 

(1813))); see also U.S. Brewers Ass'n, Inc. v. Perez, 592 F.2d 

1212, 1213 n.2 (1st Cir. 1979) ("The district court's reluctance 

to read the Butler Act as an absolute ban, construing it instead 

'in a manner consistent with general equitable principles' was 

generally in accord with the limited case law applying that Act."), 

abrogated on other grounds by Coors Brewing Co., 562 F.3d 3.

The legislative history of the Butler Act only confirms 

this reading. The principal purpose of the statute was to "apply 

the same rule [of tax collection and litigation] in P[ue]rto Rico 

that now applies on the continent of the United States." Sancho

v. Nat'l City Bank of N.Y., 112 F.2d 998, 999 (1st Cir. 1940) 

(quoting 68 Cong. Rec. S5025 (daily ed. Feb. 28, 1927) (statement 

 

is inapplicable in exceptional cases where there is no plain, 

adequate, and complete remedy at law.").

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of Sen. Bingham)). To the extent that the pre-Butler Act common 

law in the continental United States recognized an exception to 

the federal jurisdictional bar and that the Butler Act's purpose 

was to "make the condition [in Puerto Rico] just the same as in 

the United States," 68 Cong. Rec. S5026 (daily ed. Feb. 28, 1927) 

(statement of Sen. Bingham), reading the Butler Act to include the 

exception as well is consistent with the drafters' purpose. By 

including the exception, we also avoid construing the statute in 

a manner that suggests Congress would set up a jurisdictional 

system in which an aggrieved taxpayer would have no recourse, 

either local or federal.

The enactment of the Tax Injunction Act of 1937 ("TIA"), 

28 U.S.C. § 1341, further evinces Congress's adherence to the

tradition of preserving an exception to the federal jurisdictional 

bar where taxpayers had no remedy in state courts after paying an 

illegal tax. The TIA deprives federal district courts of 

jurisdiction to enjoin the collection of state taxes. Pleasures 

of San Patricio, Inc. v. Méndez-Torres, 596 F.3d 1, 5 (1st Cir. 

2010); see also Hibbs v. Winn, 542 U.S. 88, 109 n.11 (2004). 

Congress intended the TIA to be "first and foremost a vehicle to 

limit drastically federal district court jurisdiction to interfere 

with so important a local concern as the collection of taxes." 

Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 522 (1981). After 

all, states rely on taxes "to carry on their respective 

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governments," and "[a]ny delay in the proceedings of the officers, 

upon whom the duty is devolved of collecting the taxes, may derange 

the operations of government, and thereby cause serious detriment 

to the public." Fair Assessment in Real Estate Ass'n, Inc. v. 

McNary, 454 U.S. 100, 127 (1981) (Brennan, J., concurring in the 

judgment) (quoting Dows v. City of Chicago, 78 U.S. (11 Wall.) 

108, 110 (1871)).

But, unlike the Butler Act, the TIA contains an express 

exception under which federal district courts can assume 

jurisdiction where state courts do not provide a "plain, speedy 

and efficient remedy." 28 U.S.C. § 1341. The historical context 

in which each statute was enacted helps explain why Congress 

expressly codified an exception in the TIA when it did not do so 

in the Butler Act. The Senate floor statements of the Butler Act's 

drafters imply that Puerto Rico, at the time of enactment, provided 

a remedy for illegal tax payments. See 68 Cong. Rec. S5026 (daily 

ed. Feb. 28, 1927) (Sen. Norris: "There is ample provision made, 

as I understand the law, for the return of taxes that are illegally 

paid." Sen. Bingham: "Oh, yes; there is no question about that."). 

Not all states at that time, however, provided such recourse for

taxes paid under protest. See Grosjean v. Am. Press Co., 297 U.S. 

233, 242 (1936). As Puerto Rico offered a remedy that some states 

did not, articulating the implied equitable exception in the text 

of the Butler Act may not have seemed critical to its drafters.

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By contrast, when Congress enacted the TIA ten years 

later, the need to affirmatively build the exception into the 

statutory text was more pronounced. First, as discussed above, 

some states at the time "afford[ed] no remedy whereby restitution 

of taxes and property exacted m[ight] be enforced, even where 

payment ha[d] been made under both protest and compulsion." Id. 

Furthermore, the Great Depression had intervened between the 

passage of the Butler Act in 1927 and the TIA in 1937, resulting

in scenarios in which even those states that had in place remedial 

schemes could not provide relief in fact. See, e.g., Stewart Dry 

Goods Co. v. Lewis, 287 U.S. 9, 10-11 (1932) (per curiam)

(recognizing that despite formal remedy available under Kentucky 

law, taxpayers could not actually collect, "for lack of funds in 

the Treasury"). In light of the disparate laws and financial 

realities of the various states at the time of the TIA's enactment, 

it makes sense that the TIA expressly codifies the exception 

included impliedly in the Butler Act. 

Of course, although the TIA has its roots in federal 

equity practice, its exception is statutory and not equitable. In 

Rosewell, the Court cautioned that the TIA's "plain, speedy and 

efficient remedy" exception should not necessarily be read as 

"coterminous with pre-1937 federal equity treatment of challenges 

to state taxes." 450 U.S. at 524. Rosewell serves two purposes. 

It first recognizes the "longstanding rule of federal equity to 

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keep out of state tax matters as long as a 'plain, adequate and 

complete remedy' could be had at law." Id. at 525. Second, by 

construing the TIA's exception as narrower than prior federal 

equity practice, Rosewell signals that the role of the federal 

courts is now to interpret the precise language of the statutory 

exception, rather than rely on the former, more amorphous equitable 

exception standard. 

As acknowledged above, the Butler Act and the TIA "have 

been construed in pari materia" in our circuit, which has extended 

the TIA's exception to the Butler Act.9 Pleasures of San Patricio, 

596 F.3d at 5 (quoting United Parcel Serv., Inc. v. Flores-Galarza, 

318 F.3d 323, 330 n.11 (1st Cir. 2003)). Accordingly, the Butler 

Act has been interpreted to allow the Puerto Rico federal district

court to enjoin a Puerto Rico tax where there was no plain, speedy 

and efficient remedy, presumably within the meaning of the TIA,

available in the Puerto Rico courts. Id. This "judicially 

engrafted exception" to the Butler Act is well established in this 

circuit. Parker v. Agosto-Alicea, 878 F.2d 557, 558–59 (1st Cir. 

1989); Carrier Corp., 677 F.2d at 164. 

 

9 Reading the Butler Act to include the TIA's exception is 

indeed consistent with the canon of in pari materia. The Supreme 

Court has invoked that canon of statutory construction to use the

meaning of a later statute in helping interpret an earlier statute 

of similar subject matter. See, e.g., Fanning v. Gregoire, 57 

U.S. (16 How.) 524, 529 (1854).

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At the conclusion of our survey of the Butler Act and 

the TIA, we must acknowledge that the timeline of the two statutes' 

enactments suggests that the Butler Act of 1927 incorporated the 

common law equitable exception, but we cannot say whether our 

subsequent construction of the Butler Act in pari materia with the 

TIA narrowed that exception. We need not resolve this question 

here, however, as this case qualifies under the narrower TIA 

exception, and that is all that Wal-Mart PR itself claims. After 

independently reviewing the historical context and legislative 

history of the Butler Act and TIA, we reaffirm that the Butler 

Act's jurisdictional bar is subject to an exception that is at 

least coextensive with the TIA's exception.

2. Is this case within the exception to the Butler Act? 

The parties agree that this suit has the purpose of 

restraining the assessment or collection of a Puerto Rico tax, so 

the jurisdictional bar of the Butler Act is in play. The remaining

question is whether the exception to the Butler Act applies on the 

basis that, under Puerto Rico law, the Puerto Rico courts cannot

provide a plain, speedy, and efficient remedy. If that exception 

does not apply, then the Butler Act bars the district court from 

exercising jurisdiction, and we would dismiss the case without

reaching the question of the amended AMT's constitutionality. By 

far this is the most difficult question presented by this case.

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The only local remedy available to Wal-Mart PR in the 

Puerto Rico courts is Puerto Rico's tax-refund process. P.R. Laws 

Ann. tit. 13, § 261; Pleasures of San Patricio, Inc., 596 F.3d at 

7. Under the tax-refund process, a taxpayer contesting a tax must 

first pay the contested tax and then file a tax return requesting 

a refund or credit from the Secretary of the Treasury. Pleasures 

of San Patricio, Inc., 596 F.3d at 7. If the Secretary denies the

refund, the taxpayer may appeal the denial in the Puerto Rico court 

system and then seek review by certiorari in the United States 

Supreme Court. Id. at 8. We have held in previous cases -- before 

enactment of the amended AMT now being challenged, the Special 

Fiscal and Operational Sustainability Act of 2014 ("Fiscal

Sustainability Act"), and Treasury regulations awarding priority 

to other Puerto Rico debt payments over tax refunds -- that this

tax-refund process is a plain, speedy, and efficient remedy for 

the purpose of the Butler Act because it provides the taxpayer 

with a full hearing and judicial determination of any 

constitutional objections to a tax. Id. at 8–9; Carrier Corp., 

677 F.2d at 164.

The district court held that notwithstanding our 

previous cases, Puerto Rico's current financial legislation and 

status compelled the opposite conclusion. The district court 

projected that under the most conservative estimate, in which 

denial of the refund by the Treasury takes one year and Wal-Mart 

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PR successfully obtains an injunction on the collection of the AMT 

from the Puerto Rico Court of First Instance, Wal-Mart PR would be 

entitled to a $70 million tax refund -- the $30 million for Fiscal 

Year 2016 and another estimated $40 million for the following year. 

Wal-Mart PR asserts that the more realistic tax-refund liability

figure if it continues to do business in Puerto Rico at the present 

AMT rate is $214 million.10 The district court found that Puerto 

Rico would be unable under the current state of affairs to satisfy 

a judgment of $70 million (or, for that matter, $214 million).

More critically, the district court noted that Puerto 

Rico law had recently been altered, as part of the Fiscal 

Sustainability Act, to impose a new obstacle by capping the payment 

of any judgment exceeding $20 million against the Commonwealth at

$3 million per year. The district court also noted that Puerto 

Rico can refuse to honor even that $3 million annual payment

"whenever it finds there are 'no funds available' that year." WalMart P.R., Inc., 2016 WL 1183091, at *30. It further found that 

such postponement is likely to occur almost indefinitely because 

 

10 Wal-Mart PR's estimate is based on the assumption that 

the Puerto Rico Court of First Instance will not have the power to 

enjoin the AMT and that Wal-Mart PR would have to continue paying 

the AMT until the Puerto Rico Supreme Court decides the matter. 

Wal-Mart P.R., Inc., 2016 WL 1183091, at *27. The figure was 

calculated by multiplying 4.6 years, which the district court 

estimated as the "average" litigation time until a Puerto Rico 

Supreme Court decision, by $40 million in AMT payments per year 

and then adding that to the $30 million for Fiscal Year 2016. Id.

at *28.

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recent Puerto Rico Treasury guidelines prioritize payment of other 

government obligations over the payment of tax refunds. In 

addition, the district court concluded that there were no tax 

credits available under Puerto Rico law that would suffice as an 

alternative adequate remedy for Wal-Mart PR. The district court's 

reasoning, in short, was that even if Puerto Rico law furnishes 

Wal-Mart PR with a sufficient procedural avenue for challenging 

the AMT, there is still no plain, speedy, and efficient remedy 

because of the inability of Puerto Rico courts to see to it that 

an ultimate judgment in favor of Wal-Mart PR is satisfied. In 

response, Puerto Rico asserts that it may force Wal-Mart PR to pay 

over $200 million in unconstitutionally imposed taxes and make 

Wal-Mart PR wait a minimum of seventy years for repayment, if then. 

We agree with the district court that Puerto Rico has

now hamstrung its courts so as to deprive Wal-Mart PR of a plain, 

speedy, and efficient remedy at the time of this suit. Indeed, 

the local remedy available to Wal-Mart PR today is fundamentally 

different from what would have been available before the enactment 

of the Fiscal Sustainability Act and recent Treasury guidelines. 

To elaborate, the Secretary does not challenge the district court's 

projection that, even under the most conservative estimate, the 

Puerto Rico tax-refund process would require Wal-Mart PR to make 

$70 million in AMT payments before Wal-Mart PR can, if then, obtain 

an injunction against the AMT in the Puerto Rico courts. Nor does 

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the Secretary challenge the district court's prediction that, 

because of the $3 million statutory cap, Wal-Mart PR may never 

receive a full refund. And even if it does, the full refund will 

take well over the apparent minimum of two decades because payment 

of even $3 million per year is likely to be postponed indefinitely,

with no evident recourse for Wal-Mart PR.

The Secretary instead argues that even a total inability 

by Puerto Rico to satisfy a tax-refund judgment would not justify 

federal jurisdiction because "plain, speedy, and efficient" refers 

only to the procedural adequacy of Puerto Rico's local remedy.

According to the Secretary, Puerto Rico's tax-refund process 

provides the taxpayer with a full hearing and judicial 

determination of any constitutional objections to the tax, and 

Wal-Mart PR's ability to obtain a tax-refund judgment through that 

procedure makes the Puerto Rico remedy a plain, speedy, and 

efficient one. Under that reasoning, we would make no inquiry 

into what happens after the Puerto Rico judicial process produces 

a tax-refund judgment. Of course, that would require us to ignore 

the word "remedy" in the Act.

The Secretary's argument relies on the Supreme Court's 

decision in Rosewell. In our view, the Secretary overreads that 

case. In Rosewell, the Court held that Illinois's tax-refund 

procedure was a plain, speedy, and efficient remedy for a tax 

challenger even though a successful challenger would wait two years 

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and receive no interest for any taxes refunded. 450 U.S. at 528. 

In so holding, the Supreme Court used language suggesting that 

"plain, speedy and efficient" in the TIA refers to the "procedural"

adequacy of the local remedy, id. at 512, rather than the "more 

substantive concern" of whether the recovery included payment of 

interest, id. at 515.

But unlike in this case, there is no indication in 

Rosewell that the county government was unable to pay the full 

value (without interest) of the tax refund at the conclusion of 

the refund process in the courts. See, e.g., id. at 507 n.5. We 

do not read Rosewell as bearing on a situation where, as alleged 

here, the taxpayer is afforded adequate process in obtaining a 

tax-refund judgment but where local laws also largely insure that 

the judgment is worthless for all practical purposes. Indeed, in 

light of the annual $3 million cap on payments of judgments against 

the Commonwealth and the discretion it has to reduce even that 

amount, the priority given other debts over Wal-Mart PR's debt, 

and the notably large sum (far exceeding the $3 million cap for 

every year of tax liability) that Wal-Mart PR would be owed by the 

time a Puerto Rico court ruled on the matter and Wal-Mart PR 

prevailed,11 Wal-Mart PR's AMT payments, if unconstitutional, would 

 

11 We note that the Puerto Rico Supreme Court has not 

recognized the full applicability of the dormant Commerce Clause 

to Puerto Rico. See, e.g., Starlight Sugar, Inc. v. Soto, 253 

F.3d 137, 142–43 (1st Cir. 2001) (noting Puerto Rico Supreme 

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effectively be uncollectable. This would be so even after WalMart PR completed the tax-refund process and obtained a successful 

judgment. Given these realities, in our view, Puerto Rico law 

does not provide a plain, speedy, and efficient remedy to bar 

federal district court jurisdiction over this case.

Two Supreme Court cases and at least one circuit case

support our conclusion that a local government's inability to 

satisfy a tax-refund judgment, thus depriving a taxpayer of any 

"remedy," could make a local tax-refund process inadequate so as 

to support federal injunctive relief. In Matthews v. Rodgers, the 

Supreme Court stated that a local tax-refund action is an "adequate

legal remedy" that forecloses exercise of federal equitable 

jurisdiction unless there are "special circumstances showing 

inability of . . . the collecting officer to respond to the 

judgment." 284 U.S. 521, 528 (1932).

Also, in Stewart Dry Goods, the Supreme Court vacated 

the district court's dismissal of a tax challenge and remanded it 

to the district court for further factfinding on whether the local 

 

Court's comment: "This interstate commerce relation [between 

Puerto Rico and the United States] has constitutionally had, and 

still has, contours which are different from the relation which 

under the Constitution prevails among states of the Union."

(alteration in original) (quoting R.C.A. v. Gov't of the Capital, 

91 P.R.R. 404, 419 (P.R. 1964))). If Wal-Mart PR were to litigate 

this matter in the Puerto Rico system and the Puerto Rico Supreme 

Court refused to find that the transfer-based AMT violated the 

Commerce Clause, Wal-Mart PR's only remaining recourse would be 

potential review of that decision by the U.S. Supreme Court. 

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tax-refund procedure was inadequate because, at the time of the 

suit's commencement, there were already outstanding unpaid 

warrants totaling $9.8 million against Kentucky's general fund 

that "c[ould] not be collected . . . for lack of funds in the 

Treasury." 287 U.S. at 11. The district court on remand took 

jurisdiction upon finding Kentucky's tax-refund procedures 

inadequate, Stewart Dry Goods Co. v. Lewis, 7 F. Supp. 438, 440 

(W.D. Ky. 1933), and the Supreme Court accepted jurisdiction 

without question in a subsequent appeal on the merits question of 

the state tax's constitutionality, Stewart Dry Goods Co. v. Lewis, 

294 U.S. 550, 552 (1935).12

Finally, in Adams County v. Northern Pacific Railway 

Co., the Ninth Circuit cited Stewart Dry Goods in holding that a 

local tax-refund procedure was not plain, speedy, and efficient 

for the purpose of the TIA where "some of the defendant counties 

[we]re insolvent and . . . in consequence a judgment for plaintiff 

in such an action would, as to such counties, result only in the 

issuance of uncollectible warrants." 115 F.2d 768, 776 (9th Cir. 

1940). To recap, our holding does not turn on the delay in the 

process of using the Puerto Rico courts; their procedures have not 

 

12 While mindful of the Supreme Court's statement in 

Rosewell regarding the scope of the TIA's exception, see supra at 

17, we also heed its qualification that "prior federal equity 

cases" may still prove "instructive on whether a state remedy is 

'plain, speedy and efficient.'" 450 U.S. at 525 n.33.

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been shown to be inadequate. Nor do we rely on any concept of 

inefficiency. But by enacting the Fiscal Sustainability Act's $3 

million annual cap on judgments exceeding $20 million and adopting 

Treasury guidelines that prioritize other debts over tax refunds,

Puerto Rico has chosen to severely restrict the ability of its 

courts to provide adequate remedies to Wal-Mart PR.

The Secretary argued below and on appeal that Puerto 

Rico's ability to offer a refund is immaterial because Wal-Mart PR 

can, if successful in Puerto Rico court, have any past overpayment 

applied to its future tax obligations. Two credits are available. 

First, section 6021.02 of Puerto Rico's Internal Revenue Code

provides: "When a payment in excess of any taxes imposed by [the 

relevant title] has been made, the amount of such payment in excess 

shall be credited, by request of the taxpayer or on the initiative 

of the Secretary, . . . against any taxes imposed by this 

Code . . . , and any remainder shall be immediately refunded to 

the taxpayer." P.R. Laws Ann. tit. 13, § 33022(a)(1). The 

district court, however, found that this credit applies only to 

"payment in excess of any taxes imposed" and so is not available 

where a taxpayer pays an amount actually then due but is later 

entitled to a refund because the "taxes imposed" were illegal. 

The Secretary offers no contrary view on appeal and so has waived 

any argument that the first credit is an available remedy in WalMart PR's case.

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Second, the Secretary cites another section of Puerto 

Rico's Internal Revenue Code, which provides for a minimum tax 

credit. P.R. Laws Ann. tit. 13, § 30202. The language of the 

statute is circular, but the undisputed interpretation the 

district court adopted is that a taxpayer who has paid AMT in prior 

years (because its tentative minimum tax exceeded its ordinary tax 

liability in those years) may credit this AMT against its tax 

obligations in years in which its ordinary tax liability exceeds 

its tentative minimum tax. In any year in which this credit 

applies, however, the credit is capped at 25% of the amount by 

which the taxpayer's ordinary tax liability exceeds its tentative 

minimum tax in that year. The district court found that the Fiscal 

Sustainability Act's $3 million annual recovery cap applies to 

this credit, and neither party argues on appeal that this finding 

was error. The second credit thus suffers from precisely the same 

inadequacy as does the tax refund option: under either remedy, 

Wal-Mart PR will not be made whole for decades, if even then. 

We stress again that we do not hold that a mere delay in 

recovery renders a remedy inadequate. In normal course, one would 

not be surprised that it might take several years to litigate a 

refund claim and collect the judgment. The Supreme Court has held, 

for example, that a two-year delay with no interest does not render 

a state remedy inadequate. See Rosewell, 450 U.S. at 520–21. WalMart PR's case, therefore, might be very different if it faced a 

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$21 million overpayment that might take seven years to collect at 

$3 million per year. Where one draws the line, we need not say 

other than that twenty-three years is on the other side. 

3. PROMESA

We take judicial notice of the fact that, since the 

district court's March decision, Congress has passed PROMESA, 

which attempts to address Puerto Rico's fiscal crisis by 

establishing the Financial Oversight and Management Board ("the 

Board") and a process for Puerto Rico to restructure its debt.13

PROMESA § 101(a), (b)(1). The parties agree that PROMESA does not 

affect the jurisdictional analysis under the Butler Act. Neither 

party asserts that PROMESA's stay provision applies to this lawsuit 

or that the Board has the power to grant the relief that Wal-Mart 

PR seeks. We likewise agree, for the two reasons already noted.

First, PROMESA's stay provision does not apply to this 

case. Section 405 provides for an automatic "stay," effective on 

the date of the Act's enactment, of certain judicial actions "with 

respect to a Liability." Id. § 405(b). PROMESA's definition of 

"Liability," however, includes only "bond[s], loan[s], . . . or 

other financial indebtedness for borrowed money." Id. § 405(a)(1). 

The remedy that Wal-Mart PR seeks -- relief from payment of future 

 

13 We asked the parties for supplemental briefing on 

PROMESA's effect, if any, on the Puerto Rico federal district 

court's jurisdiction to hear this case.

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taxes -- does not constitute money that Puerto Rico has borrowed. 

It rather constitutes future potential tax revenue. Because this 

suit will not force Puerto Rico to pay any amount of money to WalMart PR, section 405's stay provision is inapposite.

Second, the Board cannot grant the relief that Wal-Mart 

PR seeks. Under section 201, the Board must approve a Fiscal Plan 

that "provide[s] a method to achieve fiscal responsibility and 

access to the capital markets." Id. § 201(b)(1). That Plan must, 

however, respect the Commonwealth's "relative lawful priorities" 

that were in effect prior to PROMESA's enactment. Id.

§ 201(b)(1)(N) ("A Fiscal Plan developed under this section 

shall . . . respect the relative lawful priorities or lawful liens, 

as may be applicable, in the constitution, other laws, or 

agreements . . . in effect prior to the date of enactment of this 

Act."). Accordingly, PROMESA appears to grant no power to the

Board to repeal or amend the Fiscal Sustainability Act, which 

continues to cap payments of court judgments at $3 million per 

year and continues to grant Puerto Rico discretion not to pay even 

that amount depending on the availability of funds that year. Nor 

does it appear to allow the Board to repeal or amend the Treasury 

guidelines, which "prioritize some government payment obligations 

over others" but make "no provision . . . to prioritize the payment 

of a court judgment ordering a tax refund." Wal-Mart P.R., Inc., 

2016 WL 1183091, at *30. If anything, a purpose of PROMESA is to 

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increase Puerto Rico's tax revenues.14 Ultimately, PROMESA does 

not change the almost certain likelihood that Wal-Mart PR will not 

recover its tax debt if it complies with the transfer-based AMT 

first and then seeks relief through the tax-refund process. And 

that near certainty of nonrecovery suffices to make the local 

remedy inadequate and justifies the exercise of federal district 

court jurisdiction to issue injunctive relief. See Rosewell, 450 

U.S. at 516–17 & n.21.

C. Comity

The Secretary argues that the principle of comity 

independently compelled the district court to abstain from

exercising jurisdiction. We review de novo. See Esso Standard 

Oil Co. v. Cotto, 389 F.3d 212, 217 (1st Cir. 2004) (citing Brooks

v. N.H. Sup. Ct., 80 F.3d 633, 637 (1st Cir. 1996)).

"The comity doctrine counsels lower federal courts to 

resist engagement in certain cases falling within their 

jurisdiction." Levin, 560 U.S. at 421. "Comity's constraint has 

particular force when lower federal courts are asked to pass on 

 

14 As Wal-Mart PR points out, the two PROMESA provisions 

directly addressing the Commonwealth's taxes both seek to increase 

tax revenue. Section 104(m) empowers the Board to "ensure the 

prompt and efficient payment and administration of taxes through 

the adoption of electronic reporting, payment and auditing 

technologies." PROMESA § 104(m). Likewise, section 208(b) 

requires the Governor to report to the Board "all existing 

discretionary tax abatement or similar tax relief agreements." 

Id. § 208(b).

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the constitutionality of state taxation of commercial activity." 

Id. Indeed, "the comity doctrine is more embracive than the TIA." 

Id. at 424; see also Coors Brewing Co. v. Méndez-Torres, 678 F.3d 

15, 22 (1st Cir. 2012) ("[E]ven if the TIA does not bar federal 

court jurisdiction in certain classes of state tax challenges, 

comity may require dismissal nonetheless."). Although we rely on

comity precedents that refer to states, our circuit has applied 

comity considerations to Puerto Rico in the same way as we do to 

states. See, e.g., Torres-Rivera v. García-Padilla, 783 F.3d 42, 

46 (1st Cir. 2015); Casiano-Montañez v. State Ins. Fund Corp., 707 

F.3d 124, 129–30 (1st Cir. 2013).

Comity is not an absolute bar to a federal district court 

passing judgment on the lawfulness of a local tax. The Supreme 

Court has repeatedly stated that comity bars federal district court 

jurisdiction only insofar as the local court system affords an 

adequate remedy. See, e.g., Levin, 560 U.S. at 421 (stating that 

comity limits federal jurisdiction "given that an adequate statecourt forum is available" to adjudicate the claims); Fair 

Assessment in Real Estate Ass'n, Inc., 454 U.S. at 116 (comity 

limits federal jurisdiction "provided of course that [state] 

remedies are plain, adequate, and complete"); Tully v. Griffin, 

Inc., 429 U.S. 68, 73 (1976) (comity limits federal jurisdiction 

"except in cases where an asserted federal right might otherwise 

be lost"). The Supreme Court has also suggested that adequacy of 

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the state system for comity purposes is the same standard as 

"plain, speedy and efficient" under the TIA (and, as a result, the 

Butler Act). Fair Assessment in Real Estate Ass'n, Inc., 454 U.S. 

at 116 n.8.

As such, the same analysis we applied to the Butler Act 

applies to the comity doctrine on these facts. When the Supreme 

Court stated in Levin that the restraint on federal jurisdiction 

under the comity doctrine is broader than that under the TIA, it 

was referring to a matter that is not at issue here: a case in 

which a federal court seeks not to enjoin a state tax but instead 

to increase a commercial competitor's tax burden. Levin, 560 U.S. 

at 417. Such a case does not trigger the TIA because the requested 

relief does not "disrupt the flow of tax revenue" to the state. 

Id. at 419. Nonetheless, the Supreme Court held that comity 

concerns restrained federal jurisdiction over such a case because 

of the limited "remedial competence" of the federal court relative 

to the state court. Id. at 428. The concern in such a situation 

is that upon the finding of an unlawful tax classification, 

increasing the tax burden on the competitor requires an 

interference with the state's tax code, an act that the state court 

is "better positioned" to conduct. Id. at 429. Our circuit 

applied Levin's reasoning to a similar situation in Coors Brewing 

Co., 678 F.3d at 24.

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The same is not true here because the requested relief 

is invalidation of the tax, and, because the Butler Act does not 

apply, that remedy is equally available in state and federal court. 

In other words, the federal district court has equal remedial 

competence as the Puerto Rico courts in this case. Accordingly, 

Levin and Coors Brewing Co. are inapposite, and the Secretary's 

reliance on those cases is misplaced. Even if the standards were 

different, we would reach the same conclusion about comity. The 

Puerto Rico legislature has chosen to limit the competence of its 

courts to effectuate relief. Comity does not bar this action.

Having cleared the threshold obstacles, we can proceed 

to the merits of this appeal.15

IV. The Dormant Commerce Clause

On the merits, the question is whether, as the district 

court held, the amended AMT violates the dormant Commerce Clause. 

The district court held a bench trial, so our review of its factual 

findings are for clear error, although we review legal 

 

15 As a final matter before we reach the merits, the 

Secretary also makes some challenges to the district court's 

management of the case. But those challenges are meritless. It 

was within the power of the district court to defer a decision on 

the Secretary's Rule 12(b)(1) motion until jurisdictional 

discovery could be conducted. Valentin, 254 F.3d at 363 n.3. To 

the extent that the Secretary contests the district court's denial 

of its requested discovery, we find no abuse of discretion, see

Braga v. Hodgson, 605 F.3d 58, 59 (1st Cir. 2010), in the district 

court's decision that the information the Secretary was seeking 

was irrelevant to the question before the court.

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determinations de novo. Wine & Spirits Retailers, Inc. v. Rhode 

Island, 481 F.3d 1, 4 (1st Cir. 2007).

The dormant Commerce Clause is an implied limitation 

from the Commerce Clause that "precludes States from 

'discriminat[ing] between transactions on the basis of some 

interstate element.'" Comptroller of Treasury of Md. v. Wynne, 

135 S. Ct. 1787, 1794 (2015) (alteration in original) (quoting 

Bos. Stock Exch. v. State Tax Comm'n, 429 U.S. 318, 332 n.12 

(1977)). As such, "a State 'may not tax a transaction or incident 

more heavily when it crosses state lines than when it occurs 

entirely within the State.'" Id. (quoting Armco Inc. v. Hardesty, 

467 U.S. 638, 642 (1984)). Although we rely on cases that refer 

to "states," we have held that the dormant Commerce Clause applies 

to Puerto Rico in the same way that it applies to states. Walgreen 

Co. v. Rullan, 405 F.3d 50, 55 (1st Cir. 2005); United Egg 

Producers v. Dep't of Agric., 77 F.3d 567, 569 (1st Cir. 1996).

In applying the dormant Commerce Clause, we first 

determine whether a law "discriminates on its face against 

interstate commerce." United Haulers Ass'n, Inc. v. OneidaHerkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 338 (2007). If we 

determine that the law is facially discriminatory, it is "virtually 

per se . . . invalid[]," id. (quoting City of Philadelphia v. New 

Jersey, 437 U.S. 617, 624 (1978)), and is permissible only upon "a 

showing that the State has no other means to advance a legitimate 

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local purpose," id. at 338–39 (citing Maine v. Taylor, 477 U.S. 

131, 138 (1986)).

It is indisputable that the amended AMT discriminates: 

it taxes only cross-border transactions between a Puerto Rico 

corporate taxpayer and a home office or related entity outside of 

Puerto Rico. The district court held that the amended AMT was 

facially discriminatory. We agree.

The Secretary's argument, as articulated at oral 

argument, appears to be that the AMT does not facially discriminate 

against interstate commerce because it does not apply to particular 

interjurisdictional transfers but is instead merely a component in 

calculating an annual tax formula. But even if we accept that 

argument, the practical effects of the AMT demonstrate that it is 

unconstitutionally discriminatory. Whether or not the AMT is one 

component in a broader tax scheme, the AMT nonetheless applies 

only to interjurisdictional transfers within a corporate family. 

The resulting "differential treatment of in-state and out-of-state 

economic interests that benefits the former and burdens the latter" 

is discriminatory. Family Winemakers of Cal. v. Jenkins, 592 F.3d 

1, 9 (1st Cir. 2010) (quoting Or. Waste Sys., Inc. v. Dep't of 

Envtl. Quality, 511 U.S. 93, 99 (1994)).

The "internal consistency" test developed by the Supreme 

Court confirms the AMT's discriminatory effect. This test "looks 

to the structure of the tax at issue to see whether its identical 

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application by every State in the Union would place interstate 

commerce at a disadvantage as compared with commerce intrastate." 

Wynne, 135 S. Ct. at 1802 (quoting Okla. Tax Comm'n v. Jefferson 

Lines, Inc., 514 U.S. 175, 185 (1995), superseded on other grounds 

by 49 U.S.C. § 14505). The AMT fails the internal consistency 

test because if every state were to adopt the AMT, multistate 

corporations doing business across state lines would be 

disadvantaged relative to corporations whose operations are 

consolidated in one state. In such a world, the AMT's tangibleproperty tax would preclude multistate corporations from enjoying 

the functional integration, centralization of management, and 

economies of scale associated with their interstate business 

model.16 See Wal-Mart P.R., Inc., 2016 WL 1183091, at *41 (citing

Princo Corp. v. Int'l Trade Comm'n, 616 F.3d 1318, 1335 (Fed. Cir. 

2010) (en banc)).

The Secretary's next argument is that even if the AMT is 

discriminatory on its face or in effect, it survives dormant 

Commerce Clause scrutiny because it is "a proxy for the tax that 

would be imposed upon profits that are shifted to related parties." 

 

16 Wal-Mart PR also relies on the "external consistency" 

test, under which we examine "the economic justification for the 

State's claim upon the value taxed, to discover whether a State's 

tax reaches beyond that portion of value that is fairly 

attributable to economic activity within the taxing State." 

Jefferson Lines, Inc., 514 U.S. at 185. We do not reach the 

question of whether the AMT is discriminatory under this test as 

well.

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The Secretary is correct that Puerto Rico has a legitimate interest 

in ensuring that multistate corporations are appropriately and 

proportionately taxed based on their activities within each 

jurisdiction in which they operate. Cf. Container Corp. of Am. v. 

Franchise Tax Bd., 463 U.S. 159, 164-65 (1983). While the 

Secretary admitted at the evidentiary hearing that there was no 

reason to believe that Wal-Mart PR had actually been engaging in 

abusive profit-shifting, the general problem of artificial profitshifting by multistate corporations is the object of a legitimate 

state interest.

However, if the AMT is to pass muster under the dormant 

Commerce Clause, the Secretary must also show that there is "no 

other means to advance [the] legitimate local purpose." United 

Haulers Ass'n, Inc., 550 U.S. at 338–39 (citing Taylor, 477 U.S. 

at 138); see also Or. Waste Sys., Inc., 511 U.S. at 101 ("cannot 

be adequately served by reasonable nondiscriminatory alternatives" 

(quoting New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 278 

(1988))); Hughes v. Oklahoma, 441 U.S. 322, 337 (1979) ("the 

strictest scrutiny of . . . the absence of nondiscriminatory 

alternatives"). This the Secretary cannot do.

The amended AMT is a blunt and unnecessarily 

overinclusive approach to combatting profit-shifting abuse. It

essentially establishes an irrebuttable presumption that all 

intercorporate transfers to a Puerto Rico branch from related 

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mainland entities are fraudulently priced to evade taxes. In fact, 

the Secretary all but admits that there are narrower alternatives

that target profit-shifting.17 One example is a unitary tax system 

that uses a formula to distribute multistate corporations' income, 

for tax purposes, to different jurisdictions. Another example is 

the already existing set of regulations "that authorize the Puerto 

Rico Treasury to conduct a traditional transfer-pricing audit of 

interstate transactions between related parties and to adjust 

specific transfer prices . . . to recapture [improperly shifted]

profits."18 Wal-Mart P.R., Inc., 2016 WL 1183091, at *43. Having 

identified numerous less restrictive alternatives to advance 

Puerto Rico's legitimate local purpose, we hold that the AMT is a 

 

17 In listing these possible alternatives, we do not decide 

that any of those particular alternatives are themselves 

sufficiently narrow to survive dormant Commerce Clause scrutiny. 

It suffices for our purposes to say that the availability of those 

less restrictive alternatives invalidates the AMT in its current 

form.

18 The Secretary asserts that those alternatives are 

administratively infeasible for Puerto Rico and that the AMT was 

the only practical way to combat abusive transfer pricing. But it 

would be a perverse outcome if the resource and administrative

limitations of the Puerto Rico Treasury required us to hold that 

the otherwise unconstitutional AMT passes constitutional muster. 

At a minimum, Puerto Rico could cease to apply the tangibleproperty tax to transfers of goods from a mainland Wal-Mart to 

Wal-Mart PR in which Wal-Mart PR pays nothing for the transaction 

and so could not possibly be engaging in improper profit-shifting. 

The existence of these various alternatives is sufficient to 

invalidate the AMT under the dormant Commerce Clause.

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facially discriminatory law that does not survive heightened 

scrutiny under the dormant Commerce Clause.

V. Conclusion

In light of the foregoing, we need not decide whether 

the AMT also violates the Federal Relations Act or the Equal 

Protection Clause.

We affirm.

Case: 16-1406 Document: 00117046848 Page: 40 Date Filed: 08/24/2016 Entry ID: 6027820