Wal-Mart Puerto Rico, Inc. v. Zaragoza-Gomez (174 F. Supp. 3d 585, 2016)

OPINION AND ORDER

JOSE ANTONIO FUSTE, UNITED STATES DISTRICT JUDGE

The Commonwealth of Puerto Rico (“the Commonwealth” or “Puerto Rico”) is insolvent and no longer able to pay its debts as they become due. The Treasury Single Account, which functions as the Commonwealth’s main operating account, will reach an almost $1 billion negative balance by the end of June 2016. The local Commissioner of Financial Institutions has found that the Government Development Bank of Puerto Rico is insolvent, too, which means that it may need to enter receivership. The Puerto Rico Treasury Department harbors significant doubt about the Commonwealth’s very ability to persist as a going concern. And, in response to this dire situation, Puerto Rico has enacted laws and regulations that effectively ensure that a large taxpayer, if forced to challenge a patently unconstitutional tax by first paying it and then suing for a refund worth several tens of millions of dollars, will not see the full refund for decades, if at all.

It gives us no pleasure, under these circumstances, to enjoin a revenue stream that flows directly into Puerto Rico’s general fisc. For we, too, are citizens of this island, and we, too, must suffer the consequences of the financial disarray on the horizon. But, we are in this position precisely because the Commonwealth’s insolvency has left the plaintiff, Wal-Mart Puerto Rico, Inc. (“Wal-Mart PR”), with nowhere else to turn. Now that we are here, we cannot shield ourselves from what we have learned, but .must rule on the issues presented and order the relief required by law. In doing this, we agree wholeheartedly with the. conclusion reached by one of the expert witnesses at the hearing we held: “[A]t the end of the day, the Commonwealth should not rely on revenue that it’s not entitled to, to try to pay for essential services.” (ECF No. 130 at 60.)

Wal-Mart PR is the largest private employer in the Commonwealth. Comprised of Walmart Supercenters, Walmart Discount Stores, Supermercados Amigo, Sam’s Clubs, and, until earlier this year, Super Ahorros, Wal-Mart PR currently operates forty-eight stores on the island, employing around 14,300 local residents. Each employee of a Wal-Mart PR store receives a minimum wage of at least $10 pér hour, $2.75 higher than the minimum wage set by law in Puerto Rico. Wal-Mart PR sells around $3 billion of merchandise each year and remits more sales tax to the Commonwealth than any other retailer. It buys around $1.6 billion of inventory from local vendors and suppliers each year. It also buys over $700 million of inventory from its parent company, Wal-Mart Stores, Inc., and related affiliates in the continental United States (jointly, “Wal-Mart Stores”). The Puerto Rico Treasury Department (“Treasury”) neither believes, nor suspects, that Wal-Mart PR uses these related-party purchases to shift income or profit off of the island to avoid payment of Puerto Rico income tax. In fact, Wal-Mart PR regularly pays around $20 million in income tax each year and is now paying more than $40 million.

Defendant Juan C. Zaragoza-Gómez (“Zaragoza”) is the Puerto Rico Secretary of the Treasury (“the Secretary”). Shortly after his appointment to Treasury in late 2014, he wrote a letter to Rafael Hernán-dez-Montañez (“Hernández”), Member of the Puerto Rico House of Representatives and President of its Treasury and Budget Commission, advising the Legislature to modify the Commonwealth’s minimum alternative corporate income tax (“the AMT”) to “minimize its impact.” (PI. Ex. 13 at 21.) In the letter, dated February 18, 2016, the Secretary acknowledged that the AMT’s “purpose” at the time was to recapture some of the income that certain “mul-ti-national chains doing business in Puerto Rico” were suspected of exporting off the island by purchasing goods and services from “related entities” at such a high price that these chains “report year after- year net operating losses in their subsidiaries or branches in Puerto Rico, even though their sales in Puerto Rico exceed the sales in other countries.” (PI. Ex. 13 at 22.) To make the AMT more accurately reflect the “fair portion of the taxes” that these chains were allegedly “evad[ing],” Zarago-za wrote that the Legislature needed to cut by 26% the 2% flat tax on interstate transfers of tangible property between related companies or different offices of the same company and to eliminate the 20% flat tax on expenses for interstate services between the same. (PI. Ex. 13 at 2, 23.)

The Legislature had other plans, however, because Puerto Rico needed to raise $125 million in new revenue quickly to close a budget gap. Treasury, under Secretary Zaragoza, who did not agree with the Legislature’s plan, was tasked with developing an- amendment to the AMT that would raise the necessary revenue, After crunching the numbers, Treasury proposed new graduated rates for the AMT’s tangible-property tax — -whose new top rate of 6.6%, a 326% increase, was designed to capture Wal-Mart PR, the biggest fish in the pond — and also the elimination of a provision that had allowed the Secretary to exempt a , tangible-property transfer from the tax upon proof that the transfer price was equal or similar to the price paid in an arm’s-length transaction between unrelated parties. These amendments to the AMT were briskly enacted into law — the entire process, from introduction of the bill to signing into law, took only twelve days — in May 2016 as part of Act 72 of 2016 (“Act 72”). i

Due to a pre-Act 72 statutory exemption, the tangible-property tax applies only to multistate corporations and their local affiliates when they engage in an interstate transaction with an out-of-state home office or related entity. Under the old 2% rate, the AMT did not cause Wal-Mart PR much concern. But, under the new 6.5% rate, the AMT now taxes and, for the foreseeable future, will tax Wal-Mart PR far more than it earns in net taxable income. After all, each piece of inventory that Wal-Mart PR receives from Wal-Mart Stores will now be taxed at 6.5%. The tax applies even if Wal-Mart PR is unable to sell the inventory or ends up selling it at a loss. Already, for the tax year that ended on January 15, 2016, Wal-Mart PR has paid more than $40 million in estimated income tax to Puerto Rico, around $80 million of which is attributable to the newly-museular AMT.

On December 4, 2015, Wal-Mart PR commenced this action by filing a complaint against Secretary Zaragoza, in his official capacity, seeking, under 42 U.S.C. § 1983, an injunction against continued enforcement of the AMT and a declaration that the AMT is unlawful under the dormant Commerce Clause, the Equal Protection Clause, and the Bill of Attainder Clauses of the United States Constitution, and also under the Federal Relations Act, 48 U.S.C. § 741a. (ECF No. 1.) Wal-Mart PR invokes our subject-matter jurisdiction pursuant to 28 U.S.C. §§ 1381 and 1343(a)(3). (ECF No. 1 ¶ 10.)

A major preliminary issue in this case is whether we even have jurisdiction to hear it. The Secretary insists that Wal-Mart PR must pay the tax and continue paying it, may pursue a refund of the tax before the Treasury Department, which the parties agree would be denied, and then may pursue its legal claims upon appealing the denial of its refund to local courts. That is true, so long as the tax-refund procedure will afford Wal-Mart PR a plain, speedy, and efficient remedy. It will, the Secretary contends, even if Wal-Mart PR will never see its money again because Puerto Rico is too broke to pay it back. All that matters, the Secretary argues, is that Wal-Mart PR will eventually receive judicial review of its legal challenges and a court judgment declaring whether the tax is unlawful and should not be paid. Consider that argument for a second. As we will see, and as the Secretary well knows, each financial quarter that the AMT remains in effect will result in the remittance of over $40 million in unconstitutional taxes (at least $10 million of which will be from Wal-Mart PR) to an insolvent government, without any hope that the victimized taxpayers will be reimbursed in the foreseeable future. That is the very definition of an inadequate remedy.

I.

Findings of Fact

From February 2 to 5, 2016, the court held an evidentiary hearing on whether we have subject-matter jurisdiction to hear the case and whether the AMT is valid under federal law. We expedited the hearing due to the urgency expressed by the parties and in keeping with Federal Rule of Civil Procedure 57. The transcript of the hearing is in the docket as ECF Numbers 126 through 131. Pursuant to Federal Rule of Civil Procedure 52(a)(1), these are our findings of fact:

A. The Financial Status of the Commonwealth

The Commonwealth of Puerto Rico is insolvent and unable to pay its debts as they become due. This, no one can doubt. Although the Secretary refused to stipulate to the Commonwealth’s insolvency (ECF No, 126 at 148), the ineluctable fact that Puerto Rico is, and will be, insolvent has permeated this entire litigation. It speaks volumes that the Secretary was unable to present any credible evidence to gainsay the overwhelming proof of insolvency produced at the hearing. Not a single witness even attempted to argue that the Commonwealth can still pay its debts. By the end of the hearing, the Secretary was reduced to arguing that federal law requires Puerto Rico taxpayers to challenge a local tax law by means of a tax-refund action “even if there is zero money to pay [them] back” at the end of the process. (ECF No. 131 at 117.).

The Commonwealth’s debt obligations are said exceed $70 billion, an amount so large that it surpasses the island’s gross national product, but the exact size of the debt is not publicly known because Puerto Rico has not released any audited financial statements since those for Fiscal Year 2013. (ECF Nos. 128 at 64-65, 130 at 15; PI. Ex. 24 at 4.) Although information about the magnitude of the public debt is closely held, it is no secret that Puerto Rico has already started to default on its debt. Secretary Zaragoza admits it. (ECF No. 129 at 99.) Melba Acosta-Febo (“Acosta-Febo”), President of the Government Development Bank and Zaragoza’s immediate predecessor as Treasury Secretary, admits it as well, specifying that the Commonwealth defaulted on its debt once last fall and again at the beginning of the year. (ECF No. 126 at 124-25.) United States Treasury Secretary Jacob J. Lew recently observed that Puerto Rico “is shifting funds from one creditor to pay another and has stopped payment altogether on several of its debts.” (PI. Ex. 17 at 1.) So far, the Commonwealth has defaulted on almost $100 million of debt. (ECF No. 130 at 34.) The court agrees with Martha Ko-pacz, plaintiffs expert witness “on the current and prospective financial condition of the Commonwealth of Puerto Rico, including its ability to pay obligations in the future,” that the mere fact that the Commonwealth did not make those debt payments is proof of its “illiquidity” and its inability to “pay its debt as it becomes due.” (ECF No. 130 at 10, 35.) That inability is what government insolvency is. (ECF No. 130 at 12.)

The record shows that, unless the Commonwealth can restructure its debt soon, its defaults will continue, growing ever more severe. Secretary Zaragoza declared that, as a matter of basic arithmetic, the Commonwealth will default later this year on its general-obligation bonds despite their guaranteed priority over all other government debts under Article VI, Section 8, of the Puerto Rico Constitution. (ECF No. 130 at 100.) This looming default will occur for certain because, despite all the “extreme cash preservation measures” that the government has undertaken in recent years, the Commonwealth will run out of cash completely by June 30, 2016. (ECF No. 130 at 104-05.)

The most conspicuous sigh' of Puerto Rico’s ongoing insolvency are the guidelines that the Puerto Rico Treasury'established on December 27, 2015, pursuant to Administrative Bulletin OE-2015-049, which’ the Governor of Puerto Rico had issued on December 8, 2015, (PI. Ex. 18.) The Bulletin mandates the promulgation of guidelines, prioritizing certain government-payment obligations over others, “to manage the cash flow and conduct the disbursements of the funds available for the fiscal year.” (PI. Ex. 18 at 6-7.) Under Treasury’s guidelines, there are seven levels of priority for the disbursement of funds: 1) public-debt payments guaranteed top priority under the Puerto Rico Constitution; 2) court judgments related to the expropriation of real property for which a budgetary appropriation has already been made; 3) provision of essential services for public health, safety, education, and public welfare; 4) payroll and pension expenses; 5) income belonging to external entities; 6) any expense already in the budget “necessary to guarantee the operation, continuity and stability of the central government of the Commonwealth”; and 7) responses to a natural disaster or other emergency situation. (PI. Ex. 76 at 2-3.)

It is uncontested that the first four and final two levels of payment priority do not give any priority to a court judgment ordering the Commonwealth to pay a tax refund. (ECF Nos. 126 at 158-161; 128 at 45-49.) It has been suggested that the fifth level of priority could be construed to cover such a judgment, but the most that has been said in favor of that position was that lawyers at the local Justice and Treasury Departments should “give ... an opinion” about whether that construction is correct. (ECF Nos. 126 at 161, 128 at 49.) The court finds that these Treasury guidelines do not bestow any priority to the payment of tax refunds, whether court ordered or not.

Under these guidelines, to receive any funds from Treasury, an “Agency Head or his authorized representative” must prioritize their requests, submit only those requests that are truly critical and essential, describe “the reasons for the urgency of the disbursements,” and certify, under penalty of perjury, that “the reason for the urgency established is personally known” to the requester and that “the disbursements requested are necessary to guarantee the operation, continuity and stability of the Agency.” (PI. Exs. 76 at 5-6; 106.) It is difficult to see how an agency head could certify that paying a tax-refund judgment satisfies the above criteria. In any event, the court agrees with Kopacz, the insolvency expert, that executive actions like these establish that the Commonwealth “is insolvent, because if you had enough money to pay your debts as they became due, you wouldn’t have to sit down and really think about what [you are] going to pay, [and] what [you are] not going to pay.” (ECF No. 130 at 37-38.) Treasury confirms that, due to its “extremely limited” liquidity, “the Commonwealth has not been able to meet all its obligations [i]n a timely manner, and has been prioritizing payments relating to essential government services and payroll.”- (PI. Ex. 9 at 4.) 1

According to Puerto Rico Assistant Secretary of the Treasury Yaimé Rullán, who oversees the evaluation of disbursement requests under the new guidelines, Trea-suiy does not have enough cash on hand to grant each request. (ECF No. 128 at 39-40, 47.) Even urgent requests that agency heads swear, under penalty of perjury, are necessary to the operation, continuity, and stability of the Commonwealth are routinely denied. When a disbursement request is granted, the check is sometimes placed in a vault at Treasury and kept there for months, instead of being delivered to the payee. (ECF No. 128 at 42.) By warehousing government checks in this manner, Treasury is able to claim payment of those obligations without negatively affecting— i.e., without having any funds deducted from — its accounts. (ECF No. 128 at 44.) These facts not only prove the insolvency of the Commonwealth, but the unusual measures it is taking to sustain its liquidity artificially.

When Assistant Secretary Rullán approves a disbursement request, the funds are withdrawn from the Treasury Single Account (“the Account”), which serves as the general fisc and principal operating account for Puerto Rico. (ECF Nos. 126 at 137-38; 128 at 35,40; 129 at 22; 130 at 104.) When a taxpayer pays its taxes, the funds go directly into the Account and are not segregated into another account, even when paid under protest. (ECF No. 130 at 105.) According to Iliana Molina, the Treasury official who supervises the reconciliation of the Account’s book and bank balances, the Account is used for government obligations of all kinds, including payment of the government’s debt, payroll, pensions, contracts, and every refund owed to a Puerto Rico taxpayer. (ECF No. 128 at 25-26.)

When Secretary Zaragoza testified that the Commonwealth is going to run out of money in June 2016, his statement was based on the Account’s future bank balance. (See ECF No. 130 at 100-05.) On December 31,2015, the Account had a final bank balance of only $66 million, significantly below its highest 2015 balance of $195 million, reached in January, and slightly below its average 2015 balance of $67.7 million. (ECF No. 128 at 27, 31; PI. Ex. 15 at 8.) The Account’s lowest 2015 bank balance was a mere $13 million at the end of . June. (ECF No. 128 at 30.) We agree with Conway MacKenzie, the consultancy hired by the Government Development Bank to perform a liquidity analysis of the Puerto Rico government, that the Account’s balances are “very low,’’ especially for “the primary concentration account of the Treasury,” which routinely “exceeds $18.0 billion of inflows and outflows” each year. (PL. Ex. 38 at 2, 6.) In light of the notoriously unpredictable nature, in terms of timing and fluctuation, of the' inflows and outflows of a large government, these bank balances are vanishingly thin. (See PI. Ex. 15 at 4.)

The Account’s positive balances of only tens of millions of dollars are not only miniscule, but illusory. At the end of December 2015, the book balance of the Account, which is more accurate than its bank balance because it takes into consideration the negative float of checks in transit that have not yet been cashed, was negative $263 million — a staggering difference of $329 million. (ECF No. 130 at 105; see also PI. Ex. 15 at 8, 9 n.l.) Puerto Rico was able to claim that the Account had a fictitious year-end balance of $66 million not only by ignoring checks in transit, but by undertaking a series of “extraordinary and unsustainable liquidity measures,” which preserve the appearance of liquidity for a short while. (PI. Ex. 15 at 8-9.) Without those measures, the bank balance of the Account at the end of 2015 would have been negative $1,478 billion. (PI. Ex. 15 at 9.) In other words, if the Commonwealth had not undertaken those extraordinary liquidity measures, the Puerto Rico government would have shut down completely by now.

In a January 18, 2016, report, the Working Group for the Fiscal and Economic Recovery of Puerto Rico (“Working Group”), which the Governor of Puerto Rico formed by executive order in 2015, documented just what these unsustainable liquidity measures are. (ECF No. 130 at 19-21.) For starters, the government has been cannibalizing itself at an astonishing rate. Puerto Rico recently borrowed $400 million from its proprietary (and, thus, captive) state insurance companies and workers compensation funds, with repayment dates rapidly approaching in May and June 2016. (PI. Exs. 15 at 7, 38 at 14.) The government has withheld $309 million in appropriations from public entities like the University of Puerto Rico and the Highway and Transportation Authority. (PI. Ex. 15 at 7-8.) Puerto Rico “clawed back” around $163 million from the accounts of its agencies, but then immediately spent it on a January 2016 public-debt obligation. Moreover, as Antonio Weiss, Counselor to Secretary Lew, noted in recent testimony before Congress, although “the Commonwealth has a $46 billion pension liability funded by only $2 billion in net assets, the lowest level of any major pension system in the country,” these “assets, already severely depleted, are being sold to fund government operations.” Testimony of Counselor Weiss, House Committee on Natural Resources on the Fiscal Crisis in Puerto Rico (Feb. 25, 2016), https://www.treasury.gov/press-center/ press-releases/Pages/jl0364.aspx. (See PI. Ex. 15 at 7.) It is evident that the government has been running out of new public resources to consume.

The depth of the Commonwealth’s insolvency can perhaps be measured by the shortsightedness of some of its liquidity measures. Due to the connection between the Commonwealth’s timely'payment of its general-obligation bond debt, which is backed by the full faith and credit of the government, and its future access to bond markets, it would seem natural to protect, as long as possible, Puerto Rico’s ability to pay that debt. We have already passed that point. The Commonwealth used to set aside $93.1 million each month into a segregated account, so that there would be sufficient money to cover its semiannual payments of matured general-obligation bonds. Puerto Rico then enacted a law to halt those set-asides, freeing up the $93.1 million per month to use on other bills and obligations in the short term, while setting itself up for failure in the long term because the Commonwealth still needs to make its general-obligation debt payments. (ECF Nos. 126 at 135-37; 130 at 17-18; PI. Exs. 15 at 7, 38 at 14.) Because it is no longer saving up enough money, Puerto Rico is now projected to default on its June 2016 general-obligation bond payment of $700 million. (ECF No. 130 at 18.) That would mark the first step of a disorderly default.

The government has also extended its liquidity by declining to pay approximately $330 million in taxpayer refunds. (PI. Ex. 15 at 7.) In particular, the Commonwealth has focused on withholding tax refunds to corporations. Whereas, at the time of the hearing, the Puerto Rico Treasury had refunded 45.1 percent of the money owed to individual taxpayers from the 2014 tax year, Treasury had not yet issued a single refund to a corporation from that year. (PI. Exs. 4, 5.) Similarly, the government has been stretching its accounts payable to vendors and suppliers by delaying payment to them by, on average, more than a quarter of a year, resulting in a conservative estimate of more than $1.8 billion in outstanding liabilities at the end of last year. (PI. Ex. 15 at 7 & n.5.) The Working Group has cautioned that these liquidity measures “have significantly increased the economic burden on taxpayers and third-party suppliers” and that “continued stretching of payables will further jeopardize the delivery of essential seiwiees [to the Puerto Rico government].” (PI. Ex. 15 at 9.)

These drastic liquidity measures, like check kiting, are onerous and unsustainable. They are also no longer effective. Absent a miracle, the bank balance of the Treasury Single Account will plummet to negative $923 million in June 2016. (PI. Ex. 15 at 9.) Secretary Zaragoza agrees that Puerto Rico will run out of cash before the end of June. (EOF No. 130 at 105.) Zara-goza also confirmed that Treasury’s projections about Puerto Rico’s fiscal health had to be downgraded in late 2015 to reflect that the Account will finish June 2016 with a negative balance of almost $1 billion. (EOF No. 130 at 101-02.) As Counselor Weiss observed in his recent congressional testimony, the entire Puerto Rico government could be forced to shut down at that time.

Puerto Rico’s $1 billion deficit this year will occur despite an austerity budget of only $9.8 billion in appropriations and a constitutional provision that requires that “[t]he appropriations made for any fiscal year shall not exceed the total revenues, including available surplus, estimated for said fiscal year.” P.R. Const., Art. VI, § 7; see ECF No. 130 at 123. Over the next ten years, the size of this annual deficit is going to increase dramatically. The root of the problem, as President Acosta-Febo has stated, is the difficulty, if not impossibility, of raising sufficient revenue from a contracting economy and a shrinking population — at a rate of thousands of people emigrating each week — that is increasingly old, jobless, and poor. (PI. Ex. 24 at 2-5.) Without a first-world populace to pay for it, the provision of first-world services and amenities becomes ever more infeasible.

In light of these economic and demographic changes, the Working Group projects that the Commonwealth’s cumulative financing gap will increase to $16.1 billion over the next five years and to $23.9 billion over the next ten. (PI. Ex. 15 at 4.) That projection is highly conservative, however, because it assumes that the Commonwealth will succeed in enacting a series of effective revenue-enhancing measures and that, by Fiscal Year 2022, Puerto Rico’s gross national product will reach “the long-term growth rate of the United States” economy, even though Puerto Rico’s “growth has been below that of the United States since 2001.” (PI. Ex. 15 at 6.) Another analysis of the Commonwealth’s budgetary outlook, spearheaded by former World Bank Chief Economist Anne Krueger, estimates that, without those optimistic assumptions, the Commonwealth will incur a cumulative financing gap of $27.9 billion over the next five years and of $64.4 billion over the next ten. (PI. Ex. 22 at 15.) The Working Group’s own analysis largely agrees. (PI. Ex. 15 at 6.) The Puerto Rico Treasury, itself, projects that “annual deficits could range from $3.7 billion in fiscal year 2016 to $8.2 billion in fiscal year 2025.” (PI. Ex. 9 at 9.) The court credits these projections and finds that the Commonwealth’s structural budget deficits are projected to worsen exponentially in the near future.

These structural budget deficits are crippling. Even if the Commonwealth were to win a respite from its public-debt payments, these exploding deficits, combined with the government’s lack of surplus, will keep the Commonwealth insolvent for years to come. Puerto Rico has traditionally responded to its structural budget deficits by borrowing money on the municipal bond market. Even though Puerto Rico’s economy did not begin to contract until 2006, its public debt has risen every year since 2000, more than doubling in size and leaving today’s residents-with a debt larger than our gross national product. (PL Ex. 22 at 4, 9.) Thus, for years, the Commonwealth took out new debt to pay its old debt. (PI. Ex, 9 at 1.) In fact, Puerto Rico’s “expenses/expenditures [have] significantly exceeded] its revenues in the nine year period [that] ended [on] June 30, 2014.” (PI. Ex. 9 at 6.) Those gravy days of debt financing are n ow over. As Secretary L'ew recently observed, “Puerto Rico has been shut out of the municipal bond market for more than two years and ran out of the funding soúrces traditionally used to finance government operations more than six months ago.” (PI. Ex. 17 at 1.)

March 2014 was the last time that Puer-to Rico was able to borrow a substantial sum of money on the bond market. The credit-rating agencies had just downgraded the Commonwealth’s municipal bonds to junk status. As a result, Puerto Rico’s issuance that month of $3.5 billion in general-obligation bonds earned the dubious distinction of being the largest municipal junk-bond offering in United States history. (ECF No. 130 at 31.) At the time, the bonds were priced to yield an 8.75% return on a tax-exempt basis, which was, Kopacz noted, “a really, really high interest rate when the rest of the market [was] down at one [or] two percent.” (ECF No. 130 at 31.) Since then, the value of the bonds has only dropped, and they are now trading at a yield of 11.75%. (ECF No. 130 at 32.) It would be economic suicide for the government to capitalize itself at such unfavorable rates.

When other sources of funding have run dry, the Commonwealth can usually turn to the Government Development Bank (“the Bank”). for assistance. Under its charter, one of the main “purposes” of the Bank is-“[t]o lend money, with or without security, to the Commonwealth government or to any agency ... or political subdivision of Puerto Rico.” 7 L.P.R.A. § 552(3)(C); but see 7 L.P.R.A. § 607g (limiting the Bank’s power to .loan money to the government). According to the Puerto Rico Treasury, the Bank “has historically served as the principal source of short-term liquidity for the Commonwealth and its instrumentalities.” (PI. Ex. 9 at 21.) The Bank is also the Commonwealth’s fiscal agent and financial advisor. (ECF No. 126 at 149.) The Bank recently extended the Commonwealth a $300 million line of credit to help enhance'its liquidity. (PI. Exs. 15 at 9 n.l; 38 at 14.) The Bank is now mired in a liquidity crisis of its own, however, further imperiling Puerto Rico’s financial prospects because the Bank “serves as the principal depository of the funds of the Commonwealth and its instru-mentalities.” (PI. Ex. 9 at 21.)

Like so many aspects of the Commonwealth’s finances, the Bank’s financial data is shrouded in secrecy. Although Puerto Rico law requires the Bank to submit itself to regular “examination and supervision by the Commissioner” of Financial Institutions of the Commonwealth of Puerto Rico (“the Commissioner”), see 7 L.P.R.A. § 558, the Bank has resisted examination' since at least 2013. In fact, the Commissioner’s last comprehensive exam of the Bank occurred in 2007. (PI. Ex. 25 at 1.) When, in 2015, the Commissioner approached the Bank about conducting a liquidity review, the Bank dragged its feet and took more than six months to disclose “the minimum necessary information to produce” the review. (PI. Ex. 25 at 1.) The Commissioner later described the “flow of information” from the Bank as, “extremely slow and inadequate.” (PL Ex. 32 at 3.) The Commissioner, was still able to evaluate the Bank’s internal financials, however, focusing “particular attention on the adequacy and sustainability of [its] liquidity levels.” (PI. Ex. 25 at 1.) What the Commissioner discovered may explain why the Bank was so slow to cooperate.

Based on the Bank’s internal information, the Commissioner found that the Bank’s “[liquidity levels are critically deficient in relation to [its] weakened financial conditions caused by an elevated debt exposure and obstructed access to capital markets,” rendering “[t]he continued viability of [the Bank] questionable.” (PI. Ex. 25 at 3.) The Bank’s “risk tolerance limits” are “too liberal in light of [its] liquidity risk profile” and “do not provide any cushion for unexpected liquidity events or contingent liabilities that require additional disbursements of cash.” (PI. Ex. 25 at 6.) The Bank does not properly account for “off-balance sheet items,” like its “$1 billion [in] unfunded loan commitments” and “$1.3 billion [in] standby letters of credit.” (PI. Ex. 25 at 7.) The Commissioner also found that the Bank is currently experiencing a “liquidity shortfall” that will culminate in a shortfall of negative $1,348 billion in June 2016, which, in turn, will deprive the Bank of its ability “to maintain legal reserve levels.” This shortfall is due, in part, to the fact that the Bank’s “[projected inflows from the Puerto Rico Treasury Department are significantly overstated.” (PI. Ex. 25 at 3.) In conclusion, the Commissioner found that the Bank “is insolvent.” (PI. Ex. 33 at 2.)

Under Section 11 of Act 17 of September 23,1948, Secretary Zaragoza can, if he were to credit the Commissioner’s insolvency finding, petition the .Court of First Instance to suspend the Bank’s operations and appoint a receiver. Although the Secretary and President Acosta-Febo have criticized some of the information underlying the Commissioner’s finding, the Secretary is obviously concerned about the Bank’s continuing viability. (PI. Exs. 32, 33.) The Puerto Rico Treasury recently and independently concluded that the Bank’s “financial condition has materially deteriorated and it could become unable to honor all its obligations as they become due.” (PI. Ex. 9 at 20.) Treasury has learned that the Bank “currently projects ... that it will be unable to comply with its legal reserve requirement by late in the second quarter of fiscal year 2016 and that liquidity levels during such period may be insufficient to operate' in the ordinary course as a depositary institution as well as to honor its depositary and financial obligations in full.” (PI. Ex. 9 at 21.) Treasury has not only determined that the Bank “will not be able to continue to provide [liquidity] assistance in the near future,” but it fears that if the Bank “were to be placed in receivership or if its liquidity falls below a level necessary to operate in the ordinary course, the Commonwealth and its instrumentalities may have limited access to their funds deposited at [the Bank], which could in turn affect the provision of essential government services.” (PI. Ex. 9 at 21.)

As of July 1, 2015, the Commonwealth had ninety-six accounts at the Bank, including those accounts, exclusively funded by the Treasury Single Account, that are dedicated to paying government payrolls, tax refunds, public pensions, and public schools, among other things. (PI. Ex. 2 at 21.) If the Bank were to enter receivership and the government were to lose access to those accounts, the result would be catastrophic for the operation, continuity and stability of the Commonwealth. (See PL Ex. 9 at 21.)

As things stand today, the 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 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. For these reasons, the Puerto Rico Treasury recently reached a shocking conclusion: that “significant doubt” exists about “the Commonwealth’s ability to continue as a going concern.” (PL Ex. 9 at 37.) At the hearing, Secretary Zaragoza agreed with that dire assessment. (ECF No. 130 at 113.) Based on everything this court has seen, we agree with it as well.

Five months ago, President Acosta-Febo of the Government Development Bank testified before the Finance Committee of the United States Senate about the financial situation that the Commonwealth is facing, and her words, though stark, rang true:

The fiscal, economic, and liquidity crisis in Puerto Rico has passed the tipping point. The Legislative Assembly has declared a state of emergency, Puerto Rico has lost access to the capital markets on sustainable terms, and Puerto Rico faces an economic and liquidity crisis beyond what any jurisdiction in the United States has faced in generations.

(ECF No. 24 at 2.) When asked at the hearing, Acosta-Febo admitted that, over the past several months, Puerto Rico’s crisis has only gotten worse. (ECF No. 126 at 128-29.) Kopacz, the insolvency expert, agreed completely, declaring that “the situation down here is unprecedented.” (ECF No. 130 at 14.) Her expert opinion carries great weight with this court based not only upon the clear intelligence and competence she displayed during her testimony, but upon the knowledge and experience she gained as the District Court’s expert witness for feasibility in the bankruptcy case of the City of Detroit. See In re City of Detroit, 524 B.R. 147 (Bankr.E.D.Mich.2014). The court shares these views.

As the Commonwealth buckles, like the hull of a sinking ship, under the stress of its financial mismanagement and rapidly nears the day when it may have to shutter its doors, it is, as always, the people of this island who shall pay for these misfortunes most dearly. As a citizen of this community, we have seen with our own eyes the sad reality recently expressed by Secretary Lew: “The worsening fiscal and economic situation means real suffering for the people of Puerto Rico [as] basic healthcare, legal, and education services have been impaired.” (Pl. Ex. 17 at 2.) We have reviewed, at length, the insolvency of the Commonwealth because, as will be seen, it pertains directly to our jurisdiction to hear this case. But, let no one forget, that what started as a financial crisis has since metastasized into a deep humanitarian crisis requiring immediate action.

B. The Structure and Purpose of the Commonwealth’s Corporate AMT

The Commonwealth first enacted a corporate alternative minimum income tax in 1987. (ECF No. 130 at 194.) In his brief, the Secretary stated that the purpose' of the AMT is “to ensure that every corporation doing business in Puerto Rico that generates, or can reasonably be considered to generate, a substantial economic profit contributes to the Puerto Rico fisc.” (ECF No. 116 at 1.) Initially, the AMT mirrored the provisions of the alternative-minimum tax enacted in the United States in 1986. (ECF No. 130 at 194.) Since then, the Legislature has rewritten the AMT “to adjust [it] to the different needs of the Puerto Rico Treasury Department.” (ECF No. 130 at 194.) According to Assistant Secretary of the Treasury Víctor Pizarro, a former Chief Tax Advisor to the Puerto Rico Senate and Professor of Tax at the Interamerican University of Puerto Rico, the AMT, over the past decade, has been converted by amendment into “an eas[y] way [to] try to attend [to] profit shifting and the potential [of] profit shifting.” (ECF No. 130 at 196.) As a result, the AMT evolved into a levy that looked less and less like an income tax, and more and more like a transfer-pricing tax directed against multistate corporations.

Profit shifting, like it sounds, occurs when a taxpayer shifts its profits from one jurisdiction to another to “[s]e-cure a lower tax rate.” (ECF No. 131 at 84.) As is relevant here, it can occur whenever a local taxpayer transacts with a home office or related party in another jurisdiction. Puerto Rico law does not define what a “home office” is, but it appears to be the headquarters or nerve center of the “branch engaged in trade or business in Puerto Rico.” See 13 L.P.R.A. § 30073(b)(2)(B). Puerto Rico law defines what a “related party” is, however. An entity and a corporate taxpayer are related when (1) they are both members of thé same controlled group of corporations, (2) one of them owns, directly- or indirectly, 50 percent or more of the value of the other’s stock, or (3) a single person owns, directly or indirectly, 50 percent or more of the value of each of their stocks. See 13 L.P.R.A. § 30045(b). In other words, only when one corporation effectively owns or controls the other, or when both corporations are effectively owned or controlled by a third party, are they considered related parties. As Professor Stanley Langbein of the University of Miami School of Law, defendant’s expert witness on international taxation and transfer pricing, explained, when parties are related, they are able to work together to minimize their joint tax burden, by shifting profits from one party to the other, because “they are not competitors,” but “part of one unit in terms of the economics of any transaction.” (ECF No. 131 at 32.)

For Puerto Rico, or any other taxing authority, the concern is that a corporate taxpayer will “artificially deflat[e] its profits that are subject to [local] income tax by inflating the profits of its foreign subsidiaries [and affiliates], which are not subject to [local] income tax.” See BMC Software, Inc. v. Comm’r of Internal Revenue, 780 F.3d 669, 671-72 (5th Cir.2015). When a taxpayer purchases goods or services from a related party, the setting of the price for those goods or services is known as “transfer pricing.” Id. at 672. “Although the two parties are related, the ‘transfer price’ should match that of an arm’s length transaction.” Id. The arm's-length price for a transaction is the negotiated price that two similarly-situated unrelated parties would set for the sale of the good if it occurred between them. (PI. Ex. 102 ¶ 11.) “Otherwise, by inflating or deflating transfer prices, a [local] taxpaying corporation could artificially increase the profits of its foreign subsidiaries [or affiliates] that are located in tax havens and, at the same time, artificially decrease its income subject to [the local, higher] income tax.” BMC Software, 780 F.3d at 672.

Consider a hypothetical. Suppose a Gotham City company buys widgets from a third-party supplier at $60 per unit. The Gotham City company then sells those widgets to its Puerto Rico subsidiary at $70 per unit — the “transfer price.” The subsidiary then sells the widgets to its customers at $100 per unit. In this example, the Gotham City company makes $10 of profit per unit, while the Puerto Rico subsidiary makes $30 of profit per unit, for a total profit of $40. Now, suppose that Gotham City is a tax haven that taxes corporate income at only 10%, while Puer-to Rico taxes it at 40%. The Gotham City company will pay $1 in income tax per unit sold, while the Puerto Rico subsidiary will pay $12 in income tax per unit sold, for a combined income-tax burden of $13.

Because the Gotham City and the Puer-to Rico corporations are related (and, thus, effectively under the same control), they can, in theory, negotiate a mutually-beneficial agreement whereby the transfer price is raised to, say, $90 per unit, in which case the Gotham City company will make $30 of profit per unit, while the Puerto Rico subsidiary will make only $10 of profit per unit, for, again, a total profit of $40 — only now, $20 of profit has been shifted from Puerto Rico to Gotham City. Under this new transfer price, the Gotham City company will pay $3 in income tax per unit sold, while the Puerto Rico subsidiary will pay $4 in income tax per. unit sold, for a combined income-tax burden of $7, a more than 45% reduction. If they wanted, the related parties could set the transfer price so high that all profits are shifted to Gotham City, thereby allowing the Puerto Rico subsidiary to claim a loss on the widgets and depriving the Puerto Rico Treasury of any widget-related income-tax revenue. (See PI. Ex. 105 at 6-7.)

The problem of corporate profit-shifting by means of abusive transfer-pricing is of legitimate concern to the Commonwealth. According to the Puerto Rico Treasury, “[t]he Commonwealth is dependent on a small number of corporate taxpayers to generate a significant amount of the Commonwealth’s tax revenues.” (PI. Ex. 9 at 21.) Secretary Zaragoza reports that while 72 percent of the Commonwealth’s tax revenues are derived from income taxes, only 10 percent of taxpayers generate 78 percent of those taxes. (PI. Ex. 13 at 2-3.) Meanwhile, each' year, 37 percent of corporations report losses and, thus, no taxable income. (PI. Ex. 13 at 3.) Treasury keeps a list of multistate chains doing business in Puerto Rico that somehow remain open despite reporting “recurrent losses” on their tax returns. (ECF No. 130 at 73-74.) These chain stores have piqued Treasury’s interest because it does not make economic sense that a company could or would remain in business here, if it is actually unable to make a net positive income. (ECF No. 130 at 74.)

Since 2000, the Commonwealth has had a series of regulations on its books that directly and narrowly addresses the issue of profit-shifting. These regulations allow the Secretary of the Treasury to adjust the net taxable income of a corporate taxpayer by targeting specific transactions between the taxpayer and a related party and determining whether the transfer prices for those transactions were substantially similar to the arm’s-length prices that would have obtained between unrelated parties. {See PI. Ex. 63.) If the Secretary finds that a taxpayer has shifted some of its profits to a related party outside of the island, the Secretary may adjust the taxpayer’s net taxable income upwards, so that it will “truly reflect” the taxpayer’s legitimate earnings. (PI. Ex. 63 at 1.) These regulations are not currently being used and have not been used in a while. (ECF No. 130 at 89-90.) The record indicates that the regulations may have fallen into disuse because they require more technical skill than the Puerto Rico Treasury can efficiently deploy. (See ECF No. 130 at 228-29.)

So, to combat the problem of profit shifting through transfer pricing, Puerto Rico added new -provisions to the AMT. (ECF Nos. 116 at 1 n.2; 130 at 196.) In 2009, the Legislature, imposed a tax on expenses for services rendered between related parties in order to “capture the typical management fees that corporations have between related parties.” (ECF No. 130 at 194-195,197.) In 2011, a new section was added to tax the gross value of tangible property transferred or sold between related parties. (ECF No. 130 at 195.) And, in 2013, the AMT was amended again — closing a “loophole” — to tax transfers of property sent from a home office “that operates in other jurisdictions” to “a branch of the same corporation ... operating in Puerto Rico.” (ECF No. 130 at 195.)

In a letter to Representative Hernández, dated February 18, 2015, Secretary Zara-goza acknowledged that these new AMT taxes were designed to combat transfer-pricing policies that allow “multinational chains doing business in Puerto Rico” -to shift their profits to their out-of-state affiliates or home offices, and to thereby “report year after year net operating losses in their subsidiaries or branches in Puerto Rico, even though their sales in Puerto Rico exceed the[ir] sales in other countries.” (PI. Ex. 13 at 22.) By taxing these transactions, Zaragoza wrote, the Commonwealth ensures “that these multinationals contribute to the governmental [tax] collections.” (PI. Ex. 13 at 22.)

By 2015, the AMT had come.to resemble the law that exists today. The AMT imposed “a tax equal to the excess (if any) of: The tentative minimum tax for the taxable year, over the regular tax for the taxable year.” 13 L.P.R.A. § 30073(a). Only the excess constituted the AMT, which had to be paid in addition to the regular tax. The AMT provided two measures of “tentative minimum tax,” and the measure yielding the largest amount was the corporation’s tentative minimum tax for the year. 13 L.P.R.A. § 30073(b). The first measure, which is codified at 13 L.P.R.A. § 30073(b)(1), operated by adjusting, then taxing, the income earned by the corporation. (ECF No. 130 at 200-01.) The second measure, which is codified at 13 L.P.R.A. § 30073(b)(2), taxed the gross value of goods and services sold or otherwise provided to the corporate taxpayer by a related party or home office located outside of Puerto Rico.

The second measure was comprised of two components: an expenses component, added to a tangible-property component. The expenses component imposed a 20% tax on services provided to the taxpayer by a related party or home office outside Puerto Rico. 13 L.P.R.A. § 30073(b)(2)(A); ECF Nos. 126 at 44, 47-48; 130 at 200. Meanwhile, the tangible-property component imposed a 2% tax on the gross value of goods sold or transferred to the taxpayer by a related party or home office outside Puerto Rico. 13 L.P.R.A. § 30073(b)(2)(B). The value of the goods was determined by the invoice price, if an invoice existed, or, if one did not, by “the fair market value of such property.” 13 L.P.R.A. § 30073(c)(5). It is this measure of the AMT that Wal-Mart PR is challenging.

The AMT statute included three important exemptions from the tangible-property component of the second measure of tentative minimum tax (“the tangible-property tax”). First, if the taxpayer had grossed less than $10 million from its business in Puerto Rico in any of the three preceding tax years, the tax did not apply. 13 L.P.R.A. § 30073(d)(1). Second, if the Secretary found that the transfer price charged to the taxpayer by the related party or home office was “equal or substantially similar to the [price] for which such related party sells such property to an unrelated party,” then the Secretary could tax the transaction at a lower rate. 13 L.P.R.A. § 30073(d)(4). Finally, if the seller or transfer or was “subject to income tax in Puerto Rico [on] such transaction,” the transaction was exempt from the tax. 13 L.P.R.A. § 30073(d)(6).

This last exemption effectively limited the tangible-property tax to transactions involving interstate commerce. Again, the tax applies only to transactions with a “related party” or “home office.” 13 L.P.R.A. § 30073(b)(2). The home office must be “located outside of Puerto Rico.” 13 L.P.R.A. § 30073(b)(2)(A)(ii), (b)(2)(B). And, under this exemption, the related party or home office must not be “subject to income tax in Puerto Rico [on] such transaction,” 13 L.P.R.A. § 30073(d)(6), which is another way of stating that the related party or home office must be located outside of Puerto Rico.

In his brief, the Secretary is absolutely clear on this point. The tangible-property tax “applie[s] only to situations in which it [i]s needed,” he writes, which is where there is a “risk of ... ‘leakage’ of income outside of the Commonwealth’s taxing jurisdiction.” (ECF No. 116 át 11-12.) In a footnote, the Secretary is even more precise, declaring that the tangible-property tax applies only to “arrangements between Puerto Rico taxpayers and their cross-border affiliates.” (ECF No. 116 at 12 n.l8.) The Secretary reaffirmed this position at the hearing, when he conceded that the tax treats “some goods sold from outside Puerto Rico differently than goods sold within Puerto Rico.” (ECF No. 130 at 82.) He also conceded that “the tax treats articles manufactured in Puerto Rico differently than it treats some articles manu-factored off the island.” (ECF No. 130 at 83.)

In April 2015, the Commonwealth was running up against a deadline to approve a balanced budget for the fiscal year starting on July 1, 2015. The Puerto Rico Constitution mandates balanced budgets. P.R, Const, art. VI, § 7. Failure to pass a balanced budget by the deadline results in the re-enactment of the prior year’s budget. The Commonwealth had already reduced its expenditures to a bare minimum; so, Secretary Zaragoza testified, the government was under “a lot of pressure [to] rais[e] revenue fast.” (ECF No. 130 at 123.) The government needed to raise $125 million in new revenue to close the budget gap. (ECF No. 130 at 124.) Public officials soon discovered that despite collecting “several baskets” of taxes on the island, the “only basket available” for generating a large amount of additional revenue was corporate income taxes. (ECF No. 130 at 125-26.)

Raising excise taxes would not work because the revenue generated from such taxes does not usually flow into the Treasury Single Account, the Commonwealth’s main operating account, but often goes “directly to the debt service [of] specific [agencies].” (ECF No. 130 at 125.) Raising the sales tax would not work because the Legislature had already rejected a proposal to raise the tax to 16% and had resolved, instead, to raise the tax only to 11.5%. (ECF No. 130 at 124-25.) And, raising individual income taxes would not work because the Legislature had already promised and proposed a “dramatic reduction in individual 'income taxes,” and, therefore, did not want to go back on its word. (ECF No. 130 at 125.) These political and practical constraints led the government to focus on corporate income taxes and, more specifically, on raising rates on the AMT. At the time, bulking up the AMT was viewed as a “fair option” because, Zarago-za stated, the AMT allegedly “hit[s]” only those taxpayers who are not “paying enough income tax.” (ECF No. 130 at 126.)

Secretary Zaragoza, however, personally opposed any increase to the AMT. (ECF No. 130 at 71.) In his February 2015 letter to Representative Hernández, he had advised the Legislature that, to create “a fairer, more effective and equitable manner” of taxation, while still “assuring] that those who today evade taxes ... assume the portion of the burden that corresponds to them,” the “impact” of the AMT needed to be “minimize[d].” (PL Ex. 13 at 2, 21.) In particular, Zaragoza had found that the Legislature needed to cut by 25% the 2% tax on interstate transfers of tangible-property between related companies or different offices of the same company and to eliminate the 20% tax on expenses for interstate services between them. (PL Ex. 13 at 23.) If the “purpose” of the AMT was to recapture in broad terms the profits that certain “multinational chains” were suspected of shifting outside of Puerto Rico, the Secretary had found that the tax was already too heavy and needed to be reduced in part and eliminated in part. (Pl. Ex. 13 at 22.) As we noted at the beginning, the Legislature rejected the Secretary’s advice and moved to increase the AMT instead.' '

The Legislature tasked Treasury with figuring out how to close the budget gap “by taxing the gross value of related party transfers from off the island.” (ECF No. 130 at 75.) Treasury looked at the most recent tax returns “of the multinational chains ... subject to th[e] tax.” (ECF No. 130 at 75-76.) Although it was April 2015, the “most recent” tax returns that had been fully processed were from the 2012 tax year, two years earlier. (ECF No. 130 at 75, 80.) Based on the information in those returns, Treasury proposed not only a graduated rate table for the tangible-property tax, but also what the tax brackets should be. Only by setting the tax brackets in advance and applying their new rates to the data in taxpayers’ 2012 returns was Treasury able to estimate the new revenue that could be raised. (ECF No. 130 at 76, 81.) And, Treasury predicted that, under those. new rates (which were later enacted), the amended tangible-property tax would come within $10 million of filling the government’s $125 million budget gap. (ECF No. 130 at 77; PI. Ex. 51 at 16.)

In late April 2015, Anthony Walker, Vice President of Specialty Tax at Wal-Mart Stores, the Arkansas-based and Delaware-incorporated parent company of Wal-Mart PR, visited San Juan with some colleagues to meet with members of the local government to discuss this idea of increasing the AMT. (ECF No. 127 at 8-9.) In particular, Walker’s team met with Eduardo Bhatia, President of the Puerto Rico Senate; José Nadal-Power, Chairman of the Senate Treasury Committee; Angel Rosa, Chairman of the Senate Economic Development and Planning Committee; Jaime Perelló, Speaker of the Puerto Rico House of Representatives; Rafael Hernández, Chairman of the House Treasury Committee; Luis Vega-Ramos, a House member and major proponent of raising rates on the AMT’s tangible-property tax; Jenniffer González, House Minority Leader; and others. (ECF No. 127 at 9-10.) Walker’s team accepted that Puerto Rico needed to find moi-e revenue, but they wanted to voice their concern that the AMT rate hike was “unfair” because it “intentionally focused on mega-retailers and Wal-Mart.” (ECF No. 127 at 10-11.)

Walker found that the officials he met with were mostly concerned with raising a specific level of revenue. “[I]t kept coming up in conversation,” Walker testified, “that we’ve got a budget crisis” and “[wje’ve got to raise a certain amount of dollars.” (ECF No. 127 at 11.) Some officials tried to justify the increase in tangible-property tax by alluding to the possibility that mul-tistate corporations were “manipulating their books” to avoid paying Puerto Rico taxes. (ECF No. 127 at 11.) Some officials even referred to the proposed tax-rate increase as' “the Wal-Mart tax.” (ECF No. 127 at 13.)

If officials in the Puerto Rico government thought of the proposed rate increases to the AMT as the Wal-Mart tax, they had good reason. According to Wal-Mart PR’s tax return for the 2012 tax year, which was the return that Treasury consulted when setting the new tax brackets (ECF No. 130 at 75-76), Wal-Mart PR had purchased approximately $648 million of merchandise and inventory from Wal-Mart Stores that-year. (PI. Ex. 47 at 1; Def. Ex. 21, sched. A, pt. V, 1, 32.) Its net sales were around $2.98 billion. (PL Ex. 47 at 1; Def. Ex. 21, Form 480.20, pt. IV, 1. 1.) The proposed top tax bracket of 6.5%, on the gross value of tangible-property transactions, applied to corporate taxpayers with more than $2.75 billion in net sales in Puerto Rico. Treasury knew that, based on the 2012 tax information, only Wal-Mart PR met that threshold. (ECF No. 130 at 77-80.) Treasury also knew that, for the 2012 tax year, Wal-Mart PR’s regular income tax was $18.57 million, (Def. Ex. 21, Form 480.20, pt. Ill, 1. 19.) Thus, under the new AMT rates, Wal-Mart PR’s tangible-property tax for the 2012 tax year would have been $42.12 million, which means an AMT of at least $23.55 million. Since Treasury had estimated that the new rates would yield about $115 million in new revenue (EOF No. 130 at 76), Wal-Mart PR was expected to generate more than one-fifth of the total amount of the new tax. The moniker “Wal-Mart tax” was, thus, appropriate.

Although another corporate taxpayer could, in theory, join Wal-Mart PR in the top tax bracket, the Secretary admitted at the hearing that, to the best of his knowledge, “the top tax rate under the tangible property component of [the AMT] is a Wal-Mart tax only.” (EOF No. 130 at 80.) This was purposeful. Vice President Walker was on to something when he found it “ironic” that, after Wal-Mart PR had reported net sales “on the island of roughly 2.9 to 3 billion dollars,” the Commonwealth would set “the cutoff for the highest tax rate ... just slightly below the amount of sales that [Wal-Mart PR] record[s] on, the island.” (EOF No. 127 at 13.) When Treasury designed the tax brackets, the threshold for the top bracket of $2.75 billion in gross receipts (or net sales) from Puerto Rico was specifically designed to capture Wal-Mart PR in that bracket. (EOF No. 130 at 81-82.) The top tax bracket not only isolates Wal-Mart PR in a class of its own, but there was not even a crush of other high-earning multistate businesses to distinguish it from. The next highest bracket, which levies a 4.5% tax on tangible-property transfers, applies to corporations with between $2.0 and $2.75 billion in net sales in Puerto Rico. Based on the 2012 tax numbers, there are only two companies in Puerto Rico in that bracket. (EOF No. 130 at 79.)

On May 18, 2015, a bill was introducéd in the Legislature to, among other things, amend the AMT’s tangible-property tax. The bill moved quickly, receiving no hearings and little debate. On May 21, 2015, the bill passed the House and, four days later, passed the Senate. On May 29, 2015, the bill was signed into law by the Governor, becoming Act 72 of 2015. Act 72 amended the tangible-property tax in two significant ways. First, for tax years starting after December 31, 2014, Act 72 introduced the following graduated rates for the tangible-property tax codified at 13 L.P.R.A. § 30073(b)(2)(B):

(PI. Ex. 77, § 1022.03(b)(2)(B)(i)(II).) Second, for tax years starting after December 31, 2014, Act 72 eliminated the provision that had allowed the Secretary to exempt, in whole or in part, a transaction from the tax upon proof that its transfer price was “equal or substantially similar to or lower than the [price] for which [the] related person sells such property to an unrelated person.” (PL Ex. 77, § 1022.03(d)(4).) Treasury recommended the elimination of this exemption because Puerto Rico wanted to “secure the generation of [new] revenue,” and it was “predictable,” Secretary Zara-goza testified, that “a higher amount of taxpayers” would seek the exemption under the new rates. (ECF No.