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Coors Can Proceed With Puerto Rico Tax Challenge

(CN) - Coors Brewing Co. can move forward with a lawsuit claiming that a lower Puerto Rico tax on beer from smaller breweries amounts to unconstitutional protectionism, the 1st Circuit ruled.

Coors sued Puerto Rico's Secretary of the Treasury, challenging the lowered tax for small brewers. Over the years, Puerto Rico passed laws that enhanced the tax disparity between small and large brewers. In 2002, it increased the tax for large brewers to $4.05 per gallon, compared to $4.15 for small brewers.

Coors said the tax hike on large brewers increased the market share of Puerto Rico's leading brewer, Cerveceria India. When Cerveceria India's production surpassed 9 million gallons, the brewer could pay the lowest tax rate on its first 9 million gallons, so long as it didn't produce more than 31 million gallons annually. But brewers making more than 31 million gallons continued to pay the higher rate, Coors claimed.

Coors and other large brewers joined a lawsuit filed by the Puerto Rico Association of Beer Importers, challenging the tax scheme in Puerto Rico Superior Court. Coors later withdrew from the lawsuit and filed its own challenge in federal court in Washington, D.C. When that case was dismissed for lack of jurisdiction, Coors filed another action, in federal court in Puerto Rico, again opposing the beer tax exemption for small brewers.

The lower court dismissed the case as a repeat of previous allegations, but the Boston-based federal appeals court reversed.

Judge Torruella said the previous case had been dismissed for jurisdictional reasons only. And because the governing interpretation of jurisdictional law has changed in the interim, Torruella wrote, "it makes little sense" to use the previous ruling "to collaterally estop a new inquiry into that limited issue."

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