Municipal construction excise tax

It is the excise municipalities are empowered to impose and collect for the construction of works and the demolition of buildings within their territorial limits, under Article 2.109(c) of the Municipal Code. It is not the construction permit: it is a tax paid before the work, and its receipt is what allows the Permits Office — state or municipal — to issue that permit. Article 2.110 sets the procedure and its deadlines, and Article 2.111 turns what is owed into a preferential lien over the property of the owner of the work.

It reaches every construction work within a municipality’s territorial limits carried out by a private natural or legal person, and also work a private person carries out for, on behalf of, or by contract or subcontract with, a public agency or public corporation or instrumentality of the state, municipal or federal government. The text itself adds that it includes work requiring no permit application or issuance. Exempt is work done by the method known as administración, that is, as part of the construction programmes of a state agency or its instrumentalities, a public corporation, a municipality or a federal agency, with three limits the same subsection writes out.

• Paying the construction excise to the municipality where the work takes place, before the work begins (Article 2.109(c)).Verified against the official source
• Submitting to the municipality’s Finance Office a line-itemised Activity Declaration describing the total costs of the work to be carried out (Article 2.110(a)).Verified against the official source
• Paying within the fifteen (15) business days following the final determination, by bank draft, electronic method or certified cheque payable to the municipality (Article 2.110(c)).Verified against the official source
• Presenting the payment receipt to the corresponding Permits Office, which is what allows that office to issue the Construction Permit (Article 2.110(c)).Verified against the official source
• Every contractor must present a certification issued by the municipality as evidence of having paid the corresponding construction excises (Article 2.109(c)).Verified against the official source
• If a deficiency is due, paying it within thirty (30) days of notification, with a possible extension of up to thirty (30) additional days where undue hardship is shown (Article 2.110(e)).Verified against the official source

• The line-itemised Activity Declaration, with the total costs of the work (Article 2.110(a)).
• The payment receipt the Collections Office official issues, identifying it as the construction-activity excise (Article 2.110(c)).
• The municipality’s certification that every contractor must present as evidence of having paid the excise (Article 2.109(c)).
• The Excise Refund Request, where the work is cancelled after payment (Article 2.110(e)).
• The Finance Director’s original certification of satisfaction of payment, with the receipt, to cancel the preferential lien at the Property Registry (Article 2.111(c)).

1. 1

   Step 1: You pay even if you need no permit

   It is the sentence most people skip, so it goes first. Article 2.109(c) says every construction work within a municipality’s territorial limits, carried out by a private natural or legal person, or carried out by a private person for, on behalf of, or by contract or subcontract with a public agency or public corporation or instrumentality of the state, municipal or federal government, including work that requires no permit application or issuance, must pay the corresponding construction excise, before the work begins.

2. 2

   Step 2: No receipt, no construction permit

   The same Article 2.109(c) closes the door on the permits side: both the Oficina de Gerencia de Permisos and the Municipal Permits Office, in municipalities that have one, may only grant construction permits to work that complies with that chapter’s requirements, and to that end every contractor must present a certification issued by the municipality as evidence of having paid the excises. Article 2.110(c) says it from the other side: every taxpayer who pays the excise voluntarily or under protest shall receive a payment receipt, so that on presenting it to the corresponding Permits Office, that office may issue the Construction Permit.

3. 3

   Step 3: It starts with a line-itemised Activity Declaration

   Article 2.110(a) describes the first step: the natural or legal person responsible for carrying out the work as owner, or their representative, must submit to the Finance Office of the municipality in question a line-itemised Activity Declaration describing the total costs of the work to be carried out. “Line-itemised” is the Act’s own phrase: it is not a single lump figure.

4. 4

   Step 4: Fifteen days for the municipality to answer

   Article 2.110(b) puts a clock on the municipality. The Finance Director, or their authorised representative, shall review the value of the work estimated by the taxpayer and shall report the decision by certified mail with return receipt or registered delivery with return receipt before fifteen days after the Declaration is filed. They may accept the declared value, in which case they apply the corresponding rate and determine the amount; or they may reject it, in which case they shall preliminarily estimate the value of the work within the unextendable term of fifteen days from the filing, and shall notify that preliminary determination by certified mail with return receipt or personally with return receipt.

5. 5

   Step 5: If they accept your figure: fifteen business days to pay

   Article 2.110(c) sets the form and the deadline. Where the Finance Director accepts the declared estimated value, the taxpayer shall pay the corresponding excise within the fifteen business days following the final determination, by bank draft, electronic method or certified cheque payable to the municipality. The official of the Collections Office of the Finance Division shall issue a payment receipt identifying it as the construction-activity excise.

6. 6

   Step 6: If they reject your figure: three roads

   The same Article 2.110(c) lists them. One: within the fifteen business days following the acknowledgment of receipt, pay the excise, thereby accepting the Finance Director’s determination as final. Two: pay the imposed excise under protest within that same term and, within the same term, request in writing reconsideration of the preliminary determination, filing that request before the Collections Office official who takes the payment. Three: refuse to pay, stop the construction plan, move the work’s start date and seek judicial review under Article 1.050 of the Code, within the unextendable term of twenty days from notice of the preliminary determination.

7. 7

   Step 7: Paying under protest: ten days for the answer

   Article 2.110(d) describes that route. Where the taxpayer has paid under protest, they shall file a written reconsideration with a copy of the payment receipt at the Finance Office. The Finance Director shall have ten days to issue a final determination as to the value of the work. The final determination shall be notified to the taxpayer by certified mail with return receipt or personally with return receipt, along with the recomputed excise and the deficiency or the credit, whichever results from the final determination.

8. 8

   Step 8: Going to court does not pause the obligation to pay

   Article 2.110(e) says it plainly: nothing prevents the taxpayer from seeking judicial review of the Finance Director’s final determination under Article 1.050, and that review must be filed within the following twenty days; but the taxpayer’s filing of judicial review shall not suspend the effectiveness or the obligation to pay the excise. And it adds a condition on the other side: if the court decides to order the excise returned and at the same time authorises construction to begin, it must require a bond, sufficient in its judgement, to guarantee the municipality’s recovery of the excise the court finally determines.

9. 9

   Step 9: If a change order lowers the cost, you claim a refund

   Article 2.109(c) and 2.110(e) say the same thing from two places. Where a change order arises authorising some variation to the initial project, it shall be checked whether that change constitutes an expansion and, if so, the corresponding excise shall be computed. And where the change order has the effect of reducing the final cost, the person who paid excises to the municipality may request a refund of the amount overpaid. The request must be made within the six prescriptive months following the date the change order was approved for public works, or from when the work concludes where the work is private. The municipality may request information from the owner of the work or from whoever paid to satisfy itself that the refund is due.

10. 10

    Step 10: If you cancel the work: all or half

    Article 2.110(e) splits it by whether the work started. Where a taxpayer has paid the excise and the owner of the work later cancels it without construction activity having in fact begun, the taxpayer shall fill in an Excise Refund Request and it shall proceed in full. If the work had begun and any construction activity had occurred, the refund shall be limited to fifty per cent. The refund is made within the thirty days following the date the request is filed with the Finance Director. And there is a time cap: no refund request for any sum proceeds after six months have passed from the date the payment receipt for the excise determined for that work was issued.

11. 11

    Step 11: Refunds and deficiencies run on thirty days

    Article 2.110(e) sets both sides. If the taxpayer overpaid, the municipality must refund the overpaid excise within thirty days after notifying the taxpayer. Where payment of a deficiency is required, the taxpayer must make it within thirty days of notification; and where the taxpayer shows, to the Finance Director’s satisfaction, that paying the deficiency on the prescribed date results in undue hardship, the Director may grant an extension of up to thirty additional days.

12. 12

    Step 12: The exemptions come from the municipality by ordinance

    Article 2.110(f) says that, by ordinance adopted for the purpose, the Municipal Legislature may exempt seven groups from payment in whole or in part: non-profit associations providing rental housing to low- or moderate-income families under sections 221(d)(3) or 236 of the 1974 National Housing Act, and those providing it to people over sixty-two under section 202, in both cases when certified by the Housing Department; developers of social-interest housing projects under Act 47-1987; the construction of real property destined for rental to moderate-income families; expansion projects of buildings or plants that foster more jobs and hold a current industrial-incentives exemption; civic or religious non-profits registered at the Department of State and holding a federal 501(c)(3) certification, whose ordinance requires the affirmative vote of a majority of the total membership of the Municipal Legislature; and the construction, improvement or expansion of pharmacies, hospitals and health centres, clinical laboratories, manufacturing plants, shopping centres, goods distribution centres, call centres, corporate office centres, hotels, paradores and educational centres.

13. 13

    Step 13: The public-works exemption does not cover the contractor

    Article 2.110(f) exempts work done by the method known as administración, that is, as part of the construction programmes of a state government agency or its instrumentalities, a public corporation, a municipality or a federal government agency. And immediately after, it sets three limits. That exemption does not apply to work carried out by a natural or legal person acting for, on behalf of, or by contract or subcontract with, a public agency or public corporation or state, municipal or federal instrumentality. Nor does it apply to construction activity a taxpayer performs for another person or public or private entity, even where that entity, as owner of the work, is itself exempt, without that impairing the owner’s own exemption. Nor does it apply where the work is carried out by a private person by contract with a federal government agency, when applicable federal law or regulation so permits.

14. 14

    Step 14: What you do not pay becomes a preferential lien

    Article 2.111 describes it. The amount of the construction excises, including all interest, penalties and surcharges, shall constitute a preferential lien in the municipality’s favour over the movable and immovable property and real rights of the owner of the work or the person responsible for payment, from the date the Finance Director determines and notifies the amount, and it shall remain in force until the amount owed is fully satisfied. That lien shall not be valid against a mortgage creditor, refaccionario creditor, buyer or judgment creditor until the Director has annotated or recorded it at the Property Registry, and in that case it shall have preference only from that date and as to later liens. If the taxpayer does not pay, the Finance Office shall proceed to collect by attachment or sale of the debtor’s property, under Book VII of the Code.

15. 15

    Step 15: How that lien is cancelled

    Article 2.111(c) says the annotation is made by presenting an original certification of the debt issued by the Finance Director or their authorised representative, including a breakdown of principal, interest, surcharges and penalties, as well as a description of the work giving rise to the lien. And it makes clear who may ask for it to be removed: cancellation may be requested by the municipality or by the owner of the work or the person responsible for payment, by presenting an original certification of satisfaction of payment issued by the Finance Director or their authorised representative, accompanied by the payment receipt handed to the owner of the work.

Before the Finance Office of the municipality where the work takes place: that is where the Activity Declaration is filed, where the Finance Director decides and where payment is made, at the Collections Office of the Finance Division. The receipt is then presented to the corresponding Permits Office, which may be the Oficina de Gerencia de Permisos or the Municipal Permits Office in municipalities that have one. Judicial review is sought in court under Article 1.050 of the Code, and the preferential lien is annotated and cancelled at the Property Registry.

• Believing that if the work needs no permit there is no excise: the text expressly includes work requiring no permit.
• Starting the work and paying afterwards: the excise is paid before the work begins.
• Handing in a lump figure: the Activity Declaration must be line-itemised.
• Conflating the two clocks: fifteen calendar days for the municipality to answer, fifteen business days for you to pay.
• Paying under protest and not filing the reconsideration: it must be made in writing within the same term.
• Letting the twenty days for judicial review pass: the term is unextendable.
• Believing going to court freezes the payment: filing does not suspend the effectiveness or the obligation to pay.
• Claiming the refund late after a change order: there are six months from the change order’s approval on public works, or from the work’s conclusion on private ones.
• Cancelling work already begun and expecting a full refund: if construction activity occurred, it is limited to fifty per cent.
• Letting six months pass from the receipt: after that no refund request for any sum proceeds.
• Assuming a public work exempts the private contractor: the administración exemption does not cover someone working by contract or subcontract with the agency.
• Paying and not asking for the certification of satisfaction: it is what allows the lien to be cancelled at the Property Registry.

These are the government pages this guide is based on.

• Municipios de Puerto Rico

  Municipios

  bvirtualogp.pr.gov