New laws impact business, municipal finances

The first law changes the manner in which companies pay their municipal business taxes (patentes) when they build or manage roads that cross through different municipalities. The second measures broadens the list of activities that municipal governments can exempt from construction taxes.

Law 137 of 2012 amends the 1974 Municipal Taxes Law to establish a new method of distributing business taxes among municipalities when companies have contracts with the commonwealth government’s Highways & Transportation Authority to build, expand, improve or manage highways that cross through various towns.

Generally, businesses that operate in different towns must pay business taxes, based on sales volume, in each municipality they have offices. Following the enactment of the 2009 Public-Private Partnerships Law, which paved the way for the government to enter contracts with the private sector to operate and manage roads as well as expand existing highways, there were questions about the payment method for business taxes.

The courts have already said builders and developers must pay business taxes in the cities in which they are doing construction, even if their central office is in another municipality. According to the new law, the amount of money paid in business taxes to each town where the highway or road runs through will be computed by dividing the company’s sales volume in half. One-half is multiplied by the number of kilometers of highway that pass through each municipality. The other half will be multiplied by the municipality’s population. The two amounts will then be added together. The resulting amount will then be paid to each city.

Fortuño also enacted Law 139 of 2012, which broadens the number of activities municipalities can exempt from paying construction taxes in an effort to attract new industries and create jobs.

Right now, the Municipal Autonomy Law allows cities to exempt from construction taxes nonprofit groups that provide housing to elderly or needy people, religious groups, companies building affordable housing, businesses that yield a high number of jobs and construction performed by government agencies.

The new law broadens those activities to include construction, remodeling or expansion of healthcare centers, clinical laboratories, manufacturing plants, commercial centers, hotels, calling centers and distribution centers.