(No. 80) (Approved July 29, 2007) AN ACT

Transcription

1 (H. B. 3190) (Conference) (No. 80) (Approved July 29, 2007) AN ACT To add subsections (e), (f), (g) and (h) to Section 2706; add Section 2707, 2708 and 2709; amend Section 6189; and to repeal Section 6189A of Act No. 120 of October 31, 1994, as amended, known as the Puerto Rico Internal Revenue Code of 1994, particularly certain provisions included in Act No. 117 of July 4, 2006, known as the Taxpayer s Justice Act of 2006, in order to make mandatory in all the Municipalities of Puerto Rico the imposition of a uniform municipal tax of one point five (1.5) percent, from which the municipalities shall collect one (1) percent of the sales and use tax pursuant to what is established in Sections 2410 and 6189 of said Act, which may be levied discretionally, through municipal legislation, on food and food ingredients, as defined in Section 2301(a) of this Act and to provide for the collection by the Secretary of the Treasury of the remaining point five (.5) percent without including food and food ingredients as defined in Section 2301(a) of this Act, to be used in accordance with the purposes established in the present Act; to provide for the establishment of the Municipal Development Fund, the Municipal Redemption Fund, and the Municipal Improvement Fund, as well as for matters relative to the purposes, implementation and administration of said funds; to provide for the establishment of the necessary mechanisms for the collection of the municipal tax; and for other purposes. STATEMENT OF MOTIVES Act No. 117 of July 4, 2006, known as the Taxpayer s Justice Act of 2006, incorporated a number of amendments to Act No. 120 of October 31, 1994, as amended, known as the Puerto Rico Internal Revenue Code of Among the most important amendments are several provisions

2 directed to authorizing the municipalities of Puerto Rico to impose a sales and use tax in accordance with the authorization established in Section 2410 of said statute. However, there is a consensus between the Federation and the Association of Mayors of Puerto Rico to the effect that the amendments approved do not fully address the fiscal problems faced by the municipalities, a situation that makes it imperative to incorporate a number of additional amendments. The amendments herein contained are directed to establishing the following, among other things: to make mandatory for all Municipalities of Puerto Rico the imposition of a uniform municipal tax of one point five (1.5) percent on all sales and use, from which the municipalities shall collect one (1) percent of the sales and use tax pursuant to what is established in Sections 2410 and 6189 of said Act, and the Secretary of the Treasury shall collect point five (.5) percent without including food and food ingredients as defined in Section 2301(a) of this Act, to be used for the following purposes: (i) point two (.2) percent shall be deposited in a fund to be administered by the Government Development Bank for Puerto Rico (hereinafter, the Bank) denominated Municipal Redemption Fund, for the granting of loans for the exclusive benefit of the municipalities; (ii) point two (.2) percent, for the establishment of the Municipal Development Fund, to be distributed among all the municipalities pursuant to a formula established as part of the law; and (iii) point one (.1) percent, for the establishment of the Municipal Improvement Fund, to be distributed through legislation by the Legislature to carry out public work projects in the municipalities, through legislation to such effect for the benefit of the municipalities themselves. Thus, through the creation of these special funds, to wit: the Municipal Redemption Fund, the Municipal Development Fund, and the Municipal Improvement Fund, all the

3 municipalities of Puerto Rico shall benefit, being it established, at the same time, that they shall be administered and regulated by the President of the Bank, using the criteria defined in this Act for the same, as well as other criteria and guidelines needed to achieve those purposes. BE IT ENACTED BY THE LEGISLATURE OF PUERTO RICO: Section 1. Subsections (e), (f), (g) and (h) are hereby added to Section 2706 of Act No. 120 of October 31, 1994, as amended, known as the Puerto Rico Internal Revenue Code of 1994, to read as follows: Section Special Disposition of Funds. (a) (e) The proceeds from the part of the point five (.5) municipal sales and use tax authorized by Sections 2410 and 6189 shall be collected by the Secretary, in accordance with Section 6189, to be deposited in special accounts or funds of the Government Development Bank for Puerto Rico (hereinafter, the Bank ), which shall be used exclusively for the purposes indicated hereinafter. Therefore, said sums may not be deposited, transferred or loaned at any time in the General Fund of the Government of the Commonwealth of Puerto Rico, with no exception whatsoever. In this same context, the Commonwealth may not deduct any amount whatsoever for debts had by the municipalities with any department, agency, instrumentality or public corporation of whatever nature, with the exception of the amount established in Section 2706, subsection h. The revenues generated from the sales and use tax shall be specifically distributed for the following purposes: (1) Point two (.2) percent of the point five percent (.5%) sales and use tax to be collected by the Secretary shall be covered into a

4 special account or fund in the Bank denominated Municipal Development Fund, created pursuant to Section (2) Point two (.2) percent of the point five percent (.5%) sales and use tax to be collected by the Secretary shall be deposited in a special fund in the Bank for the granting of loans to the municipalities of Puerto Rico denominated Municipal Redemption Fund, created pursuant to Section (3) Point one (.1) percent of the point five percent (.5%) sales and use tax to be collected by the Secretary shall be covered into a special account or fund in the Bank denominated Municipal Improvement Fund, created pursuant to Section (f) For the purposes of implementing subsection (e) of this Section, the obligation of the Secretary, the Bank, and all the municipalities of Puerto Rico to expedite and furnish among themselves, to one another, all information pertaining to the revenues of the sales and use tax authorized by Sections 2401, 2402 and 2410, is hereby established, regardless of the mechanisms used for the collection thereof or the entity, agency, or company contracted or authorized by law to carry out the collections, as well as the transfer thereof to the different special funds administered by the Bank mentioned as part of subsection (e) of this Section. The Secretary and the Bank shall furnish the municipalities on a quarterly basis and at the request of the latter, any information regarding the collection, imposition and administration of the municipal sales and use tax, including but not limited to that which pertains to the filing of returns, businessmen registry, the amount of the transfers from the moneys collected and deposited in each of the special funds established in Sections 2707, 2708 and 2709.

5 (g) The transfers or deposit of the moneys corresponding to each one of the special funds established in Sections 2707, 2708 and 2709 shall be immediately transferred to the Bank as soon as the same are collected by the Secretary, but never later than ten (10) days after the collection thereof, being it established that these moneys shall not be used by the Secretary for any other purpose. To such effect it is established that the delay in the transfer of said funds during a period of ten (10) days after their collection shall entail the payment of interest over the amount not transferred on time, to be computed at a rate of ten (10) percent annually over the amount not transferred on time. (h) The cost of programming the collection system to be implemented by the Department of the Treasury for the collection of the point five (.5) percent sales and use tax to be collected by the Secretary for the benefit of the municipalities pursuant to Section 6189 shall be defrayed through a one million dollar ($1,000,000.00) contribution to be distributed equally among the seventy-eight (78) municipalities from the revenues of the Municipal Development Funds established in Section 2707 upon the distribution to the municipalities of the moneys deposited in said fund. Any amount additional to the ($1,000,000.00) contributed by the municipalities that is needed for the implementation of the collection of point five percent (.5%) shall be defrayed by the Secretary of the Treasury. To such effect, the President of the Bank is hereby authorized to establish a line of credit so that the Secretary may defray the cost related to the programming and implementation of the collection system. Section 2. Section 2707 is hereby added to Act No. 120 of October 31, 1994, as amended, known as the Puerto Rico Internal Revenue Code of 1994, to read as follows:

6 Section Creation of the Municipal Development Fund. (a) Creation of the Fund. A Municipal Development Fund is hereby created under the custody of the Government Development Bank for Puerto Rico (hereinafter, the Bank ) which shall be nourished from the deposits made from the revenues corresponding to point two (.2) percent of the proceeds of the point five (.5) percent authorized by Sections 2410 and 6189 obtained from point five (.5) percent of the sales and use tax imposed by the municipalities and collected and to be the deposited by the Secretary pursuant to Section 2706(e)(1). (b) Responsibility for the Municipal Development Fund. The President of the Bank shall be the officer responsible for implementing the procedure to be followed for the administration of the Municipal Development Fund, including all matters relative to the distribution of the moneys accrued or deposited in the Fund to be distributed among all the Municipalities of Puerto Rico, as provided hereinafter, after the repayment of the one million (1,000,000) dollar contribution for defraying the cost of programming the collection system of the Department of the Treasury as provided in subsection (h) of Section (c) Establishment of the Formula or Criteria for the Distribution of the Moneys Deposited in the Municipal Development Fund. The Bank shall distribute the moneys deposited in the Municipal Development Fund pursuant to the following criteria or formula: (1) Ten (10) percent of the Municipal Development Fund shall be distributed to each municipality on the basis of the inverse proportion corresponding to each municipality with respect to the total proceeds of the sales and use tax collected by all municipalities pursuant to the authorization established by Section 6189.

7 (2) Seventy-five (75) percent of the Municipal Development Fund shall be distributed to every municipality on the basis of the inverse proportion corresponding to the individual budget of the regular fund with respect to the budget of the regular fund of all municipalities. For such purposes, said proportion shall be determined taking as basis the budgets of the regular funds of the municipalities during the immediately preceding fiscal year. (3) Fifteen (15) percent of the Municipal Development Fund shall be distributed to each municipality on the basis of the direct proportion corresponding to its population with respect to the population of all the municipalities. For these purposes, said proportion shall be determined taking as basis the federal census, as the same is revised from time to time, according to the periodicity with which it is prepared. (b) Limitations. The sums of money determined to be received by each of the municipalities as the result of the application of the formula provided in subsection (c) of this Section shall be subject to the following limitations: (1) None of the municipalities shall receive during a fiscal year an amount greater than one million, three hundred thousand (1,300,000) dollars, taking in the aggregate the amounts determined on a monthly basis through the application of the formula. (2) In accordance to the above, the amounts determined through the application of said formula in favor of any of the municipalities, regardless of its size, in excess of one million, three hundred thousand (1,300,000) dollars, shall be distributed by using the same formula for the payment of the operating debt of the

8 municipalities with any financial institution. In the event that the municipality does not have an operational debt with any financial institution, these funds shall be covered into its regular fund. (c) Distribution of the Moneys Deposited in the Municipal Development Fund. The moneys corresponding to each of the municipalities as determined in accordance with the implementation of the formula provided in subsection (c) of this Section shall be distributed and deposited by the Bank each month in the particular account of each one of the municipalities no later than the tenth (10 th ) day of the following month, after said moneys are received by the Bank, subject to the limitations established in subsection (d) of this Section. To such effect, it is established that the delay in the distribution of said moneys for a period of ten (10) days after being received by the Bank, shall entail the payment of interest over the sum not distributed on time, to be computed on the basis of a rate of ten (10) percent annually over the amount not distributed on time. (d) Review of the Formula. The formula established in subsection (c) of this Section shall be reviewed annually by the President of the Bank no later than July 31 of each fiscal year, regarding the changing factors therein that require review for the purpose of implementing it for the following fiscal year. Specifically, all matters relative to the amount of the sales and use tax collected by each one of the municipalities, the operating budgets of each one of the municipalities, and the federal population census, as it may correspond. Notwithstanding the above, the review of said factors does not constitute an authorization to change or modify said formula by the Bank. Accordingly, the changes to be made that comprise a modification of said formula shall be approved through legislation by the Legislature. Furthermore, the Bank shall

9 provide information on the changing factors used for the annual implementation of said formula to the Legislature. (e) Use of the Moneys Proceeding from the Municipal Development Fund. The moneys proceeding from the Municipal Development Fund distributed monthly to the municipalities through the implementation of the formula established in subsection (c), may be used by the municipalities for solid waste collection and recycling programs, the construction of capital works and improvements, health and security. Notwithstanding the above, none of the municipalities may use said funds for the payment of payrolls, nor for the payment of expenses related to the same, such as employer contribution or payroll taxes, with the exception of payroll expenses related to programs or projects previously mentioned in this subsection. (f) Audit. The President of the Bank shall direct that an annual external audit be conducted to evaluate the correction and propriety of the application of the formula established in subsection (c) of this Section and of the deposits made in the particular accounts of each of the municipalities, including a special certification expressing an opinion on such respect. A copy of said audit as well as of the special certification issued for such purposes shall be remitted to the Legislature as well as to the Office of the Commissioner of Municipal Affairs (hereinafter OCAM, Spanish acronym), within a term of thirty (30) days after the same have been concluded or issued, as it may correspond. In this respect, OCAM shall furnish said information to the municipalities that request it within a term of five (5) working days. Section 3. Section 2708 is hereby added to Act No. 120 of October 31, 1994, as amended, known as the Puerto Rico Internal Revenue Code of 1994, to read as follows:

10 Section Creation of the Municipal Redemption Fund. (a) Creation of the Fund. A Municipal Redemption Fund is hereby created under the custody of the Government Development Bank for Puerto Rico (hereinafter, the Bank ) which shall be nourished from the deposits made from the revenues corresponding to point two (.2) percent of the proceeds of the point five (.5) percent municipal tax authorized by Sections 2410 and 6189 and collected by the Secretary pursuant to Section 2706(e)(2). (b) Purpose of the Municipal Redemption Fund. The moneys deposited in the Municipal Redemption Fund shall be used by the Bank exclusively for the granting of loans in favor of the municipalities. Said loans shall be granted taking as basis the sums of money collected by the Secretary in each of the municipalities and deposited in the Bank in accordance with the authorization established in Section 2706(e)(2). In accordance to this, the municipalities interested in obtaining said loans are hereby authorized to contribute to the Municipal Redemption Fund an amount equivalent to up to fifty (50) percent of the participation of the municipality in the Municipal Development Fund pursuant to Section 2707 in order to increase their borrowing capacity. Notwithstanding the above, in the case of municipalities that are not interested in obtaining or making said loans, they may withdraw from the Municipal Redemption Fund the sums corresponding to their municipality that to such effect were collected by the Secretary. The municipality may use said funds to make loans in any other financial institutions under the same conditions and limitations contained in this Section, subject to the condition that the financing terms offered by private financial institutions are better than those offered by the Bank. With respect to this, the loans to be obtained in this manner from private financial institutions shall not be subject to the limitations on borrowing capacity

11 contained as part of Act Number 64 of July 3, 1996, as amended, known as the Puerto Rico Municipal Financing Act of (c) Responsibility for the Municipal Redemption Fund. The President of the Bank shall be the officer responsible for implementing all the procedures to be followed for the administration of the Municipal Redemption Fund, as well as for the granting of the loans authorized by this Section, including the imposition of interests and fees, and the repayment terms. (d) Use of the Moneys Proceeding from the Loans Granted Chargeable to the Municipal Redemption Fund. The moneys proceeding from the Municipal Redemption Fund made available to the municipalities through loans shall be used by for solid waste collection and recycling programs, the construction of capital works and improvements, health and security. Notwithstanding the above, none of the municipalities may use said funds for the payment of payrolls, nor for the payment of any type of expenses related to the same, such as employer contribution or payroll taxes, with the exception of payroll expenses related to programs or projects previously mentioned in this subsection. (e) Audit. The President of the Bank shall direct that an annual external audit be conducted to evaluate the correction and propriety of the amounts deposited in the Municipal Redemption Fund as well as of all matters relative to the loans granted to the municipalities in accordance with the Section, and on the sums withdrawn by the municipalities that choose not to make said loans with the Bank, including a special certification expressing an opinion on such respect. A copy of said audit as well as of the special certification issued for such purposes shall be remitted to the Legislature as well as to the Office of the Commissioner of Municipal Affairs (hereinafter

12 OCAM, Spanish acronym), within a term of thirty (30) days after the same have been concluded or issued, as it may correspond. In this respect, OCAM shall furnish said information to the municipalities that request it within a term of five (5) working days. Section 4. Section 2709 is hereby added to Act No. 120 of October 31, 1994, as amended, known as the Puerto Rico Internal Revenue Code of 1994, to read as follows: Section Creation of the Municipal Improvement Fund. (a) Creation of the Fund. A Municipal Improvement Fund is hereby created to be nourished with the deposits made from the revenues corresponding to point one (.1) percent of the proceeds of the sales and use tax authorized by Sections 2410 and 6189, obtained from point five (.5) percent of the sales and use tax imposed by the municipalities and collected by the Secretary, to be deposited by the Secretary pursuant to Section 2706(e)(3) in an account or special fund in the Government Development Bank for Puerto Rico to be distributed through legislation by the Legislature to be appropriated for capital works and improvements projects in the municipalities: (1) improvements to the schools of the public education system whether property of the Commonwealth or of the municipalities. (2) capital works and improvements in communities of low economic resources. (3) capital works and improvements in Commonwealth or municipal public housing projects. (4) capital works and improvements in recreational or sports facilities.

13 (5) capital works and improvements. Section 5. Section 6189 of Act No. 120 of October 31, 1994, as amended, known as the Puerto Rico Internal Revenue Code of 1994, is hereby repealed in its entirety, and is substituted to read as follows: Section Municipal Imposition of the Sales and Use Tax. (a) Authorization and Compulsory Nature. All the municipalities shall impose in a uniform and compulsory manner a sales and use tax in accordance with the authorization established in Section Said contribution shall be for a fixed tax rate of one point five (1.5) from which the municipalities shall collect one percent (1%), and the Secretary shall collect exclusively and compulsorily point five percent (.5%) to be used for the funds provided in subsections (e)(1), (e)(2) and (e)(3) of Section 2706 for the purposes established in Sections 2707, 2708, and 2709, as it may apply. The one percent (1%) tax rate to be collected by the municipalities from the one point five percent (1.5%) municipal tax shall be imposed in accordance with the same basis, exemptions and limitations contained in Subtitle BB of the Code. However, the municipalities, in a discretionary manner and upon approval of the Municipal Legislature may impose the one percent (1%) tax on food and food ingredients as defined in Section 2301(a) of this Act. In the case of point five percent (.5%) of the municipal tax to be collected by the Secretary, the latter shall not collect the point five percent (.5%) tax on food and food ingredients as defined in Section 2301(a) of this Act, nor on any of the foodstuff exempted in Section The municipalities may adopt regulations in accordance with the herein provided through a municipal ordinance to such effect. For such purposes, the preemption of federal laws, regulations and judicial determinations shall be taken into account as well as any other exception authorized for said imposition.

14 The fact that a municipality does not adopt the municipal ordinance does not exempt it from compliance with the obligations and the imposition of the sales and use tax that is established in this Act. (b) Use of the Tax. The moneys proceeding from the imposition of the sales and use tax corresponding to the one percent (1%) to be collected by the municipalities shall be used for solid waste collection and recycling programs, the construction of capital works and improvements, health and security. Notwithstanding the above, none of the municipalities may use said funds for the payment of payrolls, nor for the payment of any type of expenses related to the same, such as employer contribution or payroll taxes, with the exception of payroll expenses related to programs or projects previously mentioned in this subsection. The moneys proceeding from point five (.5) percent of the municipal sales and use tax to be collected by the Secretary shall be used in the proportions provided in subsections (e)(1), (e)(2), and (e)(3) of Section 2706 for the purposes established in Sections 2707, 2708 and 2709, as it may apply. (c) Collection and Levy of Tax. All municipalities shall have the obligation of collecting one (1) percent of the tax directly or through agreements with the Secretary or with private enterprises. The Secretary, on his/her part, shall collect point five (.5) from the sales and use tax established in Subsection (a) of this Section. With respect to which, the tax to be collected by the municipalities shall be subject to the following: (1) The municipalities that choose to make the collections themselves or through agreements with private enterprises shall retain the totality of the proceeds of the municipal sales and use tax for their own benefit. Specifically, the collection of the one (1) percent of the

15 sales and use tax imposed by the municipalities as established in subsection (a) of this Section. (2) In the cases of the municipalities that authorize the Secretary to collect said tax as previously agreed, the latter shall remit the total of the amounts collected to the bank accounts designated by the municipalities on a daily basis. The amount collected by the Secretary from the municipal sales and use tax shall not be used by the Executive Branch, including agencies, departments, instrumentalities or public corporations nor withheld for any other purpose. (3) In those cases in which there is an agreement between the municipality and the Department of the Treasury for the collection of the one percent (1%) sales and use tax, as provided by this Section, any delay in the transfer of the amount collected by the Secretary on behalf of the municipality to the bank accounts designated by the latter shall entail the payment of interest. Said interests shall be computed as of ten (10) days after said amounts were incorrectly collected and up to the date of the payment or return thereof at a rate of ten (10) percent annually on the amount not transferred on time. The imposition and payment of said interests shall be likewise applicable to any part of the sales and use tax belonging to the municipalities that the Department of the Treasury collects or retains in excess. The amounts thus collected shall be determined through the corresponding audits or certifications required for its implementation, or through the exchange of information established in subsection (f) of Section (4) The Secretary shall have the obligation to certify to the municipalities for which he/she conducts collections functions, the correctness and propriety of the sums deposited in the banking accounts

16 designated by the participating municipalities, as well as of the funds deposited in the Municipal Development Fund, pursuant to Section 2706(e)(1). Copies of the special certifications issued for such purposes shall be remitted to the Legislature, as well as to the Office of the Commissioner of Municipal Affairs (hereinafter OCAM, Spanish acronym), within a term of thirty (30) days after the issue thereof. In this respect, OCAM shall furnish said information to the municipalities that so request it within a term of five (5) working days. (5) The municipalities shall quarterly inform the Secretary of the Treasury the total amount of the revenues proceeding from the use and sales tax provided in this Section corresponding to one percent (1%) of the municipal tax. The Secretary of the Treasury may request any information regarding the collection, imposition and administration of the municipal sales and use tax authorized by this Section. (d) Responsibility of Banking Institutions and/or Private Enterprises. (1) In the case of taxpayers who pay through electronic transactions, the banking institutions or private enterprises that manage the points of sale or the corresponding deposit shall directly submit said contribution to the account of the municipality. Specifically, the part corresponding to one (1) percent of the sales and use tax imposed by the municipalities and established in subsection (a) of this Section. Section 6. Section 6189 A of Act No. 120 of October 31, 1994, as amended, known as the Puerto Rico Internal Revenue Code of 1994, is hereby repealed. Section 7. Regulations.

17 The Secretary of the Treasury and the President of the Government Development Bank for Puerto Rico are hereby authorized to prepare all the regulations needed for the implementation of this Act without being subject to the provisions of Act No. 170 of August 12, 1988, as amended, known as the Commonwealth of Puerto Rico Uniform Administrative Procedures Act. Section 8. Separability Clause. Should any Section or provision of this Act be declared null or unconstitutional by a court with competence and jurisdiction, the judgment rendered shall not affect or invalidate the remaining provisions of this Act, and its effect shall be limited to the paragraph, section, part or provision ruled null or unconstitutional. Section 9. Effectiveness. This Act shall take effect immediately after its approval with the exception of the collection by the Secretary of the Treasury of point five (.5) percent of the sales and use tax imposed by the municipalities, which shall take effect on the first (1 st ) day of August of 2007.

18 CERTIFICATION I hereby certify to the Secretary of State that the following Act No. 80 (H.B. 3190) (Conference) of the 5 th Session of the 15 th Legislature of Puerto Rico: AN ACT to add subsections (e), (f), (g) and (h) to Section 2706; add Section 2707, 2708 and 2709; amend Section 6189; etc., has been translated from Spanish to English and that the English version is correct. In San Juan, Puerto Rico, today 17 th of September of Francisco J. Domenech Director