Property Taxes in Puerto Rico · 2019-03-27 · Property Taxes in Puerto Rico: Assessment and Recommendations Gary C. Cornia, PhD Lawrence C. Walters, PhD March 2019

Property Taxes in Puerto Rico:Assessment and Recommendations

Gary C. Cornia, PhDLawrence C. Walters, PhD

March 2019

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Property Taxes in Puerto Rico: Assessment and Recommendations

Table of ContentsList of Acronyms ....................................................................................................... viiiAcknowledgments ...................................................................................................... ix

Executive Summary ............................................................................................................1I. Introduction ...................................................................................................................7

Background and Purpose .........................................................................................7Economic Conditions in Puerto Rico .....................................................................8Estimating Revenue Potential of the Property Tax ..............................................8The Principle Challenges Property Tax Reform Must Confront ...................11Structure of the Report ...........................................................................................12

II. Objectives of Reform ...............................................................................................13Reform Objectives ...................................................................................................13Criteria for Evaluating the Equity and Efficiency of the Property Tax ...............................................................................................................14Policy Choices ..........................................................................................................19The Puerto Rico Property Tax System ................................................................22

III. Current Status of the Property Tax in Puerto Rico .........................................24The Puerto Rican Context ......................................................................................24Current Revenue Trends .......................................................................................24Current Property Tax Laws ...................................................................................26Number of Properties In the Tax Base ...............................................................28Property Valuation for Tax Purposes ..................................................................29Property Tax Rates ...................................................................................................31Exemptions from the Property Tax Base ...........................................................32Billing, Appeals, and Collections..........................................................................38

IV. The Path to Property Tax Modernization .............................................................44Six Essential Tasks ...................................................................................................44Achieving Equity and Efficiency Through Interagency Reforms ..................46Modernizing the Property Valuation System .....................................................48

V. Summary and Conclusions ....................................................................................601. Six Essential Tasks ..............................................................................................612. Improve Equity and Efficiency Through Key Interagency Reforms .........613. Modernizing the Property Valuation System .................................................624. Meeting Immediate Revenue Needs Through a Municipal Service Fee Applied to Land .........................................................64

List of References ...........................................................................................................66

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A1: The Economic Context in Puerto Rico ..............................................................................................................68

A1.1 Population Dynamics.....................................................................................68A1.2 Puerto Rico Housing Market .......................................................................70A1.3 Economic Activity and Investment ............................................................. 74

A2: Descriptive Sample of the Property Tax in Practice ......................................76A3: Area-Based Property Tax .....................................................................................81A4: Valuation practices in Puerto Rico .....................................................................82

A4.1 Real Property ...................................................................................................82A4.2 Personal Property ...........................................................................................82A4.3 Inventories ........................................................................................................82

A5: The Impact of Appraisal Cycles .........................................................................83A6: Property Taxes by Municipality ............................................................................84A7: Exemption Policy and Practice ...........................................................................87

A7.1 General Exemptions .......................................................................................87A7.2 Exemptions/Incentives for Economic Development ..............................88A7.3 Municipal Tax Exemptions .............................................................................90A7.4 Exemptions in Practice ..................................................................................91

A8: Simulating Options for Comprehensive Property Tax Reform ............................................................................................................ 104

A8.1 Potential Revenue Gain Through the Addition of Missing Housing Stock .............................................................................. 104A8.2 Estimating the Impact of New Land Coefficients ............................... 105A8.3 Estimating the Impact of New Building Cost Coefficients .............. 107A8.4 Impact of Residential Exemptions........................................................... 108A8.5 Revenue Impact of Repealing the Personal Property Tax ................ 109A8.6 Impact of a Minimum Tax on Residential Property ............................. 110A8.7 Municipal Service Fee on Land ............................................................... 111

A9: Property Tax Law Issues .................................................................................... 113A9.1 Property Tax Calendar, Discounts and Penalties ............................... 113A9.2 Defining Property Tax Bases ................................................................... 114

A10: Statistics by Municipality ................................................................................. 115A11: Related Municipal Finance Issues................................................................ 134

Assignment of Functions ..................................................................................... 134Evaluation of Municipal Funding Sources....................................................... 134Intergovernmental Transfers .............................................................................. 134

Glossary .......................................................................................................................... 136

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List of TablesTable 1: Puerto Rico Property Tax Revenue ................................................................9Table 2: State and Local Property Tax Revenue As a

Percentage of GDP: 2016 ...........................................................................10Table 3: Performance of the Current Property Tax System ..................................19Table 4: Property Valuation Approaches in Use Around the World ...................21Table 5: CRIM Real Property Parcel Counts: 2018 ..............................................28Table 6: Real and Personal Property Nominal Rates for FY2018-19 ...............32Table 7: Foregone Tax Base from Industrial Tax Exemptions: 2017 ..................35Table 8: Puerto Rico Property Tax Base: 2014-2018 ...........................................36Table 9: Personal Property Share of Total Property Tax Base for

Selected States: 2015 ..................................................................................38Table 10: CRIM Property Tax Arrears Total: 2017 .................................................40Table 11: CRIM Workload Ratios by Regional Office ..........................................43Table 12: Evaluation Criteria and Modernization Phases .....................................59Table A2.1: Sample Municipalities Selected ..........................................................76Table A2.2: Sample Property Statistics by Municipality .......................................78Table A2.3: Sample Average Values by Municipality .............................................79Table A2.4: Sample Effective Tax Rates....................................................................79Table A2.5: Effective Tax Rates by Municipality and Exemption Status ...........80Table A5.1: Effective Tax Rates Resulting from Differential Appraisal Cycles 83Table A6.1: Property Tax Rates by Municipality: 2018-2019 ..............................84Table A7.1: Foregone Tax Base from Industrial Tax Exemptions: 2017 ............89Table A7.2: Property and Other Tax Exemptions by Industry ...............................90Table A7.3: Puerto Rico Real Property Tax Exemptions by

Land Use Categories ..............................................................................92Table A7.4: Puerto Rico Property Tax Base: 2014-2018 .....................................95Table A7.5: Real Property Tax: Residential Land Use ............................................98Table A7.6: Real Property Tax: Commercial Land Use ..........................................99Table A7.7: Real Property Tax: Industrial Land Use ............................................. 100Table A7.8: Real Property Tax: Vacant Land .......................................................... 101Table A7.9: Size Distribution of Business Personal

Property Accounts: 2016 .................................................................... 102Table A7.10: Effective Tax Personal Property Tax Rates by Size of Firm

and Exemption Status ........................................................................ 103

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Table A8.1: Discrepancy Between Census Estimates and CRIM Single-Family Dwelling Counts by Municipality ............................. 105

Table A8.2: Municipalities With Greatest Apparent Increase in Land Values ....................................................................... 107

Table A8.3: Municipal Service Fee by Land Use Category .............................. 112Table A10.1: Property Tax Revenue by Municipality ........................................... 115Table A10.2: Intergovernmental Transfers ............................................................. 116Table A10.3: Revenue Structure by Municipality: 2016 .................................... 118Table A10.4: Personal Property Value, Exemptions and Tax Revenue ........... 120Table A10.5: Real Property Value, Exemptions and Revenue .......................... 123Table A10.6: Personal Property Tax Accounts by Size Distribution: 2016 .. 126Table A10.7: Personal Property Accounts Receiving At Least

Partial Exemptions: 2016 .................................................................. 126Table A10.8: Personal Property Accounts Receiving

NO Exemptions: 2016 ...................................................................... 127Table A10.9: First Year Impact of 5-Year Phase Out of

Personal Property Exemption by Municipality (In Thousands Except Percentages) .............................................. 127

Table A10.10: Discrepancy Between Census Estimates and CRIM Single-Family Dwelling Counts for All Municipalities . 130

Table A10:11: Comparison of Assessed Values and Sales Prices: Vacant Residential Parcels ............................................................ 132

List of FiguresFigure 1: Other Major Taxes As a Percent of GDP ...............................................24Figure 2: Aggregate Municipal Revenue Structure: 2016 ...................................25Figure 3: Percent of Real Property Exempted .........................................................33Figure 4: Percent of Personal Property Exempted .................................................34Figure 5: Current Year Municipal Property Tax

Collection Rates: 2014-2017 ..................................................................41Figure 6: Property Tax Modernization Phase Continuum .....................................56Figure A1.1: Puerto Rico Population Change by Municipality Since 2010 ....69Figure A1.2: Puerto Rico Population Changes by Age Group ...........................69Figure A1.3: Puerto Rico Median Age ......................................................................70Figure A1.4: Puerto Rico House Price Index: 1995-2018 ..................................71Figure A1.5: Puerto Rico Residential Mortgages: 2008-2018 ..........................72Figure A1.6: Puerto Rico Mortgage Default Rate: 2008-2018..........................73Figure A1.7: Puerto Rico Housing Vacancy Rate ..................................................73Figure A1.8: Puerto Rico Total Employment ............................................................ 74

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List of BoxesBox 1: Advantages and Disadvantages of the Property Tax ...............................13Box 2: An Option for Dealing With Flawed Addresses ........................................39Box 3: Options for Reforming the Residential Exemption ..................................51Box 4: A Market Approach to Value ...........................................................................55Box A7: Real Property Exemptions ............................................................................87

Figure A1.9: Private Sector Investment Levels: 2000-2017 ...............................75Figure A7.1: Percent of Real Property Exempted ...................................................93Figure A7.2: Nominal Effective Property Tax Rates ................................................93Figure A7.3: Percent of Personal Property Tax Exempted ....................................94Figure A7.4: Effective Personal Property Tax Rates: 2018 ..................................94Figure A7.5: Percent of Real Property Assessed Value

Exempted by Land Use Category .......................................................96Figure A7.6: Average Percent Exemption by Land Use Category .....................97Figure A8.1: Ratio of Sales Price to Assessed Value by Municipality ........... 106Figure A8.2: Average Value of New Private Residential Construction .......... 108Figure A8.3: Impact of 20 Percent Reduction in Personal Property Tax

Exemptions by Municipality in the First Year of a 5-Year Phase Out .................................................................................110

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List of Acronyms

AAFAF Autoridad de Asesoría Financiera y Agencia Fiscal de Puerto Rico (Financial Advisory Authority and Fiscal Agency of Puerto Rico)

CAE Additional Speicial Tax (Contribución Adicional Especial)

CFO Chief Financial Officer

CRIM Municipal Revenue Collection Agency

FHFA U.S. Federal Housing Finance Agency

Fiscal Plan Commonwealth of Puerto Rico Fiscal Plan

FOMB Financial Oversight and Management Board

GDP Gross Domestic Product

GIS Global Information System

IAAO The International Association of Assessing Officers

IGR Intergovernmental revenue

IMF International Monetary Fund

MPTA Municipal Property Tax Act of 1991

MSF Municipal Service Fee

OECD Organization for Economic Cooperation and Development

PRDT Puerto Rico Department of the Treasury

PRIDCO Puerto Rico Industrial Development Company

PROMESA Puerto Rico Oversight, Management, and Economic Stability Act

The Commonwealth The Commonwealth of Puerto Rico

UST United States Department of the Treasury

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AcknowledgmentsThe authors wish to express their appreciation for the support received from the Puerto Rico Department of the Treasury, especially Roxana Cruz Rivera and Nelson R. Maldonado Rodriguez. The review and editorial suggestions from Gary Grippo and Jeffrey Stout (U.S. Department of the Treasury) were very helpful. We also wish to thank all those who provided essential data and insights and who graciously agreed to be interviewed as part of this project. It is quite possible that some names of those that we met were inadvertently omitted. For such errors, we take responsibility and offer our apologies. Nonetheless, we thank all those we were privileged to meet, including the following individuals.

• Government of the Commonwealth of Puerto Rico: Raúl Maldonado Gautier, CPA, Esq., Chief of Staff and CFO

• Commonwealth Department of the Treasury:

- Teresita Fuentes, CPA, Secretary of the Treasury Department; Francisco Pares Alicea, CPA, Assistant Secretary for Internal Revenue and Tax Policy Areas of the Treasury Department; Omar Negron, Municipal Advisor for the PR Government; Nelson R. Maldonado Rodriguez, CPA, Deputy Assistant Secretary for Internal Revenue and Tax Policy Areas of the Treasury Department; Roxana Cruz, Former Undersecretary of the Treasury Department; Francisco Peña Montanez, Assistant Treasury Secretary

• Financial Oversight & Management Board of Puerto Rico:

- Natalie Jaresko, Executive Director; Sebastián Negrón Reichard, Deputy Chief of Staff; Miguel A. Tulla, Fiscal Plan & Budget Implementation Director

• Centro de Recaudación de Ingresos Municipales (CRIM):

- Javier Carrasquillo, President of the CRIM Board and Mayor Cidra; Reinaldo Paniagua Látimer, Executive Director of CRIM; Laura Rechani, Esq., Director of Legal Division; Diana Claudio Sauri, Finance Director; Esdras Vélez Rodríguez, Deputy Executive Director for Operational Services

• Puerto Rico Chamber of Commerce:

- Kenneth Rivera, President of the Chamber of Commerce, CPA, Esq.; Wanda Perez, Director of Legislative Affairs - Chamber of Commerce; David Rodríguez, Past President of Chamber of Commerce, CPA; Rosa Rodriguez, Executive Director of Taxes - Ernst and Young, CPA

• First Bank:

- Michael McDonald, Executive Vice President, First Bank, Business Group Director; Felipe LeBron, Vice President, First Bank, Government and Institutional Department; Esther Serrudo, Luzmarie Velez, Wilfredo Rodriguez, Graudia Torres (Mortgage Division)

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• Puerto Rico CPA Association:

- Ramon Ponte Tapanes, President, CPA; Cecilia C. Colon Ouslan, President Elect, CPA, Esq.; Rafael Del Valle, Past President, CPA, CGMA; Jerry De Cordova, Past President, CPA, Esq; David Gonzalez, First Vice-president, CPA

• Pietrantoni, Mendez, and Alvarez, Law Firm: Manuel E. Del Valle, Esq.; Melvin J. Rivera, Esq.

• Cataiño Municipality:

- Felix Delgado, Mayor; Sergio Santiago, Finance Director; Javier Fuentes, Consultant

• O’Neil and Borges, LLC:

- Javier Vazquez-Morales, Esq.; Rosa M. Gonzalez-Lugo, Esq.; Giselle Flaque-Duran, Esq., CPA

• Universal Properties, Realty Inc.: Andres Reyes, Real Estate Broker

• Puerto Rico Manufacturing Association:

- Rodigo Masses, President and Advocate; Carlos E. Serrano, Esq.

• Puerto Rico Planning Board (PRPB)/ Central Office of Recovery, Reconstruction, and Resilience (COR3): Jose L Valenzuela, Vice-President GIS Engineer

• Statistics Institute of Puerto Rico: Mario Marazzi Santiago, Executive Director

• Public Sector Accounting and Audit Committee, Puerto Rico CPA Society:

- Soane Diaz, CPA; Marcos T Melenez Toro, CPA; Jose Toro, CPA

• Office of Industrial Tax Exemption, Department of Economic Development and Commerce: Javier J. Bayón, CPA, Esq., Executive Director

• Mayor’s Association: Rolando Ortiz, President and Mayor of Cayey

• Mayor’s Federation: Lornna Soto, Vice-President and Mayor of Canovanas

• University of Puerto Rico: Ramon J. Cao, Ph.D. Economist

• Appraisal Institute, Puerto Rico and Caribbean Chapter:

- Nancy Cruz Santiago, SRA; Edgardo Ortiz Ayala, MIE; Carlos Alberto Santiago-Flores, MBA; Carlos Xavier Vélez, Managing Director

• Planning Board of Puerto Rico: Eileen Poueymirou Yunqué, Associate Member; Alejandro Diaz, Director of Program

• Property Registration: Joaquin Del Rio Rodriguez, Administrative Director

• Department of Housing: Luis C. Fernández Trinchet, Esq., CFA, Special Aide

• U.S. Department of Housing and Urban Development, Office of Community Planning & Development: Olga L. De La Rosa, Director

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• International Association of Assessing Officers: Carlos Alberto Santiago; Edgardo Ortiz Ayala

• Autoridad de Asesoría Financiera y Agencia Fiscal de Puerto Rico (AAFAF): Fernando Sánchez, Special Advisor

• Deloitte Touche: Harry Marquez, CPA, Partner; John Doyle, CPA, Partner

Of course, the authors must take full responsibility for any errors or inaccuracies in the report.

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Executive Summary

Background and PurposeIn June 2016, the President signed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) into law. PROMESA established the Financial Oversight and Management Board for Puerto Rico (FOMB) as an entity within the territorial government with members appointed by the President. Among other responsibilities, the FOMB oversees Puerto Rico fiscal policy, including certifying the Commonwealth’s fiscal plans and budgets.

The Commonwealth of Puerto Rico Fiscal Plan (October 23, 2018), reviewed and certified by the FOMB, calls for the Commonwealth’s Chief Financial Officer (CFO) to “supervise property tax assessment reforms, prepare tax maps, and provide notice of taxes and special assessments.”

Consistent with that framework, the Puerto Rico Department of the Treasury (PRDT) requested technical assistance from U.S. Department of the Treasury on reforming Puerto Rico’s property tax system. This report was prepared in response to that request. The report

• Examines the current status of the property tax in Puerto Rico and compares it to standards commonly employed to appraise tax systems, and

• Provides policy and administrative options and makes recommendations to improve Puerto Rico’s property tax.

The study and its findings are intended for the government and people of the Commonwealth of Puerto Rico.

In addition to supervision by the Commonwealth’s Chief Financial Officer, the Fiscal Plan includes a sharp reduction in appropriations to municipalities, “ultimately phasing out all subsidies by FY2024.” These transfers currently total about $220 million per year, down from about $370 million annually.

The revenue target articulated in the Fiscal Plan for property tax reform has three components. No total revenue target is stated in the Fiscal Plan, but given the targets presented, this report assumes a target of $500 to $600 million annually. To achieve its target, the Fiscal Plan outlines three concurrent changes in current practice:

• Improved compliance levels from 65 percent to 85 percent ($150 million)

• Registering properties not currently on the tax rolls ($150 - 200 million)

• Reclassifying misclassified properties and updating valuations ($200 - 250 million)

Based on estimates developed for this report, the property tax in Puerto Rico could generate an additional $700 to $780 million in new revenue annually.

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Current System ChallengesIn order to improve both the revenue productivity and the fairness of the property tax, Commonwealth leaders must confront five major challenges with the current system. These include:

• Low compliance rates: Current compliance rates are well below acceptable levels.

• Large numbers of properties without registration and/or valuation: Thousands of properties in Puerto Rico do not appear on the property tax rolls. In addition, many registered properties have not been valued for tax purposes.

• Overly generous exemption policies: The Commonwealth and municipalities exempt about 60 percent of the known and valued tax base from taxation. This will be a particularly difficult challenge to confront since many of the exemptions granted are contractual with individual taxpayers. Even if the Commonwealth and municipalities suspend these practices immediately, it will likely take years to reach a more balanced approach to exemptions.

• Unreasonable burden on business personal property: Because of differences in valuation practices for real estate and business personal property, taxpayers with high levels of personal property and inventories bear a much heavier tax burden than do other taxpayers. This practice is affecting the behavior of taxpayers, creating distortions in the economy and inequities in the tax system.

• Outdated and inconsistent property valuation methods: Current practice values real property based on construction cost and land value coefficients that are a half-century out of date. As a result, taxable values bear little resemblance to current market values, and the distribution of the tax burden among property owners is unfair.

Evaluation CriteriaThe recommendations presented here derive from the analysis presented throughout the report and the attached appendices. The evaluation assumes that the property tax is fundamentally a local government responsibility, and applies six commonly used tax evaluation criteria:

• Tax revenues should track the overall economy, but with greater stability

• The taxable base should be broadly defined, and tax rates should be low while still generating sufficient revenue

• Taxpayer compliance costs should be kept to a minimum

• The government’s cost to administer the tax should be low in the medium- to long-term

• The tax should be economically neutral, meaning that changes in taxpayer behavior in response to the tax should be few and small.

• The tax burden should be fairly and equitably assigned to taxpayers



Finally, one must acknowledge the political, administrative, and financial challenges associated with major property tax reforms. Change takes strong political will, adequate resources, and time.

This report presents four key steps to property tax reform: 1) undertake six tasks that are essential to any reform; 2) implement a set of interagency reforms; 3) pursue a phased approach to valuation modernization; and 4) implement a “municipal service fee” to meet immediate revenue targets and enable reforms.

1. Six Essential TasksReforming the property tax in virtually any context involves administrative and political challenges. To be successful, any reform effort in Puerto Rico will necessarily involve the following six essential tasks, explained more fully in Chapter IV.

1. Identify and designate the senior political leader to spearhead reforms

2. Design and initiate a meaningful public engagement process

3. Create a small property tax oversight function and team within the PRDT to monitor and report on the effectiveness of CRIM operations

4. Add the trained personnel needed to focus on completing all valuations currently pending, and then updating and maintaining existing values

5. Add the trained personnel needed both at CRIM and in the municipalities to identify unregistered properties and improve collections

6. Modify the existing CRIM database to incorporate fee appraisal data submitted to CRIM by financial institutions

Over time, registering and valuing all properties and improving collections has the potential to increase the annual revenue from the property tax by over $700 million. However, these improvements will take years, not months, to achieve. In addition, the inequities embedded in the current system because of outdated valuation methods and current exemption policies will still be present.

2. Improving Equity and Efficiency Through Interagency Administrative Reforms

Improving the equity and efficiency of the property tax in Puerto Rico will require further changes in both law and administrative practices. In addition, Puerto Rico should update the organization and oversight of the property tax system to assure implementation of reforms and achievement of the desired equity and efficiency improvements.

The effectiveness of CRIM is critical for property tax administration in the Commonwealth. However, the property tax is fundamentally a local tax whose effective administration relies on the knowledge and active cooperation of local government officials. Reforms should strengthen the function of both CRIM and local governments.



Recommendations affecting municipalities• Municipalities should continue to have the flexibility to set final tax rates within limits

established by the Commonwealth.

• Eliminate the ability of municipal governments to grant tax exemptions for economic development beyond those approved by the Commonwealth.

Shared responsibilities• CRIM should establish a procedure to notify municipalities of any undeliverable tax

notices expeditiously. Municipalities should accept and process such notices and use their best efforts to notify all property owners of their tax obligation.

• Each municipality (or region) should develop the administrative capacity to actively review, verify, and update CRIM property tax accounts for their jurisdiction. Corrections and updates submitted by municipalities should be subject to review by CRIM staff, however if not processed by CRIM within 60 days, the changes submitted by the municipalities should become final.

• The administrative burden to identify new properties or existing properties not currently included in the fiscal cadaster should be a shared responsibility between municipalities, CRIM, and the property registration agency.

Recommendations regarding CRIM oversight• The performance expectations for CRIM and the property tax need to be carefully

articulated.

• Create a small property tax unit within the PRDT to provide annual performance evaluations of CRIM and municipal property tax operations. CRIM should be required to provide annual statistical and performance reports to this unit. Municipalities should also be required to provide annual reports on their property tax-related efforts.

3. Modernizing the Property Valuation SystemIf the Commonwealth implements the six essential tasks and organizational changes outlined, the path forward for modernizing the property tax system lies along a continuum of improvements. How far Puerto Rico chooses to progress along the continuum will depend on the intended objectives, the resource commitment, and the time frame.

The reform phases presented here describe the continuum of options for improving the administration of the property tax and determining the taxable value of land and immovable improvements. The phases range from simply repairing the current system to a complete overhaul of the system based on an entirely different approach to property valuation.

The major differences along the continuum relate to the administrative capacity and data needs on one hand, and the equity and revenue buoyancy on the other. The reform continuum consists of five phases.



Phase 1: Reform the existing property tax system:

• Reform current exemption practices including both economic development and residential exemptions

• Repeal either the entire personal property tax (preferred option) or at least the tax on business inventories

Phase 2: Update the appraisal coefficients used in the current valuation process:

• Update land coefficients

• Update construction cost coefficients

• Update and revalue all property every three to four years

Phase 3: Enhance the area-based property tax valuation process for real property (the preferred option outside major urban centers)

• Develop more detailed property records

• Determine final coefficients based on both costs and estimated relationship to market conditions

Phase 4: Develop and apply a cadastral valuation process (preferred option within urban centers)

• Phase 4 is a significant change in the approach to property valuation

• The approach uses market sales data and statistical methods to estimate the relationship between lot size, building size, and sales price within each geographically compact and reasonably homogeneous market “zone.” The estimated coefficients are then applied to each individual property within each zone to calculate the assessed value.

• A cadastral valuation process moves the property tax much closer to a market-based system without the need for the detailed property-specific data required by a full market-based valuation process.

Phase 5: Move to a comprehensive property tax based on current market values

• While often advocated, implementing a market-based valuation system for the property tax has proven to be an elusive policy goal in many international settings and even in some states. The administrative challenges to a market-based system that have arisen internationally are evident in Puerto Rico.

• The two most significant challenges in implementing a market-based valuation process are the amount and quality of the data required, and the amount of technical expertise needed.

• While implementing a market-based mass appraisal system is feasible, the difficulties are significant and include significant data improvements, increased administrative capacity, and substantial time to complete the transition.



This report recommends implementing the six essential tasks, the administrative reforms listed and at least Phase 1. How far beyond Phase 1 reforms the Commonwealth elects to move is a policy choice. A productive and viable property tax system can result by stopping after ANY of the phases. The system will not be “perfect,” but no property tax system ever is. The central question is, how much time and resources is Puerto Rico willing to commit to address the remaining inequities?

4. Meeting Immediate Revenue NeedsAddressing current policy and administrative deficiencies, building the administrative capacity, improving the databases, and acquiring the technical expertise needed will take years, not months.

Given the legal and political challenges surrounding current exemptions, it is not clear that revenues will increase significantly even with all the needed changes.

The recommendation is to adopt a two-pronged approach:

• Authorities should pursue a serious property tax reform program as outlined in the six essential tasks and Phases 1 through 5.

• Recognizing the immediate need for additional revenue, authorities should implement a separate and independent land-based fee that is not subject to current exemption practices.

In order to meet the short-term revenue target and allow the repeal of the business personal property tax, the Commonwealth should institute a municipal service fee based on land area.

• Adopt a municipal service fee of $0.11 per square meter to apply to all non-agricultural land not classified as “institutional”.

• Adopt a municipal service fee of $0.0275 per square meter to apply to all agricultural land.

• The fee will apply only to land, not improvements.

• Allocate $409 million of the new revenue to municipalities to replace the repealed personal property tax.

• Retain the balance (about $600 million) at the Commonwealth level to fund municipal-type services delivered by the Commonwealth.

These recommendations provide a path forward for transforming the property tax in Puerto Rico in the years to come while at the same time meeting the immediate revenue targets set by the Commonwealth and the FOMB.

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I. IntroductionOn July 14, 2016, the U.S. Department of the Treasury (UST) and the Commonwealth of Puerto Rico (Commonwealth) signed a “Framework for Cooperation between the U.S. Department of the Treasury and the Commonwealth of Puerto Rico on Public Finance Capacity Building and Technical Assistance.” Consistent with that framework, on August 1, 2018, the Puerto Rico Department of the Treasury (PRDT) requested technical assistance from U.S. Department of the Treasury on reforming Puerto Rico’s property tax system. This report was prepared in response to that request.

This report examines the status of the property tax and compares it to standards commonly employed to appraise tax systems. The report provides policy and administrative alternatives to improve Puerto Rico’s property tax. The objective of the technical assistance is to document reform options for a more effective property tax system in Puerto Rico. The study and its findings are intended for the government and people of the Commonwealth of Puerto Rico.

Background and PurposeIn June 2016, the President signed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) into law. PROMESA established the Financial Oversight and Management Board for Puerto Rico (FOMB) as an entity within the territorial government with members appointed by the President. Among other responsibilities, the FOMB oversees Puerto Rico fiscal policy, including certifying the Commonwealth’s fiscal plans and budgets.

PROMESA does not automatically apply to municipal governments in Puerto Rico, and to date the FOMB has not exercised its discretion to cover municipalities. The Commonwealth of Puerto Rico Fiscal Plan (October 23, 2018), reviewed and certified by the FOMB, calls for the Commonwealth’s Chief Financial Officer (CFO) to “supervise property tax assessment reforms, prepare tax maps, and provide notice of taxers and special assessments.”1

In addition, the Fiscal Plan calls for reducing Commonwealth appropriations to municipalities before, “ultimately phasing out all subsidies by FY2024.”2 These transfers currently total about $220 million, down from about $370 million annually.

The revenue target articulated in the Fiscal Plan for property tax reform has three components. Collection of $500 million in back property taxes owed, based on estimates by the Municipal Revenue Collection Agency (CRIM). Second, CRIM estimates that annual revenues could be increased by $300 to $350 million by improving compliance and by registering properties not currently on the tax rolls. There is a third “opportunity” relating to property reclassification and valuation updates, but no revenue estimate is given for this component.3

1. October 23 Fiscal Plan p. 69.



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While collection of back taxes due is an important initiative, this report will focus on the issue of on-going revenues. No total revenue target is stated in the Fiscal Plan, but based on the passages just cited, this analysis assumes a revenue target of $500 to $600 million annually. The Fiscal Plan expects three concurrent changes in current practice to meet this target:


• Registering properties not currently on the tax rolls ($150–200 million)

• Reclassifying misclassified properties and updating valuations ($200–250 million)

This report recommends improvements to the policies and administration of the property tax system in Puerto Rico with the objective of reaching the revenue target. In addition, the recommendations address inequities and inefficiencies in the current property tax system.

Economic Conditions in Puerto RicoProperty tax reform must take into consideration that Puerto Rico has been in serious recession for a number of years. Gross Domestic Product (GDP) fell by over 8.6 percent in constant dollars between 2008 and 2017.4 During the same period, total employment fell by 17.8 percent. Linked to the economic recession has been a steady decline in total population as households and individuals have left the Commonwealth in pursuit of other opportunities. The downward cycle in the Puerto Rican economy is also occurring in other Caribbean economies.5

Along with the population decline, it is widely recognized that Puerto Rico’s housing market is in crisis. For example, one recent assessment of Puerto Rico’s housing pre- and post-Hurricane Maria begins: “By all counts, Puerto Rico’s housing market is in a deep and prolonged crisis.”6 Mortgage statistics reflect the housing crisis. Since 2008, the number of residential mortgages has declined by 16.6 percent, and the aggregate value of mortgages is down over 23 percent.

In summary, a struggling economy directly affects property tax. In particular, the declining and aging population, softness in the housing market and limited investments in new construction are trends that may affect the medium-term design and implementation of property tax reform. We present further details on the state of the Puerto Rican economy as it affects real estate markets and therefore potentially the property tax in Appendix A1.

Estimating Revenue Potential of the Property TaxThe Fiscal Plan calls for reducing Commonwealth appropriations for municipalities to 55 to 60 percent of current levels through FY2022, before ultimately phasing them out completely

4. Statistical Appendix of the Economic Report to the Governor, 2017, Table 1.

5. Susan M. Collins, Barry P. Bosworth, and Miguel A. Soto-Class, eds. The Economy of Puerto Rico: Restoring Growth, The Brookings Institution, Washington, D.C. (2006).

6. Hinojosa, Jennifer and Edwin Melendez, 2018, The Housing Crisis in Puerto Rico and the Impact of Hurricane Maria, Center for Puerto Rican Studies, Hunter College, CUNY, (June) RB2018-04, p. 2.

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by FY2024.7 To enable municipalities to become or remain solvent in the face of such transfer reductions, the Fiscal Plan calls for both municipal service consolidations and property tax reform.

It is important, therefore, to ask whether the property tax revenue target is feasible in light of both economic conditions and broader fiscal trends. With income tax collections at about 4 percent of GDP, sales taxes at 1.5 percent of GDP and excise taxes at 3 percent of GDP, is there sufficient financial capacity to increase the tax burden placed on land and property owners?

The standard metric for comparing property tax revenues across jurisdictions internationally is to express revenue as a percentage of GDP. For example, John Norregaard, a senior economist with the International Monetary Fund (IMF), compared the property tax levels in both OECD and non-OECD countries, and by country income levels.8 He found that from 1965 through 2010, recurrent taxes on property averaged about one percent of GDP among OECD countries, and generally represented about four percent of total tax revenue.

Norregaard further notes that reliance on the property tax is “broadly (albeit imperfectly) correlated” with income levels. The average yield among high-income countries in 2010 was 1.06 percent of GDP and only 0.40 percent of GDP in middle-income countries. Norregaard characterizes property tax revenue yields above two percent of GDP as “heavy”. These are useful statistics to bear in mind when assessing the revenue potential for the property tax in Puerto Rico.

Table 1 reports total property tax collections in Puerto Rico for the past five fiscal years and expresses the totals as a percentage of Commonwealth GDP. The pace of revenue collections in Puerto Rico in recent years compares quite favorably with OECD countries generally and high-income countries more broadly.

Table 1: Puerto Rico Property Tax Revenue

YearTotal Property Tax Revenue

(millions)GDP (millions)

Property Tax As Percent of GDP

2012-13 $979.40 $102,450.0 0.956%

2013-14 $1,000.50 $102,445.8 0.977%

2014-15 $1,011.72 $103,375.5 0.979%

2015-16 $1,015.26 $103,960.8 0.977%

2016-17 $1,050.01 $104,218.6 1.008%

Source: CRiM; Statistical Appendix of the Economic Report to the Governor and calculations by the authors.

Among the community of nations, the United States is one of the countries that is most reliant on the property tax. Between 2012 and 2016, the U.S. national average property tax

7. October 23 Fiscal Plan, p. 117.

8. Norregaard, John, 2013, Taxing Immovable Property: Revenue potential and implementation challenges, IMF Working Paper WP/13/129.

10 | inTRoDuCTion


level varied between 2.71 percent and 2.78 percent of GDP, and the tax represented nearly one-third of all state and local tax revenue.9

Table 2 reports total state and local property tax revenue as a percentage of state GDP for the ten states with the lowest overall property tax levels in 2016. Among these ten states, the average property tax level was 1.63 percent of GDP in 2016.10

Table 2: State and Local Property Tax Revenue As a Percentage of GDP: 2016

StateProperty Tax As Percent of GDP

(2016)Rank

indiana 1.86% 42

north Dakota 1.84% 43

Kentucky 1.76% 44

Arkansas 1.75% 45

Louisiana 1.75% 46

new Mexico 1.72% 47

Tennessee 1.67% 48

oklahoma 1.51% 49

Alabama 1.30% 50

Delaware 1.16% 51

u.S. Average 2.72%

Source: u.S. Census Bureau; u.S. Bureau of Economic Analysis; calculations by the authors.

Assessing the revenue potential of the property tax must be done cautiously and in the context of the other policy choices elected by states and localities. As in other parts of the United States, municipalities in Puerto Rico have other own-source tax revenues including the municipal license tax, local sales taxes, and often an excise tax on new construction.11 Nonetheless, compared to other jurisdictions in the United States, it seems clear that Puerto Rico has the potential to increase its revenue from the property tax. It seems equally clear that reaching the national average of 2.7 percent of GDP seems unrealistic in the medium term.

It must be born in mind that municipalities in Puerto Rico do not provide the same range of public education and other public services assigned to local governments in the United States. Nonetheless, given the comparisons presented here, this analysis assumes that the revenue

9. U.S. Census Bureau, 2016 State & Local Government Finance Historical Datasets and Tables; U.S. Bureau of Economic Analysis, Gross domestic product (GDP) by state; calculations by the authors.

10. A state’s relative reliance on any given tax is a function of current and historical policy choices. Some states such as Connecticut have severely limited local government revenue generating options, with the result that property taxes in those states appear quite high. Other states have allowed local governments to develop multiple revenue sources, including a variety of local taxes and charges. In addition, Federal intergovernmental revenues play a significant role in every state.

11. The excise tax on new construction is similar to an impact fee, but it is not clear that the revenue generated must be spent on public infrastructure.

inTRoDuCTion | 11


from the property tax could be increased and a revenue target of at least 1.6 percent to 1.75 percent of GDP should be achievable within a reasonable period. Such an increase would represent approximately $700 to $780 million in new revenue. The allocation of revenue between municipalities and the Commonwealth is beyond the scope of this analysis.

The Principle Challenges Property Tax Reform Must ConfrontIn order to improve both the revenue productivity and the fairness of the property tax, Commonwealth leaders must confront five major challenges with the current system.

• Low compliance rates: As noted in the Fiscal Plan, current compliance rates are well below acceptable levels. Chapter III presents explanations for these low rates. In order to reach the revenue target and simply to improve the equity of the tax system, compliance levels must reach at least 85 percent.

• Number of properties without registration or valuation: As documented in Chapter III, thousands of properties in Puerto Rico do not appear on the property tax rolls. In addition, many registered properties have not been valued for tax purposes. This issue is noted in the Fiscal Plan. Addressing the problem will require both additional resources in CRIM and greater cooperation with municipalities.

• Overly generous exemption policies: The Commonwealth and municipalities exempt about 60 percent of the known and valued tax base from taxation. This will be a particularly difficult challenge to confront since many of the exemptions granted are contractual with individual taxpayers. Even if the Commonwealth and municipalities suspend current practices immediately, it will likely take years to reach a more balanced approach to exemptions.

• Unreasonable burden on business personal property: Because real estate and business personal property are valued differently, taxpayers with high levels of personal property and inventories bear a much heavier tax burden than do other taxpayers. This practice is affecting the behavior of taxpayers, creating distortions in the economy and inequities in the tax system.

• Outdated and inconsistent property valuation methods: Current practice values real property based on construction cost and land value coefficients that are a half century out of date. As a result, taxable values bear little resemblance to current market values, and the resulting distribution of the tax burden among property owners is unfair.

Addressing these challenges will require policy changes, re-evaluation of the resources committed to property tax administration, and time. The Commonwealth should take steps in the near term to improve administration and equity, but the revenue improvements from such reforms will only accrue over a number of years. Consequently, in order to reach the desired revenue target, the recommendations made here include a new policy proposal.

12 | inTRoDuCTion


Structure of the ReportThe balance of the report is organized in four chapters. Chapter II discusses the objectives for reforming the property tax, including the criteria to evaluate policy and administrative options. The chapter also lays out the key policy and administrative choices and options available to policymakers. The chapter concludes with a comparison of the current system with the criteria.

Chapter III describes in greater detail the current property tax system and municipal revenue structure. The chapter details the property tax policies and practices as they currently exist and documents their fiscal impacts. The dimensions covered include

• The legal framework

• The administrative role of CRIM

• The definition of the property tax base and exemptions

• Property valuation practices and valuation cycles

• Billing, valuation appeals, and tax collection patterns

Chapter IV identifies the options for reforming and modernizing the property tax. The options are presented as a continuum of alternatives that will allow policymakers to set the ultimate reform objectives with a clear understanding of what each alternative will and will not achieve, the relative costs and approximate time requirements. The chapter also presents the interim financing reform needed to achieve the near-term revenue target.

Chapter V provides a summary and concluding observations. Each chapter references additional detail and supporting documentation provided in a series of technical Appendices.

oBjECTivES of REfoRM | 13


II. Objectives of ReformReform ObjectivesTwo over-arching objectives should drive property tax reform in Puerto Rico:

• Reaching the revenue targets

• Improving equity and economic efficiency

Chapter IV discusses options for making progress on both. This section focuses on both the meaning and the metrics for assessing equity and efficiency. While the property tax is often politically unpopular, it remains a mainstay in financing local governments because of its multiple advantages. Box 1 summarizes both the advantages and disadvantages of the property tax. 12

Box 1: Advantages and Disadvantages of the Property TaxAdvantages of the property tax:Generates substantial revenue. using generally modest rates, the property tax is the primary source of own-source revenue for local governments in the united States. • A stable source of revenue. During periods of economic growth, the property tax

tracks the growth but during downturns, the property tax continues to produce revenue. The income elasticity of the property tax is generally less than one implying a stable revenue source.

• Difficult tax to avoid. Property is both visible and immobile and easily discovered for tax purposes.

• Economic distortions are minimized. it is imposed on a fixed supply of land that creates few opportunities to avoid the tax.

• Benefits and costs are parallel. The revenue raised by the property tax generally corresponds to the funding of local public services.

• Facilitates public engagement in local government. The direct and visible characteristics of the tax promote citizen participation in public policy issues.

• Funds public services and infrastructure that contribute to economic growth. • Compliance cost is low. Complying with the property tax is easy for property owners.Disadvantages of the property tax:• High administration costs. Property tax requires significant investment in

administrative functions.• Requires substantial detail on property parcels. Administrators must collect and

maintain substantial parcel records that need continual updating. • Requires frequent reappraisals. To maintain buoyancy and responsiveness of

revenue and to promote equity, parcels need to be reappraised every three to five years. • Politically unpopular. • Property owners are quick to react to any property tax change.

12. The advantage of the property tax is a common topic in public finance textbooks. See, Joan Youngman (2016). A Good Tax: Legal and Policy Issues for the Property Tax in the United States, Lincoln Institute of Land Policy, Cambridge, MA, for an excellent review of the important role the property tax plays in local government finance.

14 | oBjECTivES of REfoRM


Criteria for Evaluating the Equity and Efficiency of the Property TaxEconomists and tax policy experts have identified criteria that inform and guide effective tax design. Applying these criteria to tax design and policy choices creates a tax scheme that produces revenue, minimizes distortions in the economy, and fairly allocates the tax burden. Ignoring these tax design criteria fosters a tax system that undermines the efficient function of an economy and unfairly burdens some taxpayers.

The fundamental relationship in tax design is:

Tax Revenue = Tax Rate X Tax Base

The tax base is the total value of the assets being taxed. Legislative mandates define the range of tax rates and tax bases. A broadly defined tax base will result in lower tax rates in an effectively administered tax system.

Criterion 1: Tax Revenues Should Track the Overall Economy, but with Greater Stability

Stable tax revenue is important for the functioning of a government. Stability implies fluctuations in tax revenue are less dramatic than the normal oscillations associated with the economy. Regardless of business cycles, citizens and businesses rely on basic government services like public safety, sanitation, roads, and education, and current revenues, not borrowing, should fund such services. Stable revenues minimize the uncertainty associated with budget and revenue forecasts. Stable revenues allow for better operational, as well as long-term fiscal, planning. Stable revenues facilitate commitments to fund long-lived infrastructure projects that require borrowed funds to finance them over multiple budget cycles.

Tax Criteria Puerto Rico’s Current Property Tax

Stable Revenue Tax revenue is generally stable year over year in the current property tax system. (See Table 1)

Buoyant tax revenue promotes permanency for government operations. Tax revenue should follow the general trend in an economy. As the economy grows, tax revenue ought to grow at about the same rate (or slightly less) without the need for increases in tax rates. Increasing tax rates during a budget cycle to fund government growth required to support increased economic activity is a short-term solution.




Buoyant Revenue • The tax on land and permanent improvements in the Puerto Rico Property Tax system is not buoyant. The appraisal level is set at 1957–8 levels and does not account for increases in property values. Revenue increases are only accomplished by increases in the tax rate. (Chapter III and Appendix A4)

• The tax on tangible personal property is based on the depreciated value of the personal property. The value of tangible personal property does follow changes in the economy to some extent. (Chapter III and Appendix A5)

• The tax on business inventories is based on current prices and is buoyant. (Chapter III and Appendix A5)

Criterion 2: Broad Tax Base and Low Tax RatesA broadly defined tax base and low tax rates facilitate a tax system that minimizes behavioral distortions in the economy. A low tax rate applied against a broad base results in stable revenue. A broad base will have lower elasticity with respect to income and will therefore be more economically neutral. It is also more likely to capture the inherent growth associated with a growing economy. Having a broad base and low rates minimizes the incentives to avoid the tax.

Best practice dictates a broadly defined tax base that captures the entirety of the potential value associated with the base. A tax base that captures all of the potential value of the base will result in lower tax rates. Errors in identifying and valuing all taxable property undermine fairness in the system. Exemptions from the tax base create incentives for taxpayers to gain a tax advantage by having their assets moved to the nontaxable portion of the base. For that reason, exemptions should be kept to a minimum. Exemptions are normally only justified when the administration of the tax or compliance with the tax is complex.


Broad Base The current property tax system in Puerto Rico has a narrowly defined tax base. • Thousands of properties have yet to be identified, properly valued, and included in the tax

base. (Chapter III and Appendix A10)• Multiple classes of property and multiple business functions are exempted from the property

tax. (Chapter III and Appendix A7)• The appraisal system essentially exempts all of the market value associated with the increase

in property values since 1957–8. (Chapter III and Appendix A4)• Tax loopholes intended to encourage economic development dominate the property tax base.

(Chapter III and Appendix A7)

Tax rates should be as low as possible and still generate sufficient revenue to operate government. Low tax rates applied to a broad base minimize the potential for economic distortions because behavioral incentives to avoid a tax are reduced when rates are low. Low rates also reduce political challenges to taxation.




Low Tax Rates Commonwealth property tax rates on real property, improvements to real property, tangible personal property and inventories are very high. The high rates create incentives to avoid paying the tax and they unduly burden multiple classes of taxpayers. (Chapter III and Appendices A6 and A10)

Criterion 3: Minimize compliance costsCompliance costs include all of the costs borne by taxpayers to comply with their tax obligation. In addition to the actual tax payment, these costs include any costs the taxpayer incurs to provide information to the tax authority, understand how their tax obligation is calculated, and the expense and ease of delivering the tax payment. These costs in terms of financial and human resources to comply with a tax should be minimized to the extent feasible. A high cost of compliance creates incentives to avoid the tax.

• A broadly defined tax base can help to minimize compliance cost.

• Providing taxpayers with clear, easy to understand tax notices and explanations for how the tax is computed will improve compliance.

• Providing multiple avenues for paying the tax (for example, banks, utility companies, on-line, mobile phones) will reduce costs and improve compliance.

Granting exemptions and creating different classes of taxpayers fosters uncertainty and increases compliance costs.


Minimize Compliance Cost

The compliance cost associated with the real property and improvements in the Puerto Rico property tax system are fairly low. Taxpayers make two payments after receiving their tax bills, but the tax notice lacks clarity on how the tax is computed. The compliance costs associated with tangible personal property are relatively high because the burden of determining and reporting taxable value is placed on the owner. The process is largely driven by use of computer-generated tables for larger firms. The inventory tax has high compliance costs. (Chapter III and Appendix A4)



Criterion 4: Administrative costs should be low in the medium- to long-term.The cost to the tax agency to administer the tax must be kept as low as possible while still maintaining service quality levels. A broadly defined tax base with few exemptions and special taxpayer classes helps to minimize the administrative cost associated with a tax. Matching valuation methods to administrative capacity helps maintain an appropriate balance between administrative costs and revenue productivity.


Low Cost of Administration CRiM retains five percent of revenues collected to cover their costs. in the long run, this is about the right level. Given the challenges facing the current system, it is likely additional resources will be required in the short- to medium-term.

Criterion 5: Maximize economic neutralityThe tax should minimize economic distortions. Taxes can create incentives for taxpayers to comply or to change their behavior to avoid paying a tax, in some of the following ways. A carefully designed tax employing a broad definition of the taxable base, when accompanied by low tax rates, reduces incentives to avoid paying the tax. A tax with high rates can constrain economic investment in a taxing jurisdiction if competing taxing jurisdictions have lower tax burdens. As a rule, narrowly defined tax bases result in high tax rates, creating incentives for avoidance. When taxpayers’ economic decisions are driven by tax concerns and not by market forces, the efficient functioning of the economy is undermined. Taxes should not favor one class of taxpayers over another class of taxpayers. Economic efficiency can also be compromised when tax compliance is difficult. In principle, property taxes generally are widely acknowledged to do well on the economic neutrality criterion.


neutrality The current Puerto Rico property tax system fosters economic inefficiency. • Taxpayers actively solicit government agencies to be granted property tax relief. • The tangible personal property tax may create incentives for a firm to employ less efficient

equipment and processes in its operation. • The inventory tax creates incentives to minimize inventories for retail and business-to-

business firms. • Current appraisal practices for real property and improvements distort investment decisions. • Some industrial and commercial taxpayers receive preferential treatment.



Criterion 6: Taxes should be fairTax systems should treat taxpayers of equal means in a similar manner. Tax fairness implies that the tax burden for taxpayers with generally identical taxable assets should be equal (defining horizontal equity). Two comparable properties should be subject to the same tax. Tax fairness also implies that taxpayers with unequal assets should be treated differently. The property tax system should differentiate between taxpayers with unequal capacities to pay taxes (defining vertical equity). Taxpayers are more inclined to pay taxes they view as fair and transparent.


Equity The current Puerto Rico property tax system creates substantial equity concerns. • Multiple large industrial categories are currently exempt from the property tax. (Chapter III and

Appendix A7)• Current appraisal practices for real property and improvements undermine the fairness in the

property tax system. Recently constructed residential or business buildings are taxed at the same level as older buildings suffering from functional inadequacies. (Chapter III and Appendix A4)

The resulting tax gapThe tax gap is the difference between what the tax should produce in revenue and actual collections. All taxes fall short of 100 percent compliance. The tax gap is a function of the legal framework, administrative effectiveness, and taxpayer compliance.

• The current legal framework excludes a large percentage of property from taxation.

• Current administrative practices have failed to identify and value thousands of properties that should be taxed.

• Many tax notices are not delivered in a timely manner, and there is inadequate follow up with tax avoiders.

The combined result is that the property tax in Puerto Rico badly underperforms relative to its potential. The following Table 3 provides an overview of how the current system performs on each of the criteria discussed here. Further details are provided in the next chapter and in the Appendices.



Table 3: Performance of the Current Property Tax System

Tax CriteriaLand and Permanent

ImprovementsBusiness Personal

PropertyInventories

Stable revenue Good fair fair

Revenue buoyancy very poor fair Good

Broad base/Low rates Poor Poor Poor

Compliance costs fair Poor Poor

Cost of administration Good fair fair

Economic neutrality Poor very Poor very Poor

Equity Poor very Poor very Poor

Source: The authors.

Policy ChoicesEvery jurisdiction seeking to successfully implement and sustain an annual tax on property faces similar challenges:

• Identification of properties and owners or responsible parties (The responsible party is generally the owner but in some situations, occupants are responsible for the tax.);

• Calculation of the tax for each property;

• Notification of tax obligation to the responsible party;

• Processing questions and objections from taxpayers;

• Collection and accounting for taxes; and

• Pursuit of tax avoiders.

All of these tasks are common to every successful property tax system. However, property tax systems differ widely in their approach to valuation of a property for tax purposes. Some of the differences relate to the history of the particular jurisdiction. Some reflect differences in administrative capacity. All of the approaches can be successful in generating stable revenue.

They differ in their data requirements, administrative complexity, and equity across taxpayers and the degree to which revenues keep pace with economic growth. Table 4 identifies the principal approaches to real property valuation seen around the world. The table also summarizes the main differences on the four dimensions just listed. Nearly all of these approaches can be applied to land only, to constructed improvements (e.g., buildings) only, or to both land and buildings.

As noted in Table 4, the approaches to value are commonly divided into two groups. First, there are approaches based on non-market considerations such as the physical attributes of the property and its location. The second group assumes an active real estate market and bases value on current market conditions, a market-based approach.



In general, non-market approaches require less information on each individual property and are therefore easier to administer. Because they do not provide a great deal of differentiation between properties, they also tend to be less equitable in allocating the tax burden. Finally, because they tend to be based on fixed attributes that rarely change, these approaches do not normally keep pace with changes in the economy. In order to maintain revenue growth commensurate with economic growth, tax rates must be adjusted regularly.

There are many examples of countries that use non-market approaches. Countries that use land and/or building area as the basis for taxation include Chile, India (some states), Israel, Lithuania, Namibia, Poland, Romania, Saint Lucia, Trinidad and Tobago, and Ukraine. The systems in these countries are not identical by any means, but they all are based on the physical attributes of the property and its location. Value banding has proven to be successful in the United Kingdom for valuing residential properties. In addition, Latvia has been very successful in using a cadastral valuation system administered by a central agency.

Market-based approaches are more familiar to land owners in the United States since most state systems are based on some concept of market value. These approaches are also employed in most of western Europe and much of Latin America. Market-based approaches levy the annual tax as a percentage of the current market value of the property. To the extent that tax assessors keep their values up-to-date, the tax base will grow (or shrink) as land and improvement values adjust to the level of economic activity in the community. Another advantage is that properties valued the same in the market place will pay the same tax, while more (or less) expensive properties will pay a different tax. To be effective in following changes in markets and in general economic conditions, market values should be revalued frequently, at least every three to five years.

These market approaches employ the standard valuation methods used by professional appraisers around the world, but they do so in the context of “mass appraisal.” The distinction is in the number of valuations that must be carried out. Private fee appraisers value single properties (or perhaps a small set of properties) at a cost of $300 to $500 per property, or more for commercial properties. Property tax valuation teams must value hundreds to millions of properties within a very limited amount time at a cost of $25 or less per property. The only reasonable way to accomplish the task is to use statistical models to approximate market valuations.

Markets are very discriminating and value location and building attributes quite differently across properties. For example, two seemingly identical apartments in the same building may differ markedly in price because one has a view of the beach and ocean while the other overlooks a parking structure and adjacent buildings. Proximity to public infrastructure, such as highways or public school facilities, also has a significant effect on market value. A market-based mass appraisal approach must identify the main property attributes that differentiate properties, value each attribute, and then estimate the overall market value of each property based on its attributes.



Table 4: Property Valuation Approaches in Use Around the World

Method Used to Determine Taxable Value

Data Requirements

Administrative Complexity

Equity/FairnessRevenue Buoyancy

Horizontal Vertical

non-Market Approaches

Land area only

uniform rate applied to land area occupied

Low Low High Low Low to none

Area-based assessment (PR real property)

Same value constant per square meter (land and/or floor area) within each location zone and land use category

Low LowLand: High

Buildings: Low

Moderate Low

value banding approach

Same tax for each property within a range of values

Moderate Moderate Moderate Moderate Low

Cadastral value approach

Average market value per square meter by zone and land use class

Moderate Moderate Moderate Low to moderate Moderate

Market-Based Approaches

Cost approach (PR & some u.S. states personal property)

Cost of buying land and constructing the building less depreciation

Moderate to High

Moderate to High

Moderate to High

Moderate to High Moderate

Comparable sales approach (Most u.S. states for residential)

value compared to recent sales of similar properties

High High High High High

income approach (u.S. states for industrial)

Capitalized annual income that can be generated by the property

very High very High High High High

Annual rental value

Annual rent that could be collected for leasing the property

High High Moderate to High

Moderate to High High

Source: The Authors

There are three standard market approaches to value: cost, comparable sales, and income. As indicated in Table 4, each is an attempt to approximate an arms-length market transaction in which a willing buyer and willing seller agree on a price. The cost approach takes the view



that no buyer would pay more for a property than what it would cost to buy comparable land and construct a similar building (less age-based depreciation). The comparable sales approach estimates value on the claim that no arms-length buyer would pay more for a property than the selling price of similar and comparable properties. The income approach views all properties as investments that generate income. Buyers (and sellers) will value the property based on the discounted present value of expected future cash flows.

In most U.S. jurisdictions, all three approaches are used but not for all properties. Using the comparable sales approach requires enough sales transaction data to be able to build statistical models relating property attributes to sales prices. Because of the data requirements, tax assessors commonly use the comparable sales approach to value residential properties. (Jamaica is an interesting example of a country that uses a comparable sales approach to value all land. All buildings are exempt in Jamaica.) Because there are generally fewer sales transactions and income data may be limited, assessors commonly use the cost approach for commercial properties. Large complex properties (e.g., electric utilities) are often required to submit property tax returns each year and provide tax assessors with the data needed to use an income approach to value. In principle, any combination of the three approaches could be used on any property, but in a practical mass appraisal setting, only one or at most two approaches are used, unless the taxpayer appeals.

The final approach listed in Table 4 is the annual rental value approach. This valuation approach is prevalent in countries that have historical ties to the United Kingdom. In this approach, value is determined by the rental market, and a property is taxed based on the current rental value (less typical expenses). The United Kingdom and many former British colonies use this system for non-residential properties.

The Puerto Rico Property Tax SystemThe Puerto Rican real property tax system is a de facto area-based system. On first consideration, the current Puerto Rico property tax for real property appears to be a cost approach, in which land is valued at market value and improvements are valued at the replacement cost less depreciation. However, since construction factors and land prices have not been updated since 1957, in fact the current system is an area-based approach in which the value coefficients were set in 1957.

The current tax on business personal property, including inventories, uses a cost approach. In addition, since the costs are much more current, the valuations are much closer to current market value. Thus, there is a fundamental mismatch between the methods used to value real property and those used to value business personal property. This mismatch creates significant inequities in the distribution of the tax burden among taxpayers.

The authors recommend that Puerto Rico begin the process of addressing the policy, administrative and personnel challenges facing the current property tax system. The eventual goal is a fully modern, well-managed property tax system that treats all taxpayers in a fair and transparent manner based on the current market value of their property. Such a system would equitably assign tax obligations and meet the reform objectives listed here. Addressing current



policy and administrative deficiencies, building the administrative capacity, improving the databases, and acquiring the technical expertise needed will take years, not months.

Given the legal and political challenges surrounding current exemptions, it is not clear that revenues will increase significantly even with all the recommended changes. There is no question that these reforms will shift the tax burden among taxpayers. But with exemptions in excess of 90 percent on many properties and over 60 percent of the total tax base exempt, there is little reason to believe that revenues will increase as needed unless these exemptions can be phased out. In addition, phasing out the exemptions does not address the immediate need for additional revenue from land and property.

For these reasons, the authors recommend a two-pronged approach. First, initiate in a serious way the property tax reforms outlined in Chapter IV. Recognizing the immediate need for additional revenue, the second prong implements a separate and independent land-based fee that is not subject to current exemption practices. This fee is also described in Chapter IV. This two-pronged approach is presented more fully following Chapter III in which the current operation of the property tax is described and assessed.

24 | CuRREnT STATuS of THE PRoPERTy TAx in PuERTo RiCo


III. Current Status of the Property Tax in Puerto Rico

The Puerto Rican ContextAs noted in the Introduction, the Puerto Rico economy is struggling. The discussion in Appendix A1 of negative trends in population, employment, housing, mortgage market, and investment trends provides context to understand the Commonwealth’s economic challenges. These challenges have implications for property and the property tax. Falling employment, falling wages, out migration, all have negative consequences for property values. These challenges clearly affect residential property values, but they also have negative implications for commercial and even industrial properties. Efforts to reform or redesign the property tax in Puerto Rico must be done in the context of how property value responds to economic changes. At a minimum, without policy and administrative changes, the amount of revenue produced by the property tax will not keep pace with the need for revenue.

Current Revenue Trends Another contextual factor is the overall tax burden placed on the Puerto Rican economy. This report focuses on the revenue strategies associated with the property tax. Nevertheless, the analysis must begin with a fundamental question of how much revenue can the property tax in Puerto Rico produce within the broader context of public finance in Puerto Rico.

Figure 1 reports the level of three major taxes (income, sales, and excise) collected by the Commonwealth as a percentage of GDP. Income tax collections trend downward, falling by about half since the peak in 2000. Excise taxes fell during the great recession but remain at about three percent of GDP. The sales tax is a much newer tax and revenues from this source have increased in recent years. The sales tax now represents about 1.5 percent of GDP.

Figure 1: Other Major Taxes As a Percent of GDP

Source: Puerto Rico, Economic Report to the Governor and calculations by the authors

0%1%2%3%4%5%6%7%8%9%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Perc

ent o

f GDP

Tax revenue by tax as percent of GDP

Income Excise Sales

CuRREnT STATuS of THE PRoPERTy TAx in PuERTo RiCo | 25


Figure 2 reports the overall revenue structure of municipalities in Puerto Rico in 2016, the most recent year for which data is available. The figure also reports the revenue per capita from each source. In 2016, the property tax represented 33 percent of total municipal revenue, a level consistent with the U.S. national average. Transfers from the federal government and from the Commonwealth represented another one-third of local revenue. Two other significant local taxes are the municipal license tax and the local sales tax. In combination, these two taxes represent about one quarter of all municipal revenue.

The own-source revenues (property, sales, municipal license and other taxes) reflected in Figure 2 total 2.2 percent of GDP, and transfers add another 1.1 percent. Thus, total municipal finances in Puerto Rico represent less than 3.5 percent of GDP. In comparison, the average own-source general revenue for local governments in the states included in Table 2 was 4.4 percent of GDP, and the U.S. average is 5.6 percent (transfers are not included in own-source revenues).13

Municipalities in Puerto Rico do not provide the same range of education and other services assigned to local governments in states. Nonetheless, within the context of overall taxation levels, the authors conclude that the revenue from the property tax could be increased and a revenue target of at least 1.6 percent to 1.75 percent of GDP should be achievable within a reasonable period. Such an increase would represent approximately $700 to $780 million in new revenue. How this revenue is divided between municipalities and the Commonwealth to provide for essential services is beyond the scope of this analysis.

Figure 2: Aggregate Municipal Revenue Structure: 2016

note: Dollar amounts are average per capita levels

13. Source: U.S. Census and calculations by the authors

Source: U.S. Census and calculations by the authors

$330 Property tax33%

$99 Sales Tax10%

$147

14%

$340 Transfers33%

$101 Other 10%

Municipal Revenue Structure: 2016

Municipal license tax



Property tax system componentsTo understand both the challenges and opportunities in reforming the property tax in Puerto Rico it is essential to recognize all the key components of an effective property tax system including both policy and administrative elements. Property tax policy defines what is taxable, who will be taxed, how (and by whom) the tax base will be valued, what the rate will be, who will calculate and distribute tax notices, how taxpayer appeals will be processed, and who will be responsible for enforcement and collection.

Property tax administration involves developing and maintaining an accurate list of taxpayers, valuing all properties in accordance with legally defined standards, delivering tax notices and processing any appeals promptly, achieving acceptable tax collection rates, and actively pursuing tax avoiders.

These abbreviated lists point out the operational challenges of a property tax as well as the principal opportunities for potential reforms. In the simplest terms, the property tax revenue may appear to be equal to the value of the tax base multiplied by the tax rate. Policymakers, after determining the value of the tax base in a community, then determine the tax rate needed to produce the revenue required to fund public services. However, administrative practices are as critical to the success of the property tax as the policy choices.

Quality administration is essential in an effective property tax system. To appreciate the importance of administrative practices in an effective property tax system, a simple numerical example may prove helpful (see the discussion in Appendix A2 for additional details). Suppose that in a given jurisdiction, all property is included in the base, and the tax rate is one percent of taxable value. Suppose also, that for a variety of reasons, only 90 percent of the land parcels have been identified and included on the tax rolls. In addition, property valuations are slightly out of date and reflect only 90 percent of the legal valuation standard. Finally, collections in the jurisdiction are solid but not perfect and the collection rate is 85 percent of current tax obligations. Under this scenario, total property tax collections would equal only 69 percent of the revenue level contemplated in the law (0.9 x 0.9 x 0.85 = 0.69).

This simple example illustrates how property tax revenues can be significantly increased without changing either tax law or tax rates, through administrative improvements to improve coverage, assessment practices and collections. Using this perspective, the balance of this chapter describes and assesses the policies and administrative practices related to the property tax in Puerto Rico.

Current Property Tax Laws The Commonwealth of Puerto Rico adopted two legislative acts in 1991 that direct the policy and administration of the property tax in Puerto Rico. The first is the “Municipal Property Tax Act of 1991,” as since amended (MPTA). It defines the tax base of real property (land and improvements), business personal property, and business inventories. It outlines the processes required for a property tax scheme, including property tax records, appeals, exemptions, appraisal, ownership conflicts, etc. MPTA also sets the basic tax rates that may be imposed by



municipal governments on real property and personal property. No specific limits are set on the rate for the Municipal Redemption Fund (CAE).

The second act is titled “Municipal Revenues Collection Center Act,” as amended. This act centralized the administrative responsibility for the property tax. Prior to its adoption, the Puerto Rico Department of the Treasury (PRDT) administered the property tax. Under this act, the administration of the property tax was assigned to a new agency called the Municipal Revenue Collection Center (Centro de Recaudación de Ingresos Municipales) commonly referred to by the Spanish acronym CRIM. CRIM operates with administrative autonomy under the direction of a board of directors selected largely from municipal mayors. CRIM does not rely on appropriations from the Commonwealth but is funded by appropriating up to five percent of the property tax collected through the basic rate.

Defining Property Tax Bases Each of the property tax bases in Puerto Rico has a unique definition:

Real Property• All tangible real property is taxable unless deemed exempt

• Real property includes land, subsoil, objects, devices and structures that are attached to the land in a way that implies permanency

Personal Property Tax Base• Tangible personal property is taxable unless exempted, including machinery, containers,

instruments, and devices not attached to the land or building in a manner that implies permanence.

• Intangible personal property is also taxable, including bonds, equity shares, copyrights, trademarks, franchise, and all “matters” that are “susceptible” to definition as private property.

• Personal property does not cover checking accounts, saving accounts, or other personal “credits.”

Inventory Property Tax Base• All inventory held by commercial and industrial firms in Puerto Rico is taxable.

The treatment of intangible personal property is particularly problematic. Such property is often highly mobile and easily hidden. Many jurisdictions have taken the position that a tax on intangible property becomes a tax on only the honest taxpayer.

Observation: Nearly all states have amended their property tax laws to exclude intangible personal property from the base.



Number of Properties In the Tax Base Table 5 reports the number of parcels in the CRIM property tax base by land use category. As is commonly the case, the majority of properties are residential. Two other observations are worth noting. First, the number of vacant residential land parcels seems quite high (over 14 percent of all properties). Second, the number of agricultural properties seems quite low when compared to the amount of rural land in Puerto Rico.

Table 5: CRIM Real Property Parcel Counts: 2018

Land Use Number Percent of Total

Residential, vacant land 189,572 14.49%

Residential 1,065,375 81.45%

Mixed use 6,224 0.48%

Commercial, vacant land 730 0.06%

Commercial 38,689 2.96%

industrial, vacant land 225 0.02%

industrial 3,098 0.24%

Agricultural 606 0.05%

institutional 3,534 0.27%

Total 1,308,053 100.00%

Source: CRiM and calculations by the authors

note: The total in this table is taken from individual property records and differs slightly from the summary tables provided by CRiM

The first issue to consider from the CRIM statistics reported in Table 5 is whether the property counts accurately reflect the actual number of properties in Puerto Rico. If U.S. Census estimates are accurate, between 15 and 25 percent of the housing units in Puerto Rico are not included in the CRIM tax rolls. The U.S. Census Bureau annually surveys households in Puerto Rico as part of their American Community Survey. From these surveys, the Census Bureau provides a 5-year rolling estimate of the number of housing units in each municipality.

The latest available estimate (2016) places the total number of housing units at 1.572 million,14 compared to 1.072 million residential units reported by CRIM. The CRIM total includes 56,600 multi-family properties, some of which may be multi-dwelling units under single ownership. Many of the missing units may be exempt public housing or publicly subsidized units, but even if true, the total is not more than 300,000 units. It appears that in excess of 200,000 housing units, mostly single-family dwellings, are not on the tax rolls.

In addition to missing properties, several of the professionals and municipal representatives interviewed for this analysis report that CRIM is not timely in updating and valuing newly identified properties. Current law requires municipalities, the Planning Board, and banks to

14. U.S. Census Bureau, 2012-2016 American Community Survey 5-Year Estimates for Puerto Rico.



notify CRIM when changes occur that would affect the tax status of a real property. When banks underwrite a new mortgage, they estimate the likely tax and establish an escrow account to accumulate and pay the taxes when the property is finally assessed by CRIM. However, when banks or municipalities report new subdivisions, new construction, or sales transactions, it may take CRIM several years to update ownership and valuation information. According to those interviewed, it can be several years before CRIM actually values a property and bills the bank for taxes due.

Some municipalities are becoming increasingly proactive in identifying properties that need to be updated and valued. Their research and documentation must be submitted to CRIM to approve and enter the appropriate updates. Again, it is reported that the subsequent delay can be years. Nonetheless, it seems critical for Puerto Rico’s property tax system for more municipalities to proactively gather the information to update property tax records for their jurisdiction. The Cayey Municipio presents one example of an effective municipal approach to the problem.

From the data and the information gathered through interviews, it appears that there are several hundred thousand properties that have yet to be appropriately identified, valued, and added to the property tax rolls. The lack of adequately trained personnel in CRIM undoubtedly contributes to the challenges of updating the cadaster.

Observation: Each municipality (or region) could develop the administrative capacity to actively review, verify and update CRIM property tax accounts for their jurisdiction. Corrections and updates submitted by municipalities should be subject to review by CRIM staff, however if not processed by CRIM within 60 days, the changes submitted by the municipalities could become final.

Observation: CRIM should consider reallocating internal resources to process transactions, corrections, and updates within the timeframe established by law, including adding appraisal information submitted by banks to property records.

Property Valuation for Tax Purposes The valuation of real property for property tax purposes in Puerto Rico has two distinct components. Land, described as real property, is valued at a price recorded on the tax records in Puerto Rico in 1957-58. This policy freezes all assessments of land at values determined in an assessment and under market conditions as they occurred over 70 years ago. The assessed value based on economic exchanges that occurred decades ago is obviously a challenge to equity and changing economic patterns.

The second component of real property assessment practice is that improvements to real property and capital investments are also appraised as if they were put in place or existed in 1957-58. CRIM maintains a cost estimation manual based on 1957-58 construction costs. The valuation technician places immovable improvements into one of six quality categories



based on type of construction materials. The manual includes construction cost coefficients per unit of area, which determine the assessed value of improvements. In combination, the result is essentially an area-based property tax based on coefficients that have not been updated since 1958. (See Appendix A3 for a description on an area-based tax and a list of its advantages and disadvantages.)

See Appendix A4 for additional details regarding current valuation practices in the Commonwealth.

The value of mobile personal property is based on the current book value of the property, meaning original purchase price less standardized depreciation, up to the limit set by CRIM. In practice commercial and industrial machinery, office furniture, etc., are appraised at values much higher as a percent of current market value than the appraised value of real property.

Business inventories are valued based on the cost of acquiring the inventory. In the case of commercial retail firms, the taxable value is the monthly average of inventory levels. Firms with minimal sales (less than $150,000 annually) are exempt from the inventory tax.

Appraising property at an artificial or administered historical value concedes to temporary convenience important tax policies. Included in these concessions are equity, accurate measurement of wealth, and the ability to keep pace with price level and population changes. A frozen tax base will eventually cause the affected governments to increase tax rates, and if there are distortions in the valuation of the base the increased rates magnify the issues. It is comparable to a photographer enlarging a flawed negative.

Property tax appraisal cycles refer to the frequency that appraised or assessed values are recalculated or individual properties reappraised. Even though the statutes of Puerto Rico do not explicitly describe appraisal cycles, they implicitly exist and have a significant consequence on the relative property tax burdens for owners of various types of property. Under current policies, the difference in taxable value between two property classes with comparable market value may be as much as 20 times. (See Appendix A5 for an example and discussion) Such differences result in very different effective tax rates. While this may reflect actual legislative intent, it is more likely the result of organic changes in the property tax appraisal process.

Observation: A large disparity in effective rates results from the differences in appraisal cycles. These disparities should be eliminated. All property should be revalued on the same 3- to 4- year cycle. This observation does not necessarily imply that taxable values should be based on current market values.

Puerto Rico’s valuation approaches manifest three notable challenges to the public in understanding their taxes and to authorities in effective administration of the property tax. These approaches establish an uneven appraisal cycle between real and personal property. They create inequitable tax burdens. Property owners and municipal governments face a significant challenge in understanding how taxable values are calculated based on 1957-58 construction values.



One unintended consequence of these policies is that paying for any increase in the cost of public services, such as police, fire, and education, can only be achieved by increasing tax rates. Additions to property from new growth, improvements to property, or the reclassification of land do add to the property tax base but such additions are at 1957-58 values in the case of improvements to land. Land values remain at 1957-58 values.

Property Tax RatesThe Municipal Property Tax Act establishes maximum tax rates for municipalities. One important distinction is that personal property is taxed at a different and lower nominal rate than the rate on real property. Municipalities can elect to impose rates lower than the statutory maximum, but few do so. In 2018-19, of the 78 municipal governments, only three are imposing a rate below the maximum rate on real property and only one on personal property. The basic rate on personal property varies between 3.0 percent and 4.0 percent of taxable value. The basic rate on real property varies between 5.72 percent and 6.0 percent.

The Commonwealth also imposes a separate rate of 1.03 percent on all taxable property. Proceeds from this tax are remitted to the Commonwealth for the repayment of Commonwealth debt. The rate is called the State Redemption Fund (Fondo de Redención Estatal).

In addition to the basic rates, municipal governments can impose an additional rate for debt service. This Additional Special Tax (Contribución Adicional Especial or CAE) can be applied to both real and personal property and need not be the same rate for both. The primary function of the revenue from these levies is to fund the payment of principal and interest on their debt. However, the funds from these levies can also be used for general government support.

CAE rates vary between 1.0 percent and 5.5 percent on personal property and from 1.2 percent to 5.5 percent on real property. In 57 out of the 78 municipalities, this CAE rate is the same for both real and personal property. In 18 jurisdictions, the CAE rate is lower on personal property than on real property. In the remaining three municipalities, the CAE rate is higher on personal property than on real.

The final tax rate in each municipality combines the basic municipal rate, the CAE and the Commonwealth rate. As noted, different tax rates apply to personal property and real property. Table 6 reports the range of final rates for FY2018-19.

Finally, the Commonwealth mandated a 0.2 percent reduction in municipal rates and agreed to reimburse municipalities for the lost revenue. As of 2017, the mandated reduction is still in place, but the compensating transfers have been suspended.

The result is that municipalities have a wide range of effective rates. These are summarized in Table 6 and detailed for each municipality in Appendix A6 for 2018-19. Municipalities can adjust their rates each year.



It should be stressed again that these are nominal rates applied to assessed values that have only a remote connection to current market values for real property. The personal property rates are much closer to effective rates since the base is closer to market value.

Table 6: Real and Personal Property Nominal Rates for FY2018-19

Personal Property Real Property

Rate range number of Municipalities Rate range number of Municipalities

6.0% - 6.99% 11 8.0% - 8.99% 6

7.0% - 7.99% 23 9.0% - 9.99% 19

8.0% - 8.99% 32 10.0%-10.99% 37

9.0% - 9.99% 9 11.0%-11.99% 11

10.0% - 10.53% 3 12.0%-12.53% 5

Source: CRiM

Observation: Granting municipal governments autonomy to set property tax rates promotes government responsiveness with respect to the level of taxes and services provided. It also promotes transparency and accountability in local government. Municipalities should continue to have the flexibility to set final tax rates within limits established by the Commonwealth.

Multiple rates imposed by different levels of government are quite common in other settings. Some degree of local autonomy is important to support more responsiveness in local administrations. What is troubling about tax in Puerto Rico is that the interaction of aggressive exemptions and different valuation cycles results in vastly different effective tax rates based on type of property and location. But the resolution of this issue will depend heavily on how the base is modified in any reform effort.

Exemptions from the Property Tax Base There are three distinct classes of exemptions from the property tax base in Puerto Rico. The Municipal Property Tax Act grants the first class of exemptions. Second, specific commercial and industrial firms receive other exemptions to encourage economic development within the Commonwealth. Finally, municipal governments can grant exemptions to specific firms located within their boundaries.

CRIM reports two types of property exemptions: exemptions and exonerations. Despite repeated queries, the distinction between these two remains very unclear. The net result however is the same: a reduction in the taxable value of the property by the amount of the exemption or exoneration. For simplicity, this analysis combines the two types of exemptions.



Exemptions granted on real property reduce the real property tax base by nearly 60 percent. The level of exemptions differs markedly across municipalities. Figure 3 reports the range for the 78 municipalities. There are only two municipalities which exempt less than 40 percent of their real property tax base.15 At the other extreme, six municipalities have exempted over 75 percent of the real property value from taxation.

Figure 3: Percent of Real Property Exempted

Likewise, business personal property receive varying exemption levels across the municipalities. Figure 4 reports the range in the percent of personal property that is exempted. In some jurisdictions, relatively little—less than 10 percent—of the personal property is exempted. However, in the majority of municipalities, the exemptions on personal property exceed 50 percent of the base.

The range in municipal rates and the differences in exemption levels in combination mean that business personal property is taxed at very different rates across the Commonwealth. The range in effective rates is from less than one percent of total assessed value (actual minimum = 0.16 percent) to a high of over seven percent (actual maximum = 7.9 percent). (See Appendix A7 for more details) CRIM reports that the tax on inventories represents about 2/3 of the revenue from the personal property tax. Anecdotal evidence indicates that the tax on inventories has noticeably distorted market behaviors, including limiting the availability of supplies needed for hurricane recovery, as companies had deliberately minimized their inventories to avoid taxation.

15. Total real property exemptions of about 30 percent are seen in some states with high exemption levels for owner-occupied housing.

Real Property Exemptions

Source: CRIM and calculations by the authors

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18%-25% 25% -40% 40%-50% 50%-60% 60%-75% 75%-90%

Percent of exempt real property value



Figure 4: Percent of Personal Property Exempted

General ExemptionsThe extent of properties exempted by the Municipal Property Tax Act is lengthy. However, the exemptions are similar to the exemption practices in the mainland. Section 5.01 of the Municipal Property Tax Act identifies the exempted property types. (See Appendix A7 for a listing.)

Exemptions/Incentives for Economic DevelopmentThe Commonwealth has adopted several statutes intended to encourage new or expanded investment on the island. A key motivation for the exemptions is influencing the location of firms that will increase employment in Puerto Rico. Encouraging economic development has been integral to Commonwealth policy for decades. The initial economic development law passed in 1947. However, during the past 15 years tax incentives have become foundational to Puerto Rican public policy.

In order to receive an exemption a firm must apply to the Puerto Rico Industrial Development Company (PRIDCO). PRIDCO is a largely autonomous quasi-public organization with its own governing board and executive leadership. If granted, the exemption requires the firm to commit to employing a specific number of Puerto Rican residents and meet other requirements. See Appendix A7 for a description of the process to receive an exemption for economic development, a list of tax incentives, and the industries that receive them.

The current tax base receiving the existing exemptions is just under one billion dollars. The tax incentives granted by the Commonwealth present a significant financial issue for local governments in Puerto Rico. Table 7 lists the most recent reported exemption totals from each of the major industries. The abatement of taxes on personal property exceeds the abatement on real property by a factor close to two.

FIGURE 4. Percent of Personal Property Exempted


35

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< 10% 10% - 25% 25%-50% 50%-75% >75%

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Percent of Personal Property Exempted or Exonerated

Personal Property Exemptions



The implication of such high exemption levels is that current tax rates are substantially higher than they would need to be to collect the same revenue without the exemptions. This means that the remaining taxpayers face much higher rates than would otherwise be the case.

Table 7: Foregone Tax Base from Industrial Tax Exemptions: 2017

Industry/BusinessReal Property Tax

AbatementPercent of Total

AbatementPersonal Property

Tax AbatementPercent of Total

Abatement

Total $333,539,920 100% $610,606,092 100%

Warehouses $61,653,886 18.48 $88,524,752 14.50

Pharmaceutical Companies 90,153,536 27.03 260,382,274 42.64

Hotels and Related Businesses 17,602,861 5.28 82,256,965 13.47

industrial Companies and Businesses 123,196,304 36.94 13,866,703 3.27

other industries and Businesses 40,933,333 12.27 165,575,398 27.12

Source: CRiM

Observation: Unless exemption practices are significantly revised, it will be virtually impossible to achieve an equitable and revenue productive property tax system. The current system of extensive exemptions should be carefully evaluated and retained only if it can be shown that they are effective in achieving the purpose for which they were created. An annual detailed report identifying the foregone revenue for each affected municipality should be required.

Observation: The Commonwealth should consider adopting a 5-year mandatory sunset review for each exemption, and existing exemptions should be phased out over a 5-year period unless they can be shown to achieve the intended employment and development outcomes.

Table 8 reports statistics on the number of property tax accounts, their aggregate assessed value and how exemption schemes affect these totals. The number of real property units has increased by about 10,000 to 12,000 units each year. This increase is due largely to recorded subdivisions of land and the creation of new parcels. Over the same period, the number of business personal property accounts has actually declined by about 5.5 percent, which may be a function of the general economic decline.

Table 8 reports changes in the parcel counts, the assessed value and the number of taxable units by year. The table clearly shows the toll that exemptions take on the property tax



base with nearly 60 percent of real property value exempt and over 60 percent of personal property exempt.

Table 8: Puerto Rico Property Tax Base: 2014-2018

Tax Year

2018 2017 2016 2015 2014

Real Property

number of property units 1,308,599 1,297,307 1,285,694 1,274,012 1,264,317

Total Assessed value (millions) $19,141 $18,951 $18,750 $18,610 $18,532

number of taxable property units 679,930 669,803 659,001 651,059 642,524

Total taxable value (millions) $7,990 $7,787 $7,666 $7,702 $7,653

Taxable value as a percent of total value

41.7% 41.1% 40.9% 41.4% 41.3%

Exempted value $11,151 $11,164 $11,084 $10,908 $10,879

Personal Property

number of accounts 68,465 70,725 70,948 72,188 72,485

Total personal property value (millions) $12,533 $13,395 $13,292 $12,796 $11,980

number of taxable accounts 46,971 50,178 50,372 49,712 50,190

Taxable personal property value (millions)

$4,662 $5,176 $5,328 $5,384 $5,360

Taxable personal property value as a percent of total value

37.2% 38.6% 40.1% 42.1% 44.7%

Exempted value $7,871 $8,219 $7,964 $7,412 $6,620

Real and Personal Property

Total taxable value as a percent of total property value 39.9% 40.1% 40.6% 41.7% 42.7%


It is striking to compare the totals from Table 8 with the exemption statistics reported in Table 7. The total real property exemptions reported in Table 7 was $333.5 million in 2017. The total exempted value for real property shown in Table 8 for that year is over $11 billion. Total exemptions granted to residential property in 2018 was $11.2 billion, or roughly $1 billion in foregone tax revenue.

Not as easily explained is the difference in total exemptions on business personal property. The total abatement included in Table 7 for personal property was $610.6 million, whereas the total was actually $8.2 billion in 2017.16 The authors have been unable to document the explanation for this difference, but one distinct possibility is the private exemptions issued by municipalities. For more details, see Appendix A7.

16. Calculations by the authors from data presented in Appendix 7.



Taxation of business personal property in the United StatesPractice in the United States provides useful points of comparison. The fiscal or revenue importance of the personal property tax has been declining in the United States for several decades.17 In the 1970’s the personal property tax averaged more than ten percent of the total assessed value for property taxes in the United States. The relative value of personal property is now less than ten percent of the total. In Puerto Rico, personal property represents 37 percent of total taxable property value and 40 percent of total assessed value.

The importance of personal property to the tax base does have a regional pattern. As shown in Table 9, the Southeastern states tend to rely most heavily on the personal property tax and Puerto Rico even more so. In addition, 14 out of the 51 states (including DC) have eliminated the personal property tax altogether.

Two trends have reduced the importance of the personal property tax over time. Most states have adopted a policy to exempt business inventory from the personal property tax.18 This legislative action has resulted in a significant reduction in the personal property tax, as it would if adopted in Puerto Rico. The motivation for removing inventory from the tax base was the concern that manufacturing and other firms would relocate to states that did not tax inventory. States also desired a competitive advantage in offering tax-free warehousing for goods in various stages of the production or distribution process. The practice started with the adoption of “Freeport Centers” that exempted stored goods in the intermediate stages of production or finished goods in transit. When first adopted, this policy may have offered a tax advantage for the first few states that followed this policy. However, the exemption of goods in transit spread rapidly to other states, very likely resulting in no distinct advantage for the early adopters.19 Indeed, jurisdictions that continue to tax inventories now likely find themselves at a competitive disadvantage.

17. Errecart, Joyce, Gerrish, Ed and Drenkard, Scott, 2012, States moving away from taxes on tangible personal property, Background paper No. 63. Washington, DC: Tax Foundation & Foundation for Government Accountability.

18. Ibid.

19. Cornia, Gary C. and Wheeler, Gloria, 1999, The personal property tax, in W. Bart Hildreth and James A. Richardson, eds., Handbook of Taxation. New York, NY: Marcel Dekker, Inc.



Table 9: Personal Property Share of Total Property Tax Base for Selected States: 2015

State Personal Property Share of Property Tax Base

Arkansas 21.92%

florida 7.59%

Georgia 14.33%

Kentucky 20.45%

Louisiana 31.04%

Mississippi 28.19%

north Carolina 13.76%

South Carolina 3.28%

Tennessee 6.98%

Source: Lincoln institute of Land Policy, Significant features of the Property Tax

The second trend that has contributed to the decline in the taxation of personal property has been the changing nature of business processes and the makeup of business firms in the United States. As the U.S. economy has shifted from a manufacturing-based economy to a service-based economy, the importance of value added from capital facilities relative to value added through intellectual contributions has been declining. Service-based businesses use less personal property per employee when compared to manufacturing firms. Therefore, there is less taxable tangible personal property relative to Gross State Product in most states.20

Of course, eliminating the tax on inventories would have significant revenue implications which must be addressed. This issue is taken up in the next chapter.

Observation: Given the inequities in the current personal property tax and the broader U.S. trends, Puerto Rico should consider eliminating the tax on inventories, business personal property. At the very least, the Commonwealth should consider exempting businesses with less than $5,000 in taxable personal property, and revisiting the rate structure applied to the remaining personal property.

Billing, Appeals, and Collections

BillingThe Municipal Revenue Collection Agency (CRIM) spends about $500,000 each year to mail tax notices to registered property owners. In the most recent period, CRIM prepared

20. States that currently employ a tax on personal property are constantly trying to eliminate personal property from the tax base by granting specialized exemptions.



731,000 tax notices, and mailed out 621,000 to taxpayers. CRIM did not mail approximately 110,000 notices, which lacked valid addresses. Of the notices mailed, the Postal Service returned approximately 76,000 as undeliverable due to problems with the address. The remaining 650,000 accounts received no notice because the property was fully exempt in the current year. As far as could be determined, CRIM made no further effort to deliver the nearly 190,000 tax notices for which either CRIM had no address or the Postal Service was unable to deliver the notice to the address on record.

Several officials from different agencies noted to the authors that the postal address system in Puerto Rico is extremely flawed. It would certainly facilitate administration of the property tax if the address system were improved and the Postal Service could deliver communications from CRIM in a timely and certain manner.

Observation: It is in the interest of municipalities to assure timely delivery of all tax notices. Some jurisdictions have acted to identify properties that were not timely notified, deliver appropriate notices and facilitate collection of the property tax. The municipality of Cayey is one example of a very effective process at the local level. But this is not a universal practice, and it should be. CRIM should timely notify municipalities of any undeliverable tax notices. Municipalities should accept and process such notices and use their best efforts to assure that all property owners are notified of their tax obligation.

Box 2: An Option for Dealing With Flawed AddressesPuerto Rico is not alone in struggling with an incomplete and inconsistent address system. Such deficiencies impair not only tax administration and mail delivery, but also critical emergency services. The private sector is now developing technologies to supplement or even replace addressing systems. An example of one such technology allows anyone to uniquely identify any location with just three English words. This service has divided the earth into a grid of three-meter squares and assigned each grid a unique three-word address. The service can be used with their free mobile app or with an on-line map. it can also be linked to other apps or websites. The united Kingdom is using the technology to locate highway and other infrastructure repairs. in addition, a number of countries are using the technology to facilitate efficient postal delivery.

Appeals processThere are relatively few appeals under the current valuation system. In part this is due to the difficulty taxpayers have in understanding how taxable value is determined. It is also due to the extremely low valuations and extensive exemptions.

CollectionsThe property tax fund at CRIM includes a total of $3.517 billion in gross receivables or unpaid taxes from previous periods. This amount includes $3.1 billion in real property taxes and $447



million in personal property taxes. CRIM management has judged that 81 percent of the total amount is uncollectable. This means that CRIM management believes that $677.8 million is collectable, the difference between total receivable and uncollectable listed in Table 10.

Table 10: CRIM Property Tax Arrears Total: 2017

Account TypePrincipal (millions)

Discounts, Interest, Penalties and Others

(millions)

Total Receivable (millions)

Reserve for Uncollectable

(millions)

Total $1,737.3 $1,780.2 $3,517.5 $2,839.7

Governmental agencies

$10.6 $47.9 $58.5 $58.5

Bankruptcy 94.6 62.9 157.5 152.9

Remaining accounts receivable balance 1,632.1 1,669.4 3,301.5 2,628.3

Source: CRiM, 2017 financial Statement

As important as it may be to collect past due property taxes, it may be even more important to ensure that current collection practices function properly. Figure 5 reports the percent of current year property tax collected in the year it was due. Overall, for the past four years, current year collections in Puerto Rico have hovered around 51 percent. Figure 5 shows that for 2014 taxes, only two municipalities achieved collection rates of 66 -70 percent of revenues. The 52 percent collection rate in 2017 meant that nearly $400 million in property tax went uncollected. It is true that $432 million in property tax arrears were collected that year, but getting collection processes on track so that 85 percent or more of current year taxes are collected in the year they are due will mean much greater stability in the municipal revenue system over all.

To drive a central point of this chapter home, consider the following calculation.

• Only about 83 percent of potential properties are currently included in the fiscal cadaster

• The valuation of current properties is at about 40 percent of the current legally defined value standard, if exemptions are excluded

• Current collection rates are at 52 percent

In combination these three factors mean that current collections are only 17 percent of what they could be using current valuation practices. Certainly, it will be difficult to identify and value all properties. Moreover, eliminating all exemptions may never happen. Collections can certainly be improved, but may never reach 100 percent. Nevertheless, if 95 percent of all properties were included on the tax rolls, 80 percent of assessed value taxed, and the collection rate were 85 percent, property tax revenue would nearly quadruple.

Of course, if revenues were to increase to that extent, policymakers would be inclined to reduce rates and address other inequities in the current system. The point is simply that there is vast room in the administration of the current Puerto Rican property tax system to increase revenue and improve equity.



Figure 5: Current Year Municipal Property Tax Collection Rates: 2014-2017


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Current Year Property Tax Collection Rates

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Observation: The Fiscal Plan calls for increasing the collection rate to 85 percent in the near term. Successful efforts in other settings have involved a multi-prong approach. These approaches include the following:

Adequate staff and funding for the collection function must be provided. This may include contracting with private debt collectors. Efforts should focus first on large taxpayers who are in arrears, and on municipalities with high dollar amounts uncollected.

Improved transparency in how the tax obligation is calculated, which government entities receive the revenues, and how the monies are spent is essential to build public trust. Ideally, the public should be involved in determining spending priorities.

A number of jurisdictions have found it helpful to launch public information campaigns that involved community leaders from political parties, religious organizations, and other community groups to voice their support for the tax. This involved public appearances, forum discussions, and radio, television, and news journal interviews. The visible public support of opinion leaders can be very helpful.

Consider using entities such as the electric utility or water company to bill and collect the tax. This is not a popular option, but it has proven effective in some countries where it has been tried.



CRIM and property tax administration in Puerto RicoCRIM has the responsibility for virtually every aspect of property tax administration. This includes developing a cadastral survey, identifying taxable parcels, developing and maintaining an appraisal manual, developing tax records, calculating the valuation for all real property, notifying all taxpayers of their respective obligations, and collecting the real and personal property tax and the inventory tax. CRIM receives the property tax payments and then transfers the funds to the organizations that benefit from the property tax.

Municipal governments have limited roles in the administration of the property tax. Some municipalities have specific programs to help identify parcels not on the tax records and discover the address of property owners. A frequent theme in our discussions with some local leaders was the lack of transparency around the administration of the property tax.

The CRIM Board of Directors is comprised of nine municipal mayors, the Commissioner of Municipal Affairs, and the President of the Autoridad de Asesoría Financiera y Agencia Fiscal de Puerto Rico (Financial Advisory Authority and Fiscal Agency of Puerto Rico, AFFAF). The Commonwealth by way of the Treasury has an advisory role in the administration of the property tax but there is little evidence that the Treasury has been involved in the functional operations of the property tax. The day-to-day administration of CRIM is the responsibility of a board-appointed Executive Director. Changes in the political leadership in Puerto Rico traditionally have resulted in a change in senior CRIM leadership.

CRIM has a central administrative office located in San Juan and nine regional centers. For the fiscal year ending June 30, 2017, CRIM expenses totaled $30.9 million or $23.60 per real property parcel on the cadaster.

CRIM has 445 employees stationed at their central office and nine regional offices. Of these, 90 employees including 11 licensed appraisers work in the real estate services department. The remaining staff work in central administration, customer service and collections, and real property investigation and registration.

The workload per staff varies significantly between regional offices. Overall, real property valuation is understaffed. Table 11 reports the number of accounts per staff member in each regional office. The International Association of Assessing Officers (IAAO) is a professional organization of government property assessors serving largely the mainland United States and Canada.21 In 2014, IAAO published the results of a survey of their members comparing staffing patterns, costs, and technology.22

The survey focused just on the property appraisal function, which typically excludes billing and collection. CRIM classifies as a large jurisdiction in terms of the IAAO survey. The survey reports that large jurisdictions averaged 4,849 real property parcels per permanent employee, at an average cost of about $25 per parcel.

21. At present there are three IAAO members in Puerto Rico.

22. Walters, Lawrence C., et al., 2014, Staffing in the Assessment Offices in the United States and Canada: Results of 2013 Survey, Journal of Property Tax Assessment & Administration, 11(2): 5-62.



By comparison, CRIM’s real property valuation division has nearly 13,000 parcels per employee, and the agency’s total costs, including billing and collection, are less than $24 per real property unit. In addition, CRIM’s 11 licensed appraisers must service an average of 118,964 properties each, plus any work done on personal property accounts.

Funding levels for property valuation are well below U.S. averages. No breakdown of the CRIM expenditures by function was available. Allocating the known expenses proportionally based on employee counts (and allocating printing and postage to the billing function) indicates that CRIM spent less than $6 per parcel in FY2016-2017 on maintaining and updating the property tax cadaster. This level is about one-fourth the average observed in U.S. assessing offices.

Observation: From this brief analysis, property valuation and cadaster updates are underfunded in CRIM. Based on U.S. and Canadian averages, CRIM would need to assign an additional 150 staff to the property services function at a cost of about $9 million annually, given current costs per employee. CRIM staffing levels should be reevaluated and additional resources devoted to the identification and valuation of properties. To meet standards observed elsewhere in the United States, property valuation resources will need to be at least doubled and a large percentage of the additional staff should be licensed appraisers.

Table 11: CRIM Workload Ratios by Regional Office

Regional Office

Total Personal Property Accounts

Total Real Property Accounts

Personal Property Accounts

Per Personal Property Staff

Real Property Accounts Per

Valuation Staff

Total Accounts Per Customer

Service & Collection Staff

Total Real Property

Accounts Per Investigation, Registration & Cadastral Staff

Totala 80,414 1,308,599 1,915 12,829 13,618 20,132

Aguadilla 7,483 116,188 1,497 9,682 10,306 16,598

Arecibo 7,319 112,534 1,464 18,756 10,896 28,134

Bayamon 13,459 206,812 2,692 17,234 24,475 29,545

Caguas 8,303 173,310 2,768 15,755 18,161 34,662

Carolina 6,298 134,198 2,099 22,366 15,611 44,733

Humacao 5,602 116,747 1,120 6,867 12,235 58,374

Mayaguez 6,191 122,050 2,064 11,095 16,030 24,410

Ponce 7,815 151,794 977 12,650 13,301 50,598

San juan 17,944 174,966 5,981 24,995 21,434 43,742

a. includes relevant central office staff


44 | THE PATH To PRoPERTy TAx MoDERnizATion


IV. The Path to Property Tax Modernization

Six Essential TasksReforming the property tax in virtually any context involves administrative and political challenges. To be successful, any reform effort in Puerto Rico will necessarily involve the following six essential tasks.

1. Identify and designate the senior political leader spearheading the reforms. It is crucial that the reform effort have the guidance and vigorous support of a senior government official. Without such leadership, it is extremely unlikely that the reform effort will succeed. Even with such leadership, reform will encounter resistance and will take time to implement. Political compromise and cooperation between the executive and legislative branches and the competing political parties will also be necessary for success.

2. Design and initiate a meaningful public engagement process. The evidence is quite clear that public understanding and acceptance are critical in any successful reform effort. Unfortunately, the public often perceives “tax reform” to mean “tax increase.”23 The public must understand the goals of reform and impact on individual families and businesses. An understanding of how property tax reform results in improved public services for citizens is important for the ultimate success of tax reform. Taxpayers tend to be more resistant to tax reform when they do not see the benefits of public investment and services in their neighborhood and community. Ideally, the public should play a role in determining how the Commonwealth allocates any revenue increases to specific projects and activities. When a public authority spends public funds collected through the property tax, it should act under rules that establish clear accountability, which obligate it to report to the public its accomplishments achieved with those funds.

3. Create a small CRIM oversight function and team within the Puerto Rico Department of the Treasury (PRDT). As currently constituted, CRIM is governed by a board composed primarily of municipal mayors. Without question, all mayors, including those on the board, have a stake in the quality of CRIM operations. However, they lack the time and expertise to evaluate the functions assigned to CRIM. A small team of independent and qualified individuals within the PRDT could receive and review statistical reports on CRIM operations, assess the quality of those operations and make recommendations to appropriate bodies. Many states within the U.S. mainland are well served by local administration of the property tax, which is overseen by a state agency. The role of oversight by an independent body is especially important as more responsibility for the property tax is granted to municipal governments. Effective oversight will maintain administrative uniformity between municipal governments. These oversight boards are generally located in the revenue agency of the state, but some reside

23. Luttmer, Erzo F., and Monica Singhal, 2014, Tax Morale, Journal of Economic Perspectives, (28):4, 149-168.

THE PATH To PRoPERTy TAx MoDERnizATion | 45


in the state legislature. The International Association of Assessing Officers publishes a variety of policy and administrative guidelines used to monitor the performance of a property tax system.

4. Add the trained personnel needed to focus on completing all valuations currently pending, and then updating and maintaining existing values. As reported in the previous chapter, the valuation function within CRIM is seriously understaffed compared to similarly sized assessing organizations in the United States. Based on average staffing levels in the United States and Canada, CRIM needs to add approximately 150 additional staff to the property valuation function at a cost of about $9 million annually, given current costs per employee. These additions should be made over one to three years as qualified individuals can be identified, recruited and trained, or redeployed from other functions within CRIM.

5. Add the trained personnel needed both at CRIM and in the municipalities to identify unregistered properties and improve collections. Both the identification of unregistered properties and the collection of property taxes due should be a shared responsibility between CRIM and the municipalities. Some municipalities have already developed the administrative capacity to identify unregistered property, to deliver tax notices, and to support CRIM collection efforts. Some municipalities are already cooperating with CRIM on property tax administration and have established CRIM offices in the municipality. The remaining municipalities need to learn from these efforts since local knowledge is vital in the identification of unregistered properties. As noted in Table 11, staffing levels for customer service, collections, and cadaster management are quite low. If CRIM shoulders the entire burden, staffing levels for these functions should be increased by about two-thirds. If the tasks are equitably divided between CRIM and the municipalities, the increases at CRIM may be much smaller.

Improving collections will require a multi-prong approach involving increased resources within CRIM, greater public transparency and a widespread public information campaign.

6. Modify the existing CRIM database to incorporate fee appraisal data. Financial institutions are required to submit copies of the fee appraisals they commission to validate the financial transactions they enter in CRIM’s database. If these appraisals conform to the Uniform Standards of Professional Appraisal Practice, as required by financial institutions, the appraisals will include detailed information on the size and condition of the properties, including number of rooms, bathrooms, and other features commonly used to value such properties. CRIM should identify and incorporate into their database the key data items from these appraisals. Over time, this will improve the quantity and quality of data available to make accurate valuations. This will require a reconfiguration of the parcel records now maintained by CRIM. The reconfigured parcel records will record the key data elements that are contained in a fee appraisal report, including appraised value.

Revenue impact of the six essential tasks• Registering and valuing all the unregistered residential properties would increase annual

revenue by between $195 and $330 million, depending on residential exemption



policies. However, unless the Commonwealth modifies residential exemption policies, the maximum expected yield will be around $200 million.

• Improving current collection rates to the targeted 85 percent will eventually increase annual revenues by about $400 million under current law.

• The other essential steps improve equity and political support for updating registrations and improving collection rates. In themselves, they are not likely to change revenues dramatically.

Over time, successful implementation of the six essential tasks will potentially double current property tax revenues. However, two observations should be kept in mind:

• Achieving the forecasted revenue increase will take years, not months. Recruiting the necessary staff, identifying missing properties, conducting valuations using current methods, improving collection performance, will all take time. For example, simply valuing the missing properties using current methods, once identified, will take at least 70 to 100 staff years.

• The inequities embedded in the current system because of outdated valuation methods and current exemption policies will still be present.

Further improvement gains will require additional steps as detailed below.

Achieving Equity and Efficiency Through Interagency ReformsThe political, administrative, and financial challenges associated with major property tax reforms cannot be overlooked. Change takes strong political will, adequate resources, and time. The recommendations made here describe a path forward that incorporates the recommended changes in a sequence that seems most likely to yield success.

Improving the equity and efficiency of the property tax in Puerto Rico will require changes in both law and administrative practices as described in the next subsection. In addition, updating the organization and oversight of the property tax system will assure that the required legal and administrative changes are carried out and the system achieves and maintains the desired equity and efficiency.

The recommendations presented here derive from the analysis presented in earlier chapters and detailed in the Appendices. In general, the perspective taken is that the administration of the property tax is most fundamentally a local government responsibility. However, local governments in Puerto Rico lack the administrative and technical capacity to efficiently and effectively administer certain aspects of the tax. Given that lack and to assure uniformity in administration across the Commonwealth, CRIM should continue to be assigned certain tasks as the municipal agent.

The effectiveness of CRIM is critical for property tax administration in the Commonwealth. However, the property tax is most fundamentally a local tax whose effective administration relies on the knowledge and active cooperation of local government officials. The following recommendations identify needed improvements in CRIM, in local government operations,



and in cooperation between the two. As with any other government agency, CRIM’s operation requires oversight to assure that it achieves all aspects of its mandate.

CRIM serves a vital function that cannot easily be assigned to municipalities. As an agency, CRIM should be retained and strengthened. CRIM staffing levels should be reevaluated and additional resources devoted to the identification and valuation of properties. To meet standards observed elsewhere in the United States, property valuation resources will need to be doubled, at a minimum. A large percentage of the additional staff should be licensed appraisers.

CRIM should reallocate internal resources to meet the time frame established by law to process transactions, corrections, and updates, and to add appraisal information submitted by financial institutions to property records.




• Document and make public, at least in the aggregate, existing municipal exemptions.

Recommendations regarding shared responsibilities between CRIM and municipalities• CRIM should timely notify municipalities of any undeliverable tax notices. Municipalities

should accept and process such notices and use their best efforts to notify all property owners of their tax obligation.

• Each municipality (or region) should develop the administrative capacity to actively review, verify, and update CRIM property tax accounts for their jurisdiction. Corrections and updates submitted by municipalities should be subject to review by CRIM staff. However, if CRIM does not process the changes within 60 days, the changes submitted by the municipalities should become final.

• The administrative burden to identify new or existing properties missing from the fiscal cadaster should be a shared responsibility between municipalities, CRIM, and the property registration agency.

• Municipalities should provide an accurate description of the location, size and land use of the unlisted property, along with the physical attributes of any improvements. If the municipality has a CRIM-approved methodology for determining taxable value, the municipality may also provide an estimated taxable value for the land and a separate estimated taxable value for any improvements. Data submitted will be subject to audit by CRIM. Pending any such audit, CRIM should accept the data as submitted by the municipalities.



• The property registration agency should promptly notify CRIM of all additions and changes in property registrations.

• CRIM should exercise its best efforts to incorporate all available information in a timely manner and audit information provided by other entities.


articulated.

• Create a small property tax unit within the PRDT to provide annual performance evaluations of CRIM and municipal property tax operations. CRIM jointly with the municipalities should be required to provide annual reports to this unit including the following data:

• Number of new properties added to the tax rolls

• Estimated number of unregistered or untaxed properties and any properties removed from the rolls

• Total outstanding property tax arrears by age, including metrics showing collection efforts and status

• Total new and existing exemptions and exonerations granted by type or purpose, if any

Modernizing the Property Valuation SystemAfter implementing the six essential tasks and the interagency reforms outlined, the path forward for modernizing the property tax system lies along a continuum of improvements in real property valuation. How far Puerto Rico chooses to progress along the continuum will depend on the intended objectives, the resource commitment, and the timeframe. The reform phases presented here describe the continuum of options for improving the administration of the property tax and determining the taxable value of land and immovable improvements. The phases range from simply repairing the current system to a complete overhaul of the system based on an entirely different approach to property valuation. The major differences along the continuum relate to the administrative capacity and data needs on one hand, and the equity and revenue buoyancy on the other. The reform continuum is divided into five phases.

Phase 1: Reform the existing property tax system

Reforming the current system has the short-term objective of improving equity, and the medium-term objective of enhancing revenue. As documented in this report, the current property tax system in Puerto Rico has numerous shortcomings and Phase 1 reforms address only the most critical ones. The required reforms under this option maintain the current approach to value and the current 1957-58 valuation standards. Even if the current valuation process is retained, multiple reforms are needed to ensure that property tax is fair and effectively collected.



• If the property tax system undergoes significant reforms as recommended, the number of taxpayer inquiries and appeals will also increase significantly. The appeals system should be carefully evaluated, streamlined, and strengthened to accommodate the likely increase in workload.

The recommended tasks involved in Phase 1 include:

A. Impose a moratorium on the issuance of any new exemptions for economic development. Overuse of exemptions cripples the current property tax system. These exemptions are often in the form of contracts between private firms and governmental or quasi-governmental organizations. As such, they will be very difficult to repeal. Further, there is little or no evidence that exemptions given to stimulate economic growth are cost effective.

a. Enact a moratorium on such exemptions until exemption policies can be reviewed and demonstrated to be effective. The further use of property tax exemptions must be based on carefully articulated policy guidelines and solid evidence.

b. Require an annual detailed report identifying the foregone revenue for each affected municipality.

c. Adopt a 5-year mandatory sunset review for each exemption, and existing exemptions should be phased out over a 5-year period unless they can be shown to be effective. It will be difficult politically and legally to phase out exemptions in place, but every effort should be made to sunset such exemptions unless they are shown to be effective.

B. The exemption for homeowners should be revisited and reduced. This too will be politically challenging and will require an effective public information campaign to explain the need for reform and how the additional tax revenue will be spent. Exempting 47 percent of the value of the total tax base when those same homeowners are the major consumers of public services makes little sense. Even with a reduced residential exemption, Puerto Rico should consider implementing a minimum property tax on all residential property similar to the approach taken in Hawaii.



Box 3: Options for Reforming the Residential Exemption There are several options for adjusting or eliminating the $7.3 billion residential exemption granted to just over one million residential properties. See Appendix A8 for details. • one option might be to impose a minimum property tax as is done in Hawaii. The

tax would need to be set low enough to be affordable, perhaps two days labor at the minimum wage or $120 per year. Such a minimum tax on residential properties would yield an additional $77 million per year, and an additional $5.8 million if extended to all properties. See Appendix A8 for other variations and discussion.

• Reducing the current exemption of $15,000 by $1,000 would generate an additional $1.07 million annually.

• Capping the value of the exemption at 75 percent of assessed value would yield an average tax increase of $144 ($225 for those currently 100 percent exempt) and would increase the total tax billed by $153 million per year.

• Capping the value of the exemption at 50 percent of assessed value would yield an average tax increase of $315 ($451 for those currently exempt) and would increase the total tax billed by $336 million per year.

C. Repeal the business personal property tax. The current tax on personal property, especially inventories, is unduly burdensome and distortionary. As noted in Chapter III, many states have already abandoned the tax on business inventories and are moving away from taxing other business personal property. Puerto Rico could stimulate business investment by repealing this tax. CRIM would need to recoup a revenue loss of $410 million, accomplished by shifting the burden to residential and business real property, unless other revenue sources are implemented. (See the municipal service fee below) Again, see Appendix A8 for more details.

a. The authors recommend repealing the personal property tax altogether. However, at a minimum, given the inequities in the current personal property tax and broader U.S. trends, Puerto Rico should consider eliminating the tax on inventories, fully exempting businesses with less than $5,000 in taxable personal property, and revisiting the rate structure applied to the remaining personal property.

b. These changes would eliminate the large inequities between real and personal property. In this sense, the system would be more equitable.

Unfortunately, simply repairing the current system does not address other more fundamental inequities. Property valuations under the current system derive from 1957-58 market conditions. There is no doubt that land markets have shifted, building standards and materials have changed, and building technologies have evolved. Simply addressing the administrative challenges and indexing the tax rate to reflect overall price level changes cannot effectively capture these changes in the structure of the base. In addition, if the tax on business personal property is repealed, Phase 1 actually reduces revenue overall. For these reasons, the Commonwealth should consider further reform.



Phase 2: Update the appraisal coefficients used in the current valuation process

The current tax applied to real estate is an area-based tax based on outdated coefficients. The coefficients used reflect land values and construction costs at a point in time in the past (1957-58). Appendix A8 reports an analysis of the likely impact of updating the appraisal coefficients. It estimates that land values have increased 25 to 40 times since 1957-58, and the magnitude of the increases varies significantly across municipalities. A revenue-neutral application of new land coefficients will shift the property tax burden significantly between municipalities. Residential construction costs appear to have increased by 10 to 12 times since 1957-58.

Updating this approach would involve two parallel efforts. First, adjusting land value coefficients to reflect estimates of current land market conditions. Second, updating construction cost coefficients to reflect current construction costs. This option would require CRIM to start a process that will update both sets of appraisal coefficients.

A. The initial steps to capture current values should begin with land. The information required to estimate current land values is now available and collected in Puerto Rico. CRIM and Treasury should gather and analyze the market value of land for each sale of a parcel. Experts using this data can develop coefficients that reflect the market value of land. Initially the coefficients could reflect the values of a limited set of property types (such as rural and urban). However, over time, CRIM could produce coefficients for each municipal government and even areas or distinct districts within municipalities. Developing land coefficients requires CRIM to retain staff with expertise in land markets and a robust process to gather data from land sales. CRIM could stage the process to upgrade land coefficients over several budget cycles.

B. Gather data on the current construction value of residential, commercial, and industrial properties. The amount of building information currently contained on property records is limited. Even so, CRIM should collect and analyze current information on construction costs to bring these estimates closer to market values. The process to bring the coefficients closer to current values would entail a series of steps involving data collection, analysis, review, and public comment. This task would likely require two years to complete, if adequately resourced.

C. Apply updated land and improvement coefficients to current parcel records to reflect broad market conditions. Revalue all property on the same 3-to 4-year cycle to eliminate the disparity in effective rates that results from the differences in appraisal cycle. This recommendation does not necessarily imply that taxable values should be based on current market values.

While this approach improves equity, it does not reflect market conditions with any precision. Tax burdens will shift to coincide with broad land market trends. Revenue levels would depend on the final coefficients, tax rates selected, and the success of collection improvement efforts. The reforms would reset the tax base at more current levels, but the essential structure of the base would remain unchanged.



Phase 3: Enhance the area-based property tax valuation process for real property

As noted, the current system for valuing real property is essentially an area-based system with outdated improvement coefficients focused solely on construction costs. In Phase 3, CRIM could further improve the coefficients for both land and improvements evolving the system into a more refined and nuanced area-based property tax system, using the following steps.

A. Develop more detailed property records. CRIM could improve current area-based valuation processes by adding additional information on the improvements to the real property. Data on the construction techniques and even proximity to public services and infrastructure can also lead to more refined coefficients for residential, commercial, and industrial properties.

B. Determine final coefficients based on both costs and estimated relationship to market conditions. Where possible, use commercially available cost data.

C. Apply the more refined coefficients to both land and improvements.

D. Adjust final tax rates to obtain the desired revenue yield.

While this approach is more refined, it still does not approximate the relationship between property attributes and market value with any precision. On the positive side, data requirements remain limited and the administrative capacity to implement the approach is less substantial that Phases 4 or 5. Revenue levels will remain static unless the Commonwealth raises and lowers rates to match economic conditions. Nevertheless, this approach is widely used in countries with limited administrative capacity and limited access to market data.

Phase 4: Develop and apply a cadastral valuation process

Phase 4 represents an important shift in the approach to real property valuation. The shift lies in replacing a focus on the construction cost of improvements with a focus on comparable sales prices. Both cost and comparable sales are two of the three standard approaches to real estate valuation (the third is the income approach). However, in the domain of property taxation where the large majority of properties are residential, by far the most common approach is to focus on sales transactions.

The cadastral valuation approach recognizes that there are markets and sub-markets in which improved properties are generally similar in age, construction quality, and access to amenities. The approach uses statistical methods to estimate the relationship between lot size, building size, and sales price from sales within each “zone.” CRIM would apply the estimated coefficients to each individual property to calculate its assessed value.

A cadastral valuation process moves the property tax much closer to a market-based system without the need for the detailed property-specific data required by a full market-based valuation process.

A. Recruit or train appraisal staff with statistical and global information system (GIS) skills. Alternatively, CRIM could partner with other agencies that already have GIS capabilities (e.g., the Planning Board). It may also be necessary to temporarily



contract with outside statisticians to provide support through the model development phase.

B. Link sales information provided by PRDT to CRIM property records. This may require substantial modification of the CRIM database to create necessary unique property identification codes and integrate all property information into a common database.

C. Divide Puerto Rico into roughly similar market areas or zones based on an analysis of actual sales transactions. These zones may cross municipal boundaries, but each zone should exhibit roughly similar market trends within the zone. CRIM would develop a separate set of zones for residential and commercial property. The zones should be large enough to have sufficient property sales within the zone to support statistical analysis. The zones should be small enough to assure reasonable homogeneity within the zone.

D. Using the best available recent sales data for each zone, statistically estimate the average price per square meter of land and per square meter of building area within each zone. The standard approach is statistical regression analysis.

E. Calculate the assessed value of all properties within each zone by multiplying the estimated average price within the zone by each property’s size (land and improvements).

F. Disseminate the assessed values to property owners and municipalities for comment. Regional offices will need to be prepared to field inquiries, address assertions of error, and process formal appeals.

G. Set final tax rates to obtain desired revenue targets. Tax rates will continue to be uniform within each municipality.

The cadastral approach moves closer to a more explicit market approach without requiring the same level of detailed data necessary for a typical market-based mass appraisal system. It does require statistical analysis and modeling expertise, as well as integration of property data systems between PRDT and CRIM, and within CRIM.

Phase 5: Move to a comprehensive property tax based on current market value

Many observers argue that the current property tax system would be more effective if based on current fair market values. Virtually every property tax reform process around the world identifies this as a goal. It is also the reform model promoted in states on the mainland.

However, implementing a market-based valuation system for the property tax has proven to be an elusive policy goal in many international settings and even in some states. The administrative challenges to a market-based system that have arisen internationally are evident in Puerto Rico. The two most significant challenges in implementing a market-based valuation process relate to the amount and quality of the data required, and the amount of technical expertise needed. Estimating the market value of 1.3 million properties is a daunting task and can only reasonably be achieved using a computerized “mass appraisal” approach that employs quality property-specific data and sound statistical models. However, the difficulties



involved in implementing a mass appraisal system should not be underestimated. A mass appraisal system will require significant data improvements, increased administrative capacity, and substantial time to complete the transition. The following tasks describe the steps that are necessary for a mass appraisal system.

A. Design and implement a mass appraisal process. If a market-based valuation system is implemented, the Commonwealth will need to design a mass appraisal process that will value over one million parcels on a recurring cycle. The Commonwealth could modify a variety of existing mass appraisal processes for use in the context of Puerto Rico. However, the redesign of a mass appraisal system to serve Puerto Rico’s unique needs requires significant changes in data management strategies, and increases in both the number and the skills of personnel to manage the process.

B. Collect details on the characteristics of each property parcel. A mass appraisal system estimates value based on variables that describe in detail the characteristics of the parcel and improvements to the parcel. This requires CRIM to collect and retain substantial levels of detail on each property, including key variables related to location. For some properties, financial institutions have submitted private fee appraisals to CRIM and these documents could be used to update CRIM records. It may also be worth considering some form of self-declaration to jump-start the additional data collection. Such declarations would be subject to audit, and not all property owners may comply.

Box 4: A Market Approach to ValueThe preferred property tax valuation approach bases taxable value on the market value of property, defined as what a willing seller would accept, and a willing buyer would pay for a property. A market-based value has important advantages. To provide just two examples: (1) unequal treatment of taxpayers will be reduced; (2) many property owners have a reasonable understanding of the value of their property and so valuation for tax purposes will be more accessible and transparent. one major challenge is that a market-based appraisal system requires an estimate of the value of unsold properties. To estimate value, appraisers need accurate data on the characteristics of the property. Land appraisal requirements include size, location, terrain, views, elevation, and allowed use. Appraisals for improvements need information on the structure’s size, age, use; its building materials; and number and type of rooms, etc. The list of required data points may seem daunting, but when available, assessors using statistical models can match the attributes of sold property to unsold property and develop very defensible estimates of value.

C. A complete redesign of the parcel records and property information maintained by CRIM may be necessary to facilitate the implementation of mass appraisal statistical modeling. The current parcel records used and maintained by CRIM do not have adequate detailed data to support a mass appraisal process based on current market values.



D. Recruit or train personnel with the expertise to manage a mass appraisal system. Mass appraisal systems require personnel that have skills in appraisal practice, information systems, statistical modeling, and data management. Currently CRIM does not have enough trained staff to develop and manage a mass appraisal process.

E. Plan for and begin to implement a property inventory and inspections. Effective mass appraisal systems rely heavily on accurate descriptions of the real estate to be valued. This generally involves physical property inspections of at least the exterior of properties about every five years. Again, self-declaration can jump-start this process, but such declarations do not fully replace the need for site visits

F. Obtain access to commercially available property valuation databases. There are at least two commercially available property valuation databases used by private appraisers in Puerto Rico. CRIM will need to acquire access to this data and be able to integrate it into their own systems.

G. Using the database of actual sales, develop statistical models of property price as a function of property attributes (lot size, building attributes, location, etc.). The same models will not work for both residential and commercial properties. In addition, it may prove necessary to have multiple residential models, based on region and type of residential property.

H. Apply the estimated attribute values to all properties to estimate their market value, and disseminate to property owners and municipalities for consideration.

I. Receive and timely process taxpayer inquiries, corrections and appeals.

J. Publish proposed tax rates, exemption adjustments, and final tax obligations.

K. Continue updating and extending the database over time to permit better value estimates.

L. Update values on a yearly or bi-yearly basis using more up-to-date data.

Moving to a market-based mass appraisal valuation system for real property will represent a very significant investment of resources and will require several years to implement. Along the way, the Commonwealth will have addressed Phases 1 through 4. Nevertheless, it is important to recognize that implementing a market-based mass appraisal system is not a panacea. In itself, it will not address the crippling effect of current business exemption policies, the overuse of residential exemptions, or the inequity and burden of the personal property tax.

If properly administered, a market-based valuation system will provide greater revenue buoyancy since values will track market conditions even if rates remain the same. Whether or not the Commonwealth achieves revenue targets will depend heavily on final tax rates and collection practices.

A market-based approach will also result in a substantial shift in the property tax burden. Properties that have benefitted disproportionately from stagnant values will see a significant increase in their tax obligation. With such shifts, it may well be that other properties may see a decline in their taxes in a revenue-neutral setting.



Reform continuum summaryThe six essential tasks, the administrative reforms, and the five phases represent the path forward for property tax reform in Puerto Rico. Figure 6 depicts this path. It should be stressed that how far beyond the six essential tasks, the administrative reforms, and Phase 1 reforms the Commonwealth elects to move is a policy choice. A productive and viable property tax system can result by stopping after ANY of the phases. The central question is how much time and treasure Puerto Rico is willing to commit to address remaining inequities.

The authors recommend that the Commonwealth pursue a goal of eventually completing Phase 4 in San Juan and other major urban centers, and Phase 3 in all other areas. Moving beyond these two objectives even in urban centers is likely to prove too costly.

Figure 6: Property Tax Modernization Phase Continuum

Meeting immediate revenue needsThis report recommends that Puerto Rico begin the process of moving along the continuum depicted in Phases 1 through 5. The eventual goal is a fully modern, well-managed property tax system that treats all taxpayers in a fair and transparent manner based on the current market value of their property. Such a system would equitably assign tax obligations and achieve the administrative goals discussed previously.

However, moving along this continuum is a journey of several years. Addressing current policy and administrative deficiencies, building the administrative capacity, improving the databases, and acquiring the technical expertise needed will take years, not months.

A major hurdle is reforming exemptions, which present legal and political challenges. Without doing so, it is unlikely that revenues will increase significantly, even after adopting other reforms. There is no question that changing the appraisal system and other reforms will shift the tax burden among taxpayers. But with exemptions in excess of 90 percent on many properties and over 60 percent of the total tax base exempt, unless these exemptions can be

• Reform exemptions

• Repeal inventory tax


• Udpate constuction coeffiicients

• More detailed property records

• Improved coefficients

• Cadastral valuation

• Market based mass appraisal

Phase 1

Year 1 Year 2 Year 3 Year 4 Year 5 … … … … …

Reform Timeline

Phase 2 Phase 3 Phase 4 Phase 5Six

Essential Tasks



phased out, there is little reason to believe that revenues will increase as needed. Additionally, phasing out the exemptions does not address the immediate need for additional revenue from land and property.

For these reasons, this report recommends a two-pronged approach.

• Initiate in a serious way the property tax reforms outlined in the six essential tasks and Phases 1 through 5.

• Recognizing the immediate need for additional revenue, implement a separate and independent land-based fee that is not subject to current exemption practices.

As noted previously, municipal governments in Puerto Rico do not provide the same range of services commonly observed elsewhere in the United States. Many public safety, education, and transportation functions commonly delivered by local governments are Commonwealth functions in Puerto Rico. The stated objective in the Fiscal Plan is to reduce the fiscal burden on the Commonwealth by reducing transfers to municipalities. Another option is to create an independent funding source for the municipal-type services currently delivered by the Commonwealth.

The proposed “municipal service fee” (MSF)—a per unit tax assessed on the area of land owned—is outside the current property tax system and therefore current exemptions do not apply. All property (except institutional properties [currently coded 5xxx]) will be subject to the fee based on the land area owned. The main reason to call the charge a fee is to be clear that this charge will not fall under the current exemption arrangements.

The fee applies to land only, not improvements. The fee level is uniform everywhere in Puerto Rico. Agricultural land may be assessed at a somewhat lower rate than other land, but is not exempt.

Whether the revenue from the fee is retained at the Commonwealth level, or both municipal services and the fee that funds them are assigned to the municipalities is an open question. In either case, the net result will be a substantial reduction in the fiscal burdens on the Commonwealth government.

Using the land area data already on file, CRIM can readily implement the MSF. Once adopted, implementation should move quickly, perhaps no longer than a few months, and would generate revenues in the current fiscal year.

In addition, basing the fee on land area has very positive economic implications. Since the fee applies only to land, no negative incentives exist for additional investment in improvements. Further, those holding large parcels of vacant land will find it slightly more expensive to do so and will be encouraged to use their land more productively.

Revenue Impact of the Municipal Service FeeLevying a municipal service fee on land involves three considerations:

• What should the rate be?

• Should agricultural land be charged a lower rate?



• Should there be a minimum fee?

The rate proposed is $0.11 per square meter of land, or about $0.01 per square foot. Most countries tax agricultural land at lower rates based on the argument that it benefits less from the types of services funded. The authors note that agricultural land still derives some benefit from local services and therefore should not be totally excluded. The rate proffered here is one-fourth the rate applied to all other land (except institutional land).

Any minimum fee should be low enough that it is affordable by relatively poor households. At the same time, there should be a minimum fee to encourage civic engagement and participation. The fee considered here is $75 per year. Raising this fee to $120 would keep the fee at the equivalent of two days labor at the minimum wage. However, the increase would only yield an additional $40 million annually

The major determinant of the final revenue potential from the MSF is the rate per square meter of land. A one-penny increase in this rate will change overall revenue by about $80 million per year.

The $0.11 rate recommended here would accomplish two ends:

• Generate sufficient revenue to enable the repeal of the personal property tax, and

• Reach the Commonwealth revenue target of $600 million in new revenue

With a minimum rate of $75 and a rate of $0.11 per square meter ($0.0275 for agricultural land), the MSF should generate $1.013 billion per year with 100 percent collection. (In conjunction with other collection improvement efforts, the yield should be sufficient to achieve revenue targets in the short-term.) The average fee will be $824 and 62 percent of landowners will pay the minimum fee of $75 (hence there is some need for caution if levied in conjunction with a minimum property tax).

Appendix A8 provides additional details on the impact of the MSF by land use category.

Recommendations Regarding the Municipal Service Fee• Adopt a municipal service fee of $0.11 per square meter to apply to all non-agricultural

land not classified as “institutional”.



• Retain the balance (about $600 million) at the Commonwealth level to fund municipal-type services provided by the Commonwealth.

Finally, it is useful to return to the criteria matrix introduced in Chapter II and compare each of the phases and the MSF on the proposed criteria. Each column of Table 12 below provides an assessment of that phase’s performance on each criterion, assuming completion of the six essential tasks, administrative changes and all earlier phases. The sole exception is



the last column for the municipal service fee, which is implemented independently of the reform phases. The table indicates expected improvements as the reform progresses through the phases.

Table 12: Evaluation Criteria and Modernization Phases

Tax Criteria

Modernization Phase Performance

MSFPhase 1 Phase 2 Phase 3 Phase 4 Phase 5

Stable revenue Good Good Good Good very Good Excellent

Revenue buoyancyPoor Poor Good very Good Excellent Poor

Broad base/Low ratesfair Good Good very Good very Good Excellent

Compliance costsGood Good Good Good Good very Good

Cost of administration Low Moderate Moderate High Highest very Low

Economic neutrality fair Good Good Good Good Excellent

Equity fair Good Good very Good Excellent Excellent

60 | SuMMARy AnD ConCLuSionS


V. Summary and ConclusionsThe Commonwealth of Puerto Rico Fiscal Plan calls for the Commonwealth’s Office of the CFO to “supervise property tax assessment reforms, prepare tax maps, and provide notice of taxes and special assessments”. The findings and recommendations in this report both inform and provide useful guidance for the property tax and modernization effort.

The revenue target articulated in the Fiscal Plan for property tax reform has three components. No total revenue target is stated in the Fiscal Plan, but given the component targets identified, this report assumes a target of $500 to $600 million annually. The authors of the Fiscal Plan expect the Commonwealth will reach this target by making three concurrent changes in practice:


• Registering properties not currently on the tax rolls ($150 - 200 million)

• Reclassifying misclassified properties and updating valuations ($200 - 250 million)

Based on estimates developed for this report, the property tax in Puerto Rico could generate an additional $700 to $780 million in new revenue annually.

In order to improve both the revenue productivity and the fairness of the property tax, Commonwealth leaders must confront five major challenges with the current system. These include:

• Low compliance rates: Current compliance rates are well below acceptable levels.

• Large numbers of properties without registration or valuation: Thousands of properties in Puerto Rico do not appear on the property tax rolls. In addition, many registered properties have not been valued for tax purposes.

• Overly generous exemption policies: The Commonwealth and municipalities exempt about 60 percent of the known and valued tax base. This will be a particularly difficult challenge to confront since many of the exemptions granted are contractual with individual taxpayers. Even if the Commonwealth and municipalities suspend current practices immediately, it will likely take years to reach a more balanced approach to exemptions.

• Unreasonable burden on business personal property: Because of differences in the valuation practices for real estate and business personal property, taxpayers with high levels of personal property and inventories bear a much heavier tax burden than do other taxpayers. This practice is affecting the behavior of taxpayers, creating distortions in the economy and inequities in the tax system.

• Outdated and inconsistent property valuation methods: Current practice values real property based on construction cost and land value coefficients that are over a half century out of date. As a result, values bear little resemblance to current market values, and the distribution of the tax burden is unfair.

SuMMARy AnD ConCLuSionS | 61


This report presents four key steps to property tax reform: 1) Undertake six tasks that are essential to any reform; 2) implement a set of interagency reforms; 3) pursue a phased approach to valuation modernization; and 4) implement a municipal service fee to meet immediate revenue targets and enable reforms.

1. Six Essential TasksReforming the property tax in Puerto Rico, as in virtually any context, entails administrative and political challenges. To be successful, the reform effort will necessarily involve the following six essential tasks, as explained in Chapter IV.

1. Identify and designate the senior political leader to spearhead reforms

2. Design and initiate a meaningful public engagement process

3. Create a small CRIM oversight function and team within the Puerto Rico Department of the Treasury

4. Add the trained personnel needed to focus on completing all valuations currently pending, and then updating and maintaining existing values

5. Add the trained personnel needed at CRIM and in the municipalities to identify unregistered properties and improve collections

6. Modify the existing CRIM database to incorporate fee appraisal data submitted to CRIM by financial institutions

2. Improve Equity and Efficiency Through Key Interagency ReformsPuerto Rico should update the organization and oversight of the property tax system to assure implementation of reforms and achievement of the desired equity and efficiency. The recommended administrative changes are summarized here.




Shared responsibilities• CRIM should timely notify municipalities of any undeliverable tax notices. Municipalities

should accept and process such notices and use their best efforts to notify all property owners of their tax obligation.

• Each municipality (or region) should develop the administrative capacity to actively review, verify, and update CRIM property tax accounts for their jurisdiction. Corrections and updates submitted by municipalities should be subject to review by CRIM staff.



However, if CRIM does not process the changes within 60 days, the changes submitted by the municipalities should become final.

• The administrative burden to identify new or existing properties missing from the fiscal cadaster should be a shared responsibility between municipalities, CRIM, and the property registration agency.


articulated.

• Create a small property tax unit within the PRDT to provide annual performance evaluations of CRIM and municipal property tax operations. CRIM jointly with the municipalities should be required to provide annual reports to this unit.

3. Modernizing the Property Valuation SystemIf the Commonwealth implements the six essential tasks and organizational changes outlined, the path forward for modernizing the property system lies along a continuum of improvements. The reform phases presented in Chapter IV describe the continuum of options for improving the administration of the property tax, and determining the taxable value of land and immovable improvements. The phases range from simply repairing the current system to a complete overhaul of the system based on an entirely different approach to property valuation.

The major differences along the continuum relate to the administrative capacity and data needs on one hand, and the equity and revenue buoyancy on the other. The reform continuum builds on the six essential tasks and the listed administrative reforms and consists of five phases.

Phase 1: Reform the existing property tax system:

• Reform current exemption practices including both economic development and residential exemptions

• Repeal either the entire personal property tax (preferred option) or at least the tax on business inventories

Phase 2: Update the appraisal coefficients used in the current valuation process:


• Update construction cost coefficients

• Update and revalue all property every three to four years

Phase 3: Enhance the area-based property tax valuation process for real property:

• Develop more detailed property records

• Determine final coefficients based on both costs and estimated relationship to market conditions



Phase 4: Develop and apply a cadastral valuation process

• Phase 4 is a significant change in the approach to property valuation

• The approach uses market sales data and statistical methods to estimate the relationship between lot size, building size, and sales price within each market “zone.” The estimated coefficients are then applied to each individual property within each zone to calculate the assessed value.

• A cadastral valuation process moves the property tax much closer to a market-based system without the need for the detailed property-specific data required by a full market-based valuation process.

Phase 5: Move to a comprehensive property tax based on current market values

• While often advocated, implementing a market-based valuation system for the property tax has proven to be an elusive policy goal in many international settings and even in some states. The administrative challenges to a market-based system that have arisen internationally are evident in Puerto Rico.

• The two most significant challenges in implementing a market-based valuation process are the amount and quality of the data required, and the amount of technical expertise needed.

• The difficulties involved in implementing a mass appraisal system should not be underestimated. It is feasible, but will require significant data improvements, increased administrative capacity, and substantial time to complete the transition.

This report recommends implementing the six essential tasks, the administrative reforms listed and at least Phase 1.

How far beyond Phase 1 reforms the Commonwealth elects to move is a policy choice. A productive and viable property tax system can result by stopping after ANY of the phases. The system will not be “perfect,” but no property tax system ever is. The central question is how much time and treasure Puerto Rico is willing to commit to address the remaining inequities.

The authors recommend that the Commonwealth pursue a goal of eventually completing Phase 4 in San Juan and other major urban centers, and Phase 3 in all other areas. Moving beyond these two objectives even in urban centers is likely to prove too costly.



4. Meeting Immediate Revenue Needs Through a Municipal Service Fee Applied to Land

In order to meet the short-term revenue target and allow the repeal of the business personal property tax, the Commonwealth should institute a municipal service fee based on land area.

• Adopt a municipal service fee of $0.11 per square meter to apply to all non-agricultural land not classified as “institutional”.


• The fee will apply only to land, not improvements.


• Retain the balance (about $600 million) at the Commonwealth level to fund municipal-type services delivered by the Commonwealth.

Bringing nearly 300,000 additional properties into the cadaster could have a significant impact on revenue. These new properties could generate as much as $300 million per year if exemptions are kept to a minimum. If, as is likely, existing exemption policies are extended to the new properties, 60 percent of the revenue potential will be lost. Even so, it is essential that the investment be made to identify, value and incorporate these properties into the property tax system. Efforts should focus first on those municipalities with the greatest discrepancies from Census estimates. Census estimates may not be absolutely accurate, but they present clear guidance on where potential gains lie. (See Appendix A8)

Updating land and building cost coefficients will improve the equity and transparency of the system, but will not generate significant additional revenue unless effective rates remain relatively high.

The residential exemption is overused and reducing it could generate as much as $150 to $300 million per year. In most settings, the residential exemption is politically difficult to change, and there is no reason to think Puerto Rico is different. Nevertheless, the authors recommend that the Commonwealth explore reform in this area.

Repealing the tax on business personal property makes good economic sense but carries with it a substantial revenue loss of approximately $400 million per year. The feasibility of repeal depends on identifying an alternative source of revenue.

With 62 percent of residential properties now exempt, we recommend consideration of a small minimum tax. It must be affordable, but international evidence suggests that even a small tax improves civic engagement and helps to build stronger communities. However, the revenue potential from such a tax is modest.

Improving collection rates will significantly improve the yield over time. However, collection success will depend on improved billing and collection resources and procedures. Improvements in transparency and public trust are vital. The public must have confidence that



tax proceeds will produce tangible community benefits. Building the capacity and public trust will take time.

The proposed municipal service fee presents several attractive features. It raises a significant amount of revenue in a very short period using existing data and resources. It generates the funds needed to repeal the personal property tax and still meet the Commonwealth’s revenue target of $600 million in new resources. It involves all landowners fairly and in proportion to their holdings, and thereby encourages both civic engagement and more efficient land use. As a fee based only on land area, it does not discourage or distort investment decisions. Importantly, CRIM can administer the MSF with existing systems.

These recommendations provide a path forward for transforming the property tax in Puerto Rico in the years to come while at the same time meeting the immediate revenue targets set by the Commonwealth and the FOMB.

66 | LiST of REfEREnCES


List of ReferencesBahl, Roy and Richard M. Bird, 2018, Fiscal Decentralization and Local Finance in Developing

Countries: Development from Below. Edward Elgar Publishing, Northampton, MA, USA.

Collins, Susan M. Barry P. Bosworth, and Miguel A. Soto-Class, eds., 2006, The Economy of Puerto Rico: Restoring Growth, The Brookings Institution, Washington, D.C.

Cornia, Gary C. and Wheeler, Gloria, 1999, The personal property tax, in W. Bart Hildreth and James A. Richardson, eds., Handbook of Taxation. New York, NY: Marcel Dekker, Inc.

CRIM, Portal Catastro Digital y Productos Cartográficos. https://www.satasgis.crimpr.net/cdprpc

Errecart, Joyce, Gerrish, Ed and Drenkard, Scott, “States Moving Away from Taxes on Tangible Personal Property.” Background paper No. 63. Tax Foundation & Foundation for Government Accountability. Washington, DC, 2012.

Financial Oversight and Management Board of Puerto Rico, Restoring Growth and Prosperity, June 29, 2018.

Financial Oversight and Management Board, 2018, Restoring Growth and Prosperity: New Fiscal Plan for Puerto Rico, October 23, 2018.

Gasparini, Leonardo and Leopoldo Tornarolli, 2009. “Labor Informality in Latin America and the Caribbean: Patterns and Trends from Household Survey Microdata.” Desarrolo Y Sociedad, 63:13-80.

Government of Puerto Rico, Fiscal Plan for Puerto Rico, August 20, 2018,

Hinojosa, Jennifer and Edwin Melendez, The Housing Crisis in Puerto Rico and the Impact of Hurricane Maria, Center for Puerto Rican Studies, Hunter College, CUNY, (June) RB2018-04.

La Porta, Rafael and Andrei Shleifer, 2014, “Informality and Development,” Journal of Economic Perspectives, 28(3):109-126.

LiST of REfEREnCES | 67


Luttmer, Erzo F. and Monica Singhal, 2014, “Tax Morale,” Journal of Economic Perspectives, 28(4):149-168.

McClusky, William J., Gary C. Cornia, and Lawrence C. Walters, 2013, A Primer on Property Tax: Administration and Policy, Wiley-Blackwell, West Sussex, UK.

Norregaard, John, 2013, Taxing Immovable Property: Revenue potential and implementation challenges, IMF Working Paper WP/13/129.

Puerto Rico Planning Board, Economic Report to the Governor, 2017.

U.S. Census Bureau, 2012-2016 American Community Survey 5-Year Estimates for Puerto Rico.

U.S. Census Bureau, 2016 State & Local Government Finance Historical Datasets and Tables; U.S. Bureau of Economic Analysis, Gross domestic product (GDP) by state.

U.S. Census Bureau, Annual Estimates of the Resident Population for Selected Age Groups by Sex for the United States, States, Counties, and Puerto Rico Commonwealth and Municipios: April 1, 2010 to July 1, 2017.

Walters, Lawrence C., et al., 2014, Staffing in the Assessment Offices in the United States and Canada: Results of 2013 Survey, Journal of Property Tax Assessment & Administration, 11(2): 5-62.

Youngman, Joan, 2016, A Good Tax: Legal and Policy Issues for the Property Tax in the United States, Lincoln Institute of Land Policy, Cambridge, MA.

68 | A1: THE EConoMiC ConTExT in PuERTo RiCo


A1: The Economic Context in Puerto Rico

This appendix highlights trends and relationships in the broader Puerto Rican context that either have or are likely to have an impact on the property tax. Much has already been written about the overall economy in Puerto Rico (see for example, the annual Economic Report to the Governor prepared by the Planning Board). The property tax is just one component of the broader public finance system. The role it plays must be evaluated in that broader context since ultimately the people of Puerto Rico will pay the lion’s share of all taxes collected from whatever source.

The economy in Puerto Rico has been in serious recession for a number of years. Gross Domestic Product (GDP) fell by over 8.6 percent in constant dollars between 2008 and 2017.24 During the same period, total employment fell by 17.8 percent. Linked to the economic recession has been a steady decline in total population as households and individuals have left the Commonwealth in pursuit of other opportunities.

A1.1 Population DynamicsThe overall decline in population since the 2010 Census is estimated to be 10.3 percent.25 The exodus has affected nearly every municipality, though not to the same extent. Figure A1.1 reports the number of municipalities grouped by the estimated population change between 2010 and 2017. While one municipality (Gurabo) has seen a modest increase in total population, five have experienced population losses in excess of 15 percent in just seven years.

It is also important to recognize that these aggregate statistics mask a rapidly changing population dynamic in Puerto Rico. The population exodus is not affecting all demographic groups the same. Figure A1.2 reports the population trends for three demographic groups: children under age 18, working age adults age 18 to 64, and the older population age 65 and above. Figure A1.2 indexes the population of each group to its level in 2010.

The values expressed in the figure reflect the changes that have taken place since 2010. For example, the top line in the figure indicates that, compared to the population aged 65 and older in 2010 (i.e., 100), the estimated number of residents age 65 and older in 2017 was 20 percent higher (120). Thus, an index value of 100 in 2017 would indicate there was no observed change in the total population for that group. A value greater than 100 indicates an increase in population, while a value of less than 100 indicates a population loss since the 2010 Census.

24. Statistical Appendix of the Economic Report to the Governor, 2017, Table 1.

25. U.S. Census Bureau, Annual Estimates of the Resident Population for Selected Age Groups by Sex for the United States, States, Counties, and Puerto Rico Commonwealth and Municipios: April 1, 2010 to July 1, 2017.

A1: THE EConoMiC ConTExT in PuERTo RiCo | 69


Figure A1.1: Puerto Rico Population Change by Municipality Since 2010

Figure A1.2: Puerto Rico Population Changes by Age Group

As shown in Figure A1.2, between 2010 and 2017, the number of working age adults in Puerto Rico declined by an estimated 11.2 percent while the number of children age 17 or less declined by nearly 27 percent. These two trends occurred at the same time the elderly population was expanding rapidly (over 20 percent increase as noted).

Again, municipalities have been affected differently by these dynamics. Two municipalities actually saw an increase in their working age populations over this seven-year period (Gurabo and Toa Alta). Eleven others experienced working-age population declines in excess of 15 percent.

Num

ber o

f mun

icip

aliti

es

Source: U.S. Census Bureau

1

12

3129

5

0

5

10

15

20

25

30

35

Increase Loss of 0 to 5%

Loss of 5% to 10%

Loss of 10% to 15%

Loss of over 15%

Range of population change

Population change since 2010

Figure 1.2: Puerto Rico population changes by age group

0

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016 2017

Dynamics of Population Change in Puerto Rico

Under 18 Age 18-64 Age 65+

Source: U.S. Census Bureau and calculations by the authors

Popu

latio

n (2

010=

100)



All municipalities have seen a significant increase in the size of their elderly population. The range is from 8.1 percent in Fajardo to over 40 percent in Toa Alta. These shifting demographics show up most immediately in the statistics on the median age in Puerto Rico. Figure A1.3 shows the dramatic increases that have taken place in Puerto Rico’s median age in just the last seven years. With over half the population now over 41 years of age, Puerto Rico is likely to see continuing shifts in the type and level of public services demanded by this aging population. In addition, with an increasing percentage of the population receiving Social Security and perhaps other fixed income sources, finding resources to meet the shifting demand may prove challenging.

Figure A1.3: Puerto Rico Median Age

A1.2 Puerto Rico Housing MarketIn most jurisdictions, most real property parcels are residential, and Puerto Rico is no exception. The Municipal Revenue Collection Agency (CRIM) reports 1.3 million parcels in their property tax cadaster and another 72,000 business personal property accounts. The U.S. Census Bureau estimates the total housing stock in Puerto Rico to be 1.57 million units in 2016. However when these counts are reconciled, it is reasonable to conclude that the majority of real property parcels in Puerto Rico are residential. As a result, it is important to understand housing market trends as they may relate to the property tax.

It is widely recognized that Puerto Rico’s housing market is in crisis. For example, Jennifer Hinojosa and Edwin Melendez recently published an assessment of Puerto Rico’s housing pre-

Figure A1.3: Puerto Rico median age

3737.6

38.138.7

39.340

40.8

41.6

34

35

36

37

38

39

40

41

42

2010 2011 2012 2013 2014 2015 2016 2017

Median Age (years)

Source: U.S. Census Bureau

Age



and post-Hurricane Maria.26 They begin their report by stating, “By all counts, Puerto Rico’s housing market is in a deep and prolonged crisis.” This section reviews a few key indicators to substantiate this view.

Figure A1.4 clearly shows a significant drop in housing prices since the Great Recession with only short-term fluctuations since. The figure reports the quarterly trend in housing prices since 1995, based on the index managed by the U.S. Federal Housing Finance Agency (FHFA).

Figure A1.4: Puerto Rico House Price Index: 1995-2018

Residential mortgage statistics also indicate that the housing market in Puerto Rico is in decline. Figure A1.5 reports both the total number of mortgages and their aggregate value from 2008 through June 2018. The data indicate that the total number of mortgages in the portfolio declined by 16.6 percent since 2008 while the aggregate value of all mortgages declined by over 23 percent during the same period. In mid-2018, the average mortgage was $94,701, down 9.4 percent from the peak in 2013.

26. Hinojosa, Jennifer and Edwin Melendez, 2018, The Housing Crisis in Puerto Rico and the Impact of Hurricane Maria, Center for Puerto Rican Studies, Hunter College, CUNY, (June) RB2018-04, p. 2.

Source: Federal Housing Finance Agency

0

50

100

150

200

250

1995

1995

1996

1997

1998

1998

1999

2000

2001

2001

2002

2003

2004

2004

2005

2006

2007

2007

2008

2009

2010

2010

2011

2012

2013

2013

2014

2015

2016

2016

2017

2018

Puerto Rico House Price Index

FHFA

Qua

rterly

Hou

se P

rice

Inde

x



Figure A1.5: Puerto Rico Residential Mortgages: 2008-2018

Just as important as the volume of mortgages is the default rate for outstanding mortgages. As shown in Figure A1.6, mortgage default rates in Puerto Rico have historically been higher than in the U.S. mainland. Prior to Hurricane Maria in 2017, mortgage default rates had seen a slow decline from around 18 percent to about 12 percent. (The rate in the United States peaked at 11.5 percent in early 2010.) Immediately following the hurricane, default rates in the Commonwealth skyrocketed to over 30 percent, but have since declined. Default rates remain about 20 percent, compared to the U.S. rate of 3.25 percent in the second quarter of 2018.

A final statistic that reflects the state of the housing market in Puerto Rico is the housing vacancy rate. Figure A1.7 reports the U.S. Census estimates of the housing vacancy rate in Puerto Rico for the period 2009 through 2016 (the year before Hurricane Maria). The vacancy rate reported is net of housing units considered to be for recreational or seasonal use. Given the increase in the number of mortgage defaults since the hurricane, it seems likely that the vacancy rate has only increased in the past 18 months.

Source: Commissioner of Financial Institutions of Puerto Rico

$30,000

$32,000

$34,000

$36,000

$38,000

$40,000

$42,000

$44,000

$46,000

$48,000

370,000

380,000

390,000

400,000

410,000

420,000

430,000

440,000

450,000

460,000

Oct-06 Feb-08 Jul-09 Nov-10 Apr-12 Aug-13 Dec-14 May-16 Sep-17 Feb-19

Aggr

egat

e Am

ount

(milli

ons)

Num

ber

Puerto Rico Residential Mortgage Portfolio

Number Amount



Figure A1.6: Puerto Rico Mortgage Default Rate: 2008-2018

Figure A1.7: Puerto Rico Housing Vacancy Rate

Source: Commissioner of Financial Institutions of Puerto Rico

0%

5%

10%

15%

20%

25%

30%

35%

40%

Oct-06 Feb-08 Jul-09 Nov-10 Apr-12 Aug-13 Dec-14 May-16 Sep-17 Feb-19

Mortgage Default Rate

By number By amount

Source: U.S. Census, American Community Survey

12.3%13.4%

14.4% 14.8% 15.3% 16.0% 16.8% 17.2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2009 2010 2011 2012 2013 2014 2015 2016

Housing Vacancy Rate

Perc

ent o

f Hou

sing

Sto

ck



A1.3 Economic Activity and InvestmentAs noted previously, total employment in Puerto Rico has fallen nearly 18 percent since 2008. Figure A1.8 shows a longer time trend dating back to 2000. The figure reports both the increase in employment between 2000 and 2006 as well as the subsequent decline. There is some evidence of a modest rebound in employment since the end of 2017, undoubtedly due to rebuilding efforts.

Figure A1.8: Puerto Rico Total Employment

The declining job market and population exodus are manifest as well in the overall level of private sector investment in new construction and in machinery and equipment. Figure A1.9 reports three trends in the constant-dollar annual level of private sector investment in Puerto Rico. The first is the total level of private sector housing construction, after adjusting for inflation and compared to the level in the year 2000. To be clear, the annual private sector housing construction investment level for the years 2000 through 2017 are first adjusted for inflationary changes, and then indexed to the level observed in 2000. Thus, a value of 110 in a given year indicates that after adjusting for inflation, the level of investment in that year was 10 percent higher than in 2000.

As shown in Figure A1.9, the peak for new investment in private sector housing occurred in 2002. Since that time, there has been a consistent decline in the level of private investment in housing, after controlling for inflation. For the past four years, the level of private investment has been about one-fifth of its level in 2000. Whether this trend will change with investments for hurricane recovery remains to be seen.

The figure also reports trends in new private commercial and industrial construction investments. Again, investment totals are adjusted for inflation and indexed to the level reported for 2000. As in the private housing sector, private commercial and industrial

800

900

1,000

1,100

1,200

1,300

1,40020

0020

0020

0120

0220

0220

0320

0420

0420

0520

0620

0620

0720

0820

0820

0920

1020

1020

1120

1220

1220

1320

1420

1420

1520

1620

1620

1720

18

Puerto Rico Employment

Num

ber o

f Job

s in

Tho

usan

ds

Source: U.S. Bureau of Labor Statistics



development has been in decline throughout most of this 18-year period. There was a modest recovery between 2010 and 2012, but levels remain at about one-third the level of investment seen in 2000.

The third trend reported in the figure is the private investment level in machinery and equipment. Somewhat surprisingly, these investment levels have held up fairly well and remain at about the levels seen in 2000, after adjusting for inflation. Investments in machinery and equipment are down about 20 percent from the peak in 2006, but the decline is not nearly as pronounced as in the construction sectors.

In summary, the declining and aging population, softness in the housing market and limited investment in new construction are trends that will affect the medium-term design and implementation of property tax reform.

Figure A1.9: Private Sector Investment Levels: 2000-2017

Figure A1.9: Private sector investment levels: 2000

0102030405060708090

100110120130140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Private Sector Investment Trends (indexed, constant 2000 dollars)

Private Sector Housing Private Commercial & IndustrialPrivate Machinery & Equipment

Inde

xed

Leve

l (20

00=1

00)

Source: Economic Report to the Governor, Statistical Appendix, various years, and calculations by the authors

76 | A2: DESCRiPTivE SAMPLE of THE PRoPERTy TAx in PRACTiCE


A2: Descriptive Sample of the Property Tax in Practice

This appendix presents analysis of the current Puerto Rico property tax system at the micro level. A detailed description of the current property tax system is a useful framework for understanding property tax in Puerto Rico and is presented in chapter III and appendices A4 and A5. However, the description does not convey a clear understanding of how the system functions in practice. This analysis considers the horizontal equity of the tax system.

Property tax systems in the mainland states are typically based on some concept of market value. Such is not the case in Puerto Rico.

In order to assess the equity of the current Commonwealth immovable property tax, it is important to understand the relationship between the tax as now assessed and the market value of property. Data limitations make it difficult to compare the treatment of different taxpayers. In evaluating any tax, one common standard is horizontal equity. Equity in this sense simply means that taxpayers in a similar situation should be treated the same by the tax system. One standard for “similar situation” that is often employed in property taxation is current market value. Two homes of identical market value should be taxed the same amount.

Two data sources are available with relevant information. CRIM data is the actual fiscal cadaster used to calculate the property tax obligation. In addition, Puerto Rico Department of the Treasury (PRDT) has a database that includes reported sales prices for all property transactions since 2014. Unfortunately, there is no sales price information in the CRIM datasets provided to the authors. Neither is there assessed value and exemption information in the sales transaction data provided by PRDT. Had this data been made available, a more comprehensive comparison would have been possible.

In the CRIM digital cadaster available on-line (www.satasgis.crimpr.net/cdprpc/), it is possible to obtain assessed values, exemption status, and sales price for some properties. Given time constraints, it was not feasible to extract this information for all properties. Instead, the authors drew a random sample of properties for further analysis as an illustration, and identified trends for potential future analysis in larger datasets.

The sampling strategy employed was a randomized cluster sample in each of ten municipalities. The authors selected the ten municipalities in order to over-sample the San Juan metropolitan area, yet still represent the geographic diversity of the main island. Table A2.1 lists the communities selected.

Table A2.1: Sample Municipalities Selected

• Aguadilla• Arecibo• Bayamon• Carolina

• Cidra• Coamo• Guaynabo

• Mayaguez• Ponce• San juan

Source: The authors

A2: DESCRiPTivE SAMPLE of THE PRoPERTy TAx in PRACTiCE | 77


Within each municipality, a residential area and a residential property within that area were randomly selected. From that starting point, the selection process moved up and down the street until ten properties were identified that had both current CRIM valuations and non-zero sales price information dated since 1995. The advantage of this approach is that the ten homes selected within each municipality are in close proximity to each other and are generally comparable in land area and other aspects. The disadvantage of this strategy is that rural, agricultural, commercial, and industrial properties and even multi-family housing are not represented at all. However, it is the case in Puerto Rico, as in most other jurisdictions, that the vast majority of properties are single-family residential.

The authors do not assume that the ten properties selected are fully representative of the municipality as a whole. Rather the intent is to drill down for this small sample to gain insight into the relationship between current assessment practices and market conditions.

For each property, the 2018-19 tax obligation was estimated. The municipality name, urban neighborhood, land area, assessed land and structure values, exemption status, net taxable value, sales price, and sales date were extracted from the digital cadaster. The current property tax rate for each municipality was obtained from a separate CRIM report. These rates were applied to the net taxable value to obtain the estimated 2018-2019 tax obligation for each property.

The date of the recorded sales varied from the early 1990s to 2018, and prices were therefore adjusted to 2017 levels using the Federal Housing Finance Agency’s all-transactions house price index for Puerto Rico. Of course, the resulting price estimate must be interpreted with great caution for several reasons. First, the Commonwealth average may not reflect changes in local market conditions. Second, even if the index is an accurate estimate of local price changes, a given property may undergo substantial modification or deterioration over the course of two decades with the result that a property’s fair market value in 1995 may bear little resemblance to its value in 2017. Given these important limitations, the indexed sales price still provides a useful point of comparison with taxable value. Table A2.2 provides an overview of the properties considered.



Table A2.2: Sample Property Statistics by Municipality

Municipality

Average Per Property Percent of Properties With Full Or Partial

Exemption

Land Area (m2)

Land ValueTotal

Assessed Value

Taxable Value

Land Value Per m2

Land As Percent of Total Value

Total 497 $2,908 $14,537 $6,019 $6.32 22% 72%

Aguadilla 531 $2,220 $11,650 $2,446 $4.23 20% 80%

Arecibo 281 $2,636 $8,121 $3,441 $9.40 33% 60%

Bayamon 316 $1,548 $8,360 $3,930 $4.90 20% 56%

Carolina 409 $3,189 $11,748 $4,865 $7.84 28% 60%

Cidra 303 $1,620 $8,852 $2,586 $5.39 18% 70%

Coamo 702 $3,903 $11,014 $2,973 $5.14 31% 60%

Guaynabo 321 $2,280 $24,091 $8,596 $7.11 10% 100%

Mayaguez 1,353 $6,397 $35,494 $27,994 $5.06 18% 50%

Ponce 387 $2,606 $11,458 $1,210 $6.71 23% 90%

San juan 353 $2,550 $13,967 $1,937 $7.31 20% 90%

Source: CRiM, Portal Catastro Digital y Productos Cartográficos, and calculations by the authors

Perhaps the most important observation from the table is that 72 percent of these properties receive at least a partial exemption from property taxes. Analysis of the sample data, presented below, also shows that 49 percent of these properties are totally exempt. The result is that the taxable value of this immovable property is only 42 percent of its assessed value.

It is no surprise that the assessed values do not reflect current market values given that assessors rely on 1957-58 values to generate their assessment coefficients. In theory, basing the values on 1957 conditions is not an impediment to reaching a given revenue target. A municipality could simply increase the tax rate each year, and this has been the practice in Puerto Rico. However, this assumes that markets across the Commonwealth are moving in sync and have been since 1957. This is an unrealistic assumption as Table A2.3 demonstrates. The relationship between total assessed value and market prices indicates significant inequality across and within municipalities.

While the average indexed sales price is about 10 times the assessed value, variations across municipalities are significant, ranging from 6 times to over 13 times the assessed value. The table reports the average total assessed value (prior to any exemptions), the average reported sales price, the updated or indexed estimated “sales price” using the FHFA price index, and the indexed sales price as a percent of the assessed value. From this data, it is clear that $35,000 in assessed value will result in very different effective tax rates in Mayaguez (1.6 percent) than in Guaynabo (0.75 percent), for example.

A2: DESCRiPTivE SAMPLE of THE PRoPERTy TAx in PRACTiCE | 79


Table A2.3: Sample Average Values by Municipality

Municipality

Average

Total Assessed Value Reported Sales PriceIndexed Sales Price

(2017)

Indexed Sales Price As a Percent of Assessed Value

Total $14,537 $142,319 $137,299 983%

Aguadilla $11,650 $98,803 $92,751 855%

Arecibo $8,121 $65,833 $61,336 767%

Bayamon $8,360 $72,501 $84,279 1047%

Carolina $11,748 $111,929 $103,314 909%

Cidra $8,852 $115,564 $110,620 1229%

Coamo $11,014 $128,868 $119,797 1079%

Guaynabo $24,091 $318,350 $320,418 1337%

Mayaguez $35,494 $228,725 $218,025 608%

Ponce $11,458 $98,706 $95,627 815%

San juan $13,967 $176,930 $161,522 1185%

Source: CRiM, Portal Catastro Digital y Productos Cartográficos; federal Housing finance Agency and calculations by the authors

To see this last point more clearly, Table A2.4 reports the effective tax rates obtained by applying current tax rates to current taxable values, and then dividing the resulting tax obligation by the sales price (both reported and indexed). The first observation is that 49 percent of properties in this sample pay no tax at all. Another 17 percent pay less than 0.5 percent of market value. At the other extreme, 14 percent of property owners currently pay over 1.5 percent of market value each year, and 4 percent are paying over 3 percent of market value.

Table A2.4: Sample Effective Tax Rates

Effective Tax Rate Percent of Properties, Based on

Between and Reported Sales Price Indexed Sales Price

0% 0% 49% 49%

0.08% 0.50% 17% 16%

0.51% 1.00% 7% 7%

1.01% 1.50% 12% 11%

1.51% 2.00% 8% 7%

2.01% 3.00% 2% 5%

3.01% more 4% 4%


It is possible that these variations reflect differences across municipalities. However, such disparities exist within the municipalities as well. Table A2.5 reports the spread in effective tax rates within each municipality. The table distinguishes between properties that receive no exemption and those with a partial exemption. Of course, those with a full exemption



(49 percent of the total) have no tax obligation. Within each exemption treatment category, variations in the effective tax rates exist in most municipalities.

For those properties with no exemption, only Ponce and San Juan tax all properties at the same effective rate. With the exception of San Juan, effective rates on properties receiving no exemption are relatively high, averaging nearly two percent of market value, and ranging as high as nearly six percent of current value. For those properties with a partial exemption, effective rates are significantly lower, but still exceed one percent in some instances.

Table A2.5: Effective Tax Rates by Municipality and Exemption Status

Municipality2018-19 Tax

Rate

Effective Tax Rates

No Exemption Granted Partial Exemption Granted

Average Minimum Maximum Average Minimum Maximum

Total 1.935% 0.534% 5.924% 0.494% 0.077% 1.612%

Aguadilla 10.33% 1.114% 1.011% 1.216% 0.276% 0.179% 0.373%

Arecibo 11.63% 1.736% 1.237% 2.413% 0.412%

Bayamon 9.58% 1.203% 0.902% 1.552%

Carolina 11.33% 1.893% 1.174% 2.271%

Cidra 12.33% 2.030% 0.924% 3.508%

Coamo 10.33% 2.393% 0.534% 5.924% 0.644%

Guaynabo 10.08% 0.426% 0.221% 1.612%

Mayaguez 10.58% 2.897% 1.432% 4.784% 0.931% 0.403% 1.406%

Ponce 12.33% 1.899% 0.196%

San juan 10.33% 0.577% 0.194% 0.077% 0.383%


This discussion, based on a sample of residential properties in ten municipalities, may be summarized as follows:

1. Over 70 percent of the properties in the sample received at least a partial exemption, and 49 percent are fully exempted from the property tax. This is consistent with the aggregate statistics, which indicate that about 60 percent of the immovable property tax base has been exempted.

2. The policy of basing taxable value on 1957-58 market conditions misses changes in market trends with the result that the effective assessment ratio (assessed value over market value) varies unacceptably across municipalities. The variations are unacceptable because they result in an unfair distribution of the tax burden within and across municipalities.

3. Effective tax rates vary widely both across and within municipalities. Such variations contribute significantly to the unequal treatment of taxpayers.

4. The effective tax rates on properties not receiving at least a partial exemption are higher than in many U.S. states.

A3: AREA-BASED PRoPERTy TAx | 81


A3: Area-Based Property TaxThis appendix describes how an area-based property tax system operates. As a non-market approach, the area-based approach requires data on each parcel but does not need the level of detail required by a market-based approach. The need for less information simplifies valuation.

An area-based tax does create shortcomings. Assessed values are similar throughout the community. Essentially, every property is assessed with an “average” value. Properties of equal size but in different locations in a community will have the same taxable value but are unlikely to have the same value in a market exchange.

An area-based tax does not grow with the economy, nor does it allow the property tax to capture the benefits of public investments or public services. However, it is possible to adjust area-based taxes for characteristics common to sections of a community. For example, in urban areas, centrally located parcels may have their value increased by a factor and property on the outskirts of a community may have their values reduced by a factor. In addition, to capture increases in the economy, to mimic the buoyancy of the market appraisal approach, the rate applied to the area can be increased.

The advantages and reasons that justify area as a basis for property assessment are as follows:

• Area-based appraisal approaches are useful when assessors do not have information about the price and condition of sold properties.

• Area-based appraisal systems can compensate for data gaps on current market conditions.

• Area-based appraisal approaches are useful when assessors have limited cadastral records.

• Area-based appraisal process requires fewer technically trained assessors.

• An area-based system can be modified when current market information is collected and cadastral records contain more property-specific information.

• The costs of administration are minimized with an area-based system of appraisal.

• With modest administrative improvements, the fiscal advantages of a property tax can be made available to local governments.

The disadvantages associated with an area-based property tax are listed as follows:

• Area-based property taxes lack the precision that is possible with a market-based assessment process in determining taxable value.

• The loss of appraisal accuracy weakens the economic assumption that the benefits received from the tax should roughly equal the cost of the property tax.

• An area-based tax system can introduce and perpetuate inequities in the appraisal of properties.

• The buoyancy associated with a market-based appraisal process is not possible with an area-based system.

82 | A4: vALuATion PRACTiCES in PuERTo RiCo


A4: Valuation practices in Puerto Rico

This appendix provides additional detail on the current property valuation system in Puerto Rico.

A4.1 Real PropertyThe taxable value of real property is based on values that existed in Puerto Rico in 1957-58. The last full appraisal of real property occurred during the mid-1950s and those values have been employed since that period. Improvements to property are valued using an appraisal manual (the “Black Book”) adopted by CRIM.

The actual appraisal uses factors from the appraisal manual that are applied to a building and its improvements based on the main construction materials used. For example, a residential home constructed out of cement would have a different factor than one constructed of wood. The factors were developed by CRIM based on 1957-58 construction costs and are intended to estimate the cost of all construction as of 1957-58. There are six different quality and material classifications used to account for construction methods.

Land is also valued. In addition to land area, appraisal factors are based on land characteristics and prices that existed in 1957-58. Thus, for land and improvements to land, appraisals are based on values that are seven decades old. Residential property owners are entitled to receive an exemption of $15,000 on one residence. The exemption is subtracted from the 1957-58 appraised value.

A4.2 Personal PropertyThe value of mobile personal property is based on the current book value of the property. In practice commercial and industrial machinery, office furniture, etc. are appraised at values higher than the appraised value of real property. While book value or purchase price minus depreciation might approach zero, Puerto Rico applies a minimum value on all personal property. This value can range between 10 and 20 percent regardless of a calculation of the economic life of the specific property item. Firms must file personal property forms in each municipality where it has a physical presence. Tax rates for personal property vary by municipality and differ from the rates applied to real property.

A4.3 InventoriesThe inventory tax is based on the cost of acquiring the inventory. In the case of commercial retail firms, the taxable value is based on the monthly average of inventory levels. Firms with minimal sales (less than $150,000 annually) are exempt from the inventory tax.

The current appraisal of real property creates disparity in the treatment of similar property owners. (See Appendix A5) Given changes in building technologies and materials, applying 1957-58 values to recently constructed improvements is a significant appraisal challenge and leads to inequity in the property tax. Applying 1957-58 values to land ignores the dramatic economic changes and growth that have occurred in the Commonwealth over the past 70 years.

A5: THE iMPACT of APPRAiSAL CyCLES | 83


A5: The Impact of Appraisal CyclesThis appendix demonstrates the impact of differential appraisal cycles on the equity of the property tax system. Property tax appraisal cycles refer to the frequency that appraised or assessed values are recalculated or individual properties reappraised. On the mainland, reappraisal cycles are generally established by the state legislature. The legislation determining the frequency of reappraisal in states is based on constitutional requirements and judicial rulings that require appraised value to be a function of current market value. Because of the obligation to approach market value, reappraisal cycles are usually required every three to five years, though longer cycles are not uncommon.

Although appraisal cycles are not explicitly described in the statutes of Puerto Rico they implicitly exist and have a significant consequence on the relative property tax burdens for owners of various types of property. Table A5.1 uses a hypothetical example to illustrate the consequences of different appraisal requirements that translate into different appraisal cycles. It uses a starting market value of $200,000 to explain four distinct classes of property: residential, commercial, business personal property and inventories. A uniform value is used to simplify the explanation.

The key comparisons in Table A5.1 are the relative nominal effective property tax rates that are defined as the tax obligation divided by current market value. The differences between the nominal tax rates of the four classes of property presented in the example indicate substantial inequality in taxpayer treatment. The nominal effective tax on inventory is in excess of 20 times the rate on residential properties. Even real properties that receive no exemption and are nominally taxed at higher rates end up being taxed at about 14 percent of the nominal effective rate of inventories.

Table A5.1: Effective Tax Rates Resulting from Differential Appraisal Cycles

Property Type Market Value Taxable ValueTax Rate

(%) e TaxesEffective Tax

Rate (%)(Tax/Market Value)

Effective Reappraisal

Cycle

Residential 200,000 $5,000 a 6.0 $300 0.15 70 years

Commercial 200,000 $20,000 b 6.0 $1,200 0.60 70 years

Personal 200,000 $160,000 c 4.0 $6,400 3.2 1 year

inventory 200,000 $200,000 d 4.0 $8,000 4.0 1 year

a. The assessed value as of 1957-58 is often assumed to equal 10% of current market values. The $15,000 residential exemption is then applied. Thus, $200,000 x 0.10 = $20,000, less the $15,000 exemption resulting in a $5,000 taxable value.

b. The assumption is that the 1957-58 values are equal to 10% of current market values.c. The assumption is that the personal property has an accounting life of 20 years and is three years old,

resulting in a depreciation of $40,000.d. inventory is listed at current cost.e. Rates do not include the 1.03 tax imposed by the Commonwealth or the additional taxes imposed by the

municipalities.

Source: Hypothetical examples developed by authors.

Such differences in effective tax rates may reflect actual legislative intent but more likely, they are the result of organic changes in the property tax appraisal process. CRIM with the support of its Directors (elected mayors) has the statutory authority to conduct a reappraisal of property.

84 | A6: PRoPERTy TAxES By MuniCiPALiTy


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A6: PRoPERTy TAxES By MuniCiPALiTy | 85


Mun

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d R

ate

Fina

l Rat

e W

ith M

anda

ted

0.2%

Red

uctio

n

Bus

ines

s Pe

rson

al

Pro

pert

y

Rea

l P

rope

rty

Bas

ic

Rat

e

Spe

cial

D

ebt

Ser

vice

R

ate

(CA

E)

Fina

l R

ate

Bas

ic R

ate,

In

clud

ing

Man

date

d 0.

2%

Red

uctio

n

Spe

cial

D

ebt

Ser

vice

R

ate

(CA

E)

Fina

l R

ate

Bus

ines

s Pe

rson

al

Pro

pert

y

Imm

ovab

le

Pro

pert

y

Bus

ines

s Pe

rson

al

Pro

pert

y

Imm

ovab

le

Pro

pert

y

Gua

yam

a1

.03

1.0

34

.00

3.2

57

.25

6.0

03

.25

9.2

58

.28

10

.28

8.0

81

0.0

8

Gua

yani

lla1

.03

1.0

34

.00

4.0

08

.00

6.0

04

.00

10

.00

9.0

31

1.0

38

.83

10

.83

Gua

ynab

o1

.03

1.0

34

.00

3.2

57

.25

6.0

03

.25

9.2

58

.28

10

.28

8.0

81

0.0

8

Gur

abo

1.0

31

.03

4.0

03

.00

7.0

06

.00

5.0

01

1.0

08

.03

12

.03

7.8

31

1.8

3

Hat

illo

1.0

31

.03

3.7

22

.50

6.2

25

.72

2.5

08

.22

7.2

59

.25

7.0

59

.05

Hor

mig

uero

s1

.03

1.0

34

.00

3.0

07

.00

6.0

03

.00

9.0

08

.03

10

.03

7.8

39

.83

Hum

acao

1.0

31

.03

4.0

02

.00

6.0

06

.00

2.0

08

.00

7.0

39

.03

6.8

38

.83

isab

ela

1.0

31

.03

4.0

02

.50

6.5

06

.00

2.5

08

.50

7.5

39

.53

7.3

39

.33

jayu

ya1

.03

1.0

34

.00

1.2

55

.25

6.0

01

.25

7.2

56

.28

8.2

86

.08

8.0

8

juan

a D

iaz

1.0

31

.03

4.0

03

.50

7.5

06

.00

2.5

08

.50

8.5

39

.53

8.3

39

.33

junc

os1

.03

1.0

34

.00

4.5

08

.50

6.0

04

.50

10

.50

9.5

31

1.5

39

.33

11

.33

Laja

s1

.03

1.0

34

.00

5.5

09

.50

6.0

05

.50

11

.50

10

.53

12

.53

10

.33

12

.33

Lare

s1

.03

1.0

34

.00

3.2

57

.25

6.0

03

.25

9.2

58

.28

10

.28

8.0

81

0.0

8

Las

Mar

ías

1.0

31

.03

4.0

01

.35

5.3

56

.00

1.3

57

.35

6.3

88

.38

6.1

88

.18

Las

Pie

dras

1.0

31

.03

4.0

02

.00

6.0

06

.00

3.5

09

.50

7.0

31

0.5

36

.83

10

.33

Loíz

a1

.03

1.0

34

.00

4.9

08

.90

6.0

04

.90

10

.90

9.9

31

1.9

39

.73

11

.73

Luqu

illo

1.0

31

.03

4.0

02

.00

6.0

06

.00

2.0

08

.00

7.0

39

.03

6.8

38

.83

Man

atí

1.0

31

.03

4.0

02

.75

6.7

56

.00

2.7

58

.75

7.7

89

.78

7.5

89

.58

Mar

icao

1.0

31

.03

4.0

01

.00

5.0

06

.00

3.5

09

.50

6.0

31

0.5

35

.83

10

.33

Mau

nabo

1.0

31

.03

4.0

02

.00

6.0

06

.00

3.0

09

.00

7.0

31

0.0

36

.83

9.8

3

May

ague

z1

.03

1.0

34

.00

3.7

57

.75

6.0

03

.75

9.7

58

.78

10

.78

8.5

81

0.5

8

Moc

a1

.03

1.0

34

.00

1.7

55

.75

6.0

02

.75

8.7

56

.78

9.7

86

.58

9.5

8

Mor

ovis

1.0

31

.03

4.0

02

.25

6.2

56

.00

4.0

01

0.0

07

.28

11

.03

7.0

81

0.8

3

nag

uabo

1.0

31

.03

4.0

01

.70

5.7

06

.00

3.0

09

.00

6.7

31

0.0

36

.53

9.8

3

nar

anjit

o1

.03

1.0

34

.00

3.0

07

.00

6.0

03

.00

9.0

08

.03

10

.03

7.8

39

.83

oro

covi

s1

.03

1.0

34

.00

1.2

05

.20

6.0

01

.20

7.2

06

.23

8.2

36

.03

8.0

3

Pat

illas

1.0

31

.03

4.0

03

.50

7.5

06

.00

3.5

09

.50

8.5

31

0.5

38

.33

10

.33

Peñ

uela

s1

.03

1.0

34

.00

1.7

55

.75

6.0

01

.75

7.7

56

.78

8.7

86

.58

8.5

8

Pon

ce1

.03

1.0

34

.00

3.5

07

.50

6.0

05

.50

11

.50

8.5

31

2.5

38

.33

12

.33

Que

brad

illas

1.0

31

.03

4.0

02

.00

6.0

06

.00

2.0

08

.00

7.0

39

.03

6.8

38

.83

Tabl

e A

6.1:

Pro

pert

y Ta

x R

ates

by

Mun

icip

ality

: 201

8-20

19 (c

ontin

ued)

86 | A6: PRoPERTy TAxES By MuniCiPALiTy


Mun

icip

ality

Sta

te D

ebt S

ervi

ce

Rat

eB

usin

ess

Pers

onal

Pro

pert

yIm

mov

able

Pro

pert

y R

ate

Tota

l Com

bine

d R

ate

Fina

l Rat

e W

ith M

anda

ted

0.2%

Red

uctio

n

Bus

ines

s Pe

rson

al

Pro

pert

y

Rea

l P

rope

rty

Bas

ic

Rat

e

Spe

cial

D

ebt

Ser

vice

R

ate

(CA

E)

Fina

l R

ate

Bas

ic R

ate,

In

clud

ing

Man

date

d 0.

2%

Red

uctio

n

Spe

cial

D

ebt

Ser

vice

R

ate

(CA

E)

Fina

l R

ate

Bus

ines

s Pe

rson

al

Pro

pert

y

Imm

ovab

le

Pro

pert

y

Bus

ines

s Pe

rson

al

Pro

pert

y

Imm

ovab

le

Pro

pert

y

Rin

cón

1.0

31

.03

4.0

04

.00

8.0

06

.00

4.0

01

0.0

09

.03

11

.03

8.8

31

0.8

3

Río

Gra

nde

1.0

31

.03

4.0

02

.00

6.0

06

.00

3.5

09

.50

7.0

31

0.5

36

.83

10

.33

Sab

ana

Gra

nde

1.0

31

.03

4.0

03

.50

7.5

06

.00

3.5

09

.50

8.5

31

0.5

38

.33

10

.33

Sal

inas

1.0

31

.03

4.0

03

.50

7.5

06

.00

3.5

09

.50

8.5

31

0.5

38

.33

10

.33

San

Ger

mán

1.0

31

.03

4.0

02

.75

6.7

56

.00

3.2

59

.25

7.7

81

0.2

87

.58

10

.08

San

jua

n1

.03

1.0

34

.00

3.5

07

.50

6.0

03

.50

9.5

08

.53

10

.53

8.3

31

0.3

3

San

Lor

enzo

1.0

31

.03

4.0

03

.40

7.4

06

.00

3.4

09

.40

8.4

31

0.4

38

.23

10

.23

San

S

ebas

tián

1.0

31

.03

3.0

02

.00

5.0

06

.00

2.2

58

.25

6.0

39

.28

5.8

39

.08

San

ta is

abel

1.0

31

.03

4.0

04

.00

8.0

06

.00

4.0

01

0.0

09

.03

11

.03

8.8

31

0.8

3

Toa

Alta

1.0

31

.03

4.0

03

.50

7.5

06

.00

4.5

01

0.5

08

.53

11

.53

8.3

31

1.3

3

Toa

Baj

a1

.03

1.0

34

.00

5.0

09

.00

6.0

05

.00

11

.00

10

.03

12

.03

9.8

31

1.8

3

Truj

illo

Alto

1.0

31

.03

4.0

03

.75

7.7

56

.00

3.7

59

.75

8.7

81

0.7

88

.58

10

.58

utu

ado

1.0

31

.03

4.0

02

.00

6.0

06

.00

2.0

08

.00

7.0

39

.03

6.8

38

.83

vega

Alta

1.0

31

.03

4.0

01

.85

5.8

56

.00

1.8

57

.85

6.8

88

.88

6.6

88

.68

vega

Baj

a1

.03

1.0

34

.00

3.5

07

.50

6.0

03

.50

9.5

08

.53

10

.53

8.3

31

0.3

3

vieq

ues

1.0

31

.03

4.0

04

.00

8.0

06

.00

4.0

01

0.0

09

.03

11

.03

8.8

31

0.8

3

villa

lba

1.0

31

.03

4.0

03

.50

7.5

06

.00

2.7

58

.75

8.5

39

.78

8.3

39

.58

yabu

coa

1.0

31

.03

4.0

04

.00

8.0

06

.00

4.0

01

0.0

09

.03

11

.03

8.8

31

0.8

3

yauc

o1

.03

1.0

34

.00

3.5

07

.50

6.0

03

.50

9.5

08

.53

10

.53

8.3

31

0.3

3

Sou

rce:

CR

iM

Tabl

e A

6.1:

Pro

pert

y Ta

x R

ates

by

Mun

icip

ality

: 201

8-20

19 (c

ontin

ued)

A7: ExEMPTion PoLiCy AnD PRACTiCE | 87


A7: Exemption Policy and PracticeExemption policies in Puerto Rico have a significant impact on the equity and overall productivity of the property tax system. This appendix provides details on the status of the current exemption system. There are three distinct classes of exemptions from the property tax base in Puerto Rico. The Municipal Property Tax Act grants the first class of exemptions. Second, a government agency can grant exemptions to specific commercial and industrial firms to encourage economic development on the island. Finally, municipal governments can grant exemptions to specific firms locating within their boundaries.

A7.1 General ExemptionsThe extent of properties exempted by the Municipal Property Tax Act is lengthy. However, the exemptions are generally similar to the exemption practices in the mainland. For example, a common exemption in Puerto Rico is granted for inventory held in foreign trade zones. This practice, often with a different label, is also a frequent tax policy on the mainland. Section 5.01 of the Municipal Property Tax Act identifies property tax exemptions, which are summarized in Box A7.

Box A7: Real Property Exemptions

• Household personal property• Property of the united States

Government• Puerto Rico Housing and Human

Development Trust• Property of municipality set aside

for public use• Debts of any person, partnership or

corporation• nonprofit corporations, institutions,

or partnerships dedicated to religious, charitable, scientific, literary, educational purposes, among others

• Property of hospitals, clinics, etc.• Cemeteries, tombs, etc.• Land used in extensive agricultural

production• Land used in sugar cane production • improvements under construction

• vessels (except for commercial fishing) • fruit for harvest• Artisan workshops • Professional licenses• Motor vehicles• Raw sugar • foreign consulates• Solar power equipment• Property in historic zones• Parking structures • Manufacturing real and personal property

used for tuna processing• Personal property within a foreign trade

zone• Sixty percent of the appraised value of

real property in a foreign trade zone• Subsidized rental housing• Moderate income housing

88 | A7: ExEMPTion PoLiCy AnD PRACTiCE


The exempt list includes property that is usually taxed on the mainland. Examples are parking structures, automobiles, vessels, and subsidized and moderate-income housing. The policy of exempting such property should be reconsidered.

In many states, tax-exempt properties pay an “in lieu” fee to local governments. The most common use of these fees is as a mechanism for urban universities to contribute to the cities in which they are located. The Federal government also pays in lieu fees to state and local governments. The policy justification for such fees is that exempt properties require the expenditure of funds for services they receive from state and local governments. A policy that maintains exempt property status but also requires their owners to provide financial support to local governments deserves a careful policy review.

There is currently no estimate of the revenue forgone because of these exemptions. The Commonwealth is in the process of developing a tax expenditure budget, detailing revenue losses attributable to laws allowing exclusions.

A7.2 Exemptions/Incentives for Economic DevelopmentThe Commonwealth of Puerto Rico has enacted multiple tax incentives that are intended to influence firms’ operations on the island and increase employment in Puerto Rico. During the past 15 years, tax incentives have become a foundational part of Puerto Rico public policy.

To receive an exemption, a firm applies to the Puerto Rico Industrial Development Company (PRIDCO). PRIDCO is a largely autonomous public organization with its own governing board and executive leadership. If granted, the exemption obliges firms to commit to employing a specific number of Puerto Rico residents, and other requirements, such as procuring inputs from island sources.

The tax exemptions reduce the revenues for both levels of government in Puerto Rico. Tax exemptions that reduce Commonwealth tax collections include adjustments to the corporate income tax (lower rates and expensing of investments) and the sales and use tax. Tax credits are also given for the purchase of certain products produced in Puerto Rico. Some industrial activities also receive a reduction in the cost of electricity purchased from the Electric Power Authority.

Tax exemptions that directly reduce the revenues of Puerto Rico’s municipal governments include the real (land and improvements) and personal property tax, the municipal license tax (gross receipts tax), the excise tax on new construction, and the revenue from the local portion of the sales and use tax.

New firms, industrial or commercial, impose additional costs on local governments. The new firms at a minimum need additional infrastructure such as access to transportation. If these new firms receive exemptions, the revenues required to fund these new services must come from existing taxpayers by either increasing their tax burdens or reducing the services they receive from the municipal government.



When a tax exemption is granted to a firm, a contract is executed between the firm and PRIDCO. The Commonwealth and the municipal governments are not directly involved in the decisions to grant an exemption. Before the exemption is granted, PRIDCO informs the municipal government, CRIM and PRDT of the pending agreement. Municipal governments, CRIM, and PRDT have no veto power over the proposed arrangement.

A key motivation for the exemptions is influencing the location of firms that will increase employment in Puerto Rico. Encouraging economic development has been integral to island policy for decades. The initial economic development law dates from 1947. However, during the past 15 years tax incentives have become foundational to Puerto Rican public policy.

The current tax base receiving exemptions is just under one billion dollars. The tax incentives granted by the Commonwealth present a significant financial issue for local governments in Puerto Rico. The most recent reported exemptions from each of the major industries are listed in Table A7.1. The abatement of taxes on personal property exceeds the abatement on real property by a factor close to two.

Table A7.1: Foregone Tax Base from Industrial Tax Exemptions: 2017

Industry/Business

Real Property Tax Abatement

Percent of Total Abatement

Personal Property Tax Abatement

Percent of Total Abatement

Total $333,539,920 100 $610,606,092 100

Warehouses $61,653,886 18.48 $88,524,752 14.50

Pharmaceutical Companies

90,153,536 27.03 260,382,274 42.64

Hotels and Related Businesses

17,602,861 5.28 82,256,965 13.47

industrial Companies and Businesses

123,196,304 36.94 13,866,703 3.27

other industries and Businesses

40,933,333 12.27 165,575,398 27.12

Source: CRiM

The implication of such high exemption levels is that current tax rates are substantially higher than they would need to be to collect the same revenue without the exemptions. This means that the remaining taxpayers are faced with much higher rates than would otherwise be the case.



The tax incentives and the industries that receive them are listed in Table A7.2. Only those taxes that directly affect municipal government revenues are shown.

Table A7.2: Property and Other Tax Exemptions by Industry

IndustryReal Property Tax

Exemption

Personal Property Tax Exemption

Municipal License TaxConstruction Excise Tax

Sales Tax

Manufacturing100% 1st year;

90% after 1st year

90%100% 1st 1.5 years;

60% after 100% 100%

Green Energy Activities

100% 1st year;

90% after 1st year

90%100% 1st 1.5 years;

60% after 100% 100%

Export service firms100% 1st 1.5 years;

60% after

Banking and financial services

100% 1st year;

90% after 1st year

90%100% 1st 1.5 years;

60% after 100% 100%

international insurers and Reinsurers

100% 100% 100%

film industry 90% 90% 100% 100%

Hotel and Hospitality industry

90% 90% 100% 100% 100%

Agriculture 100% 100% 100%

Hospital 100% 100% 100%

Source: PRiDCo

A7.3 Municipal Tax ExemptionsMunicipal governments can also grant tax exemptions to specific firms for the property tax, the municipal license tax, the local portion of the sales and use tax and the construction excise tax. At this time, the extent of the forgone revenue or even the number of agreements is unclear since these tend to be confidential, non-public negotiations.



A7.4 Exemptions in PracticeExemptions granted on real property seriously reduce the property tax base, by nearly 60 percent. The total number of properties and the values exempted by land use category are reported in Table A7.3.

The level of exemptions differs markedly across municipalities. Figure A7.1 reports the range for the 78 municipalities. There are only two municipalities which exempt less than 40 percent of their real property tax base. At the other extreme, six municipalities have exempted over 75 percent of the real property value from taxation.

Unsurprisingly, the exemptions in combination with the range in rates results in very different nominal effective tax rates, as shown in Figure A7.2. Most municipalities have effective rates between three and five percent, but a few fall below two percent and two are above six percent.

Likewise, business personal property exemptions vary across all municipalities. Figure A7.3 reports the range in the percent of exempted personal property. In some jurisdictions, relatively little personal property is exempted (less than 10 percent). However, in the majority of municipalities, the exemptions on personal property exceed 50 percent of the base.

The combination of varied municipal rates and different exemption levels result in quite different business personal property tax rates across the Commonwealth. Figure A7.4 reports the range in effective rates. It shows that in the 2017 fiscal year, rates range from less than one percent of total assessed value (actual minimum = 0.16 percent) to a high of over seven percent (actual maximum = 7.9 percent). CRIM reports that the tax on inventories represents about two-thirds of the revenue from the personal property tax.

Given that the taxable value of personal property, including inventories, is fairly close to current market value, these findings confirm the numerical example presented in Appendix A5 that the effective tax rate on business personal property is very high. Anecdotal evidence indicates that the tax on inventories has noticeably distorted market behaviors. This includes limiting the availability of supplies needed for hurricane recovery as companies had deliberately minimized their inventories to avoid taxation.



Tabl

e A

7.3:

Pue

rto

Ric

o R

eal P

rope

rty

Tax

Exe

mpt

ions

by

Land

Use

Cat

egor

ies

Land

Use

Cat

egor

yTo

tal

Pro

pert

ies

Perc

ent o

f P

rope

rtie

sPe

rcen

t of

Tota

l Val

uePe

rcen

t of

Pro

pert

ies

Pro

pert

ies

Rec

eivi

ng S

ome

Exe

mpt

ion

Pro

pert

ies

Rec

eivi

ng n

o E

xem

ptio

nPe

rcen

t of

Val

ue

Exe

mpt

ed

Ave

rage

E

xem

ptio

n R

ate

Tax

Am

ount

O

ver

Tota

l Va

lue

Perc

ent o

f Va

lue

Tax

Am

ount

O

ver

Tota

l Va

lue

Tota

l 1

,308

,053

10

0.0%

100.

0%61

.1%

58.3

0%93

.9%

1.50

%31

.8%

10.2

3%

10

00

Res

iden

tial,

vac

ant

18

9,5

72

1

4.5

%4

.7%

13

.5%

52

.3%

97

.1%

0.7

6%

43

.6%

10

.19

%

10

01

Sin

gle-

fam

ily

93

1,3

40

7

1.2

%4

9.2

%7

3.4

%6

7.4

%9

5.0

%1

.18

%2

3.9

%1

0.3

2%

10

07C

ondo

min

ium

s 7

7,4

38

5

.9%

5.8

%5

8.8

%5

3.2

%9

2.9

%1

.45

%3

8.1

%1

0.2

6%

10

0x

Res

iden

tial,

othe

r 5

6,5

97

4

.3%

4.4

%6

4.2

%4

5.2

%7

4.9

%2

.95

%3

6.7

%1

0.3

1%

20

0x

Mix

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Figure A7.1: Percent of Real Property Exempted

Figure A7.2: Nominal Effective Property Tax Rates

1 1

9

36

26

6

0

5

10

15

20

25

30

35

40

18%-25% 25% -40% 40%-50% 50%-60% 60%-75% 75%-90%Percent of exempt real property value

Real Property Exemptions


Num

ber o

f Mun

icip

aliti

es


42

28

32

10

1 10

5

10

15

20

25

30

35

1%-2% 2%- 3% 3% - 4% 4%-5% 5%-6% 6%-7% 7%-8%Revenue over Assessed Value

Property tax revenue as a percent of total assessed value: Real Property

Num

ber o

f Mun

icip

aliti

es

Figure A7.2: Nominal effective property tax rates



Figure A7.3: Percent of Personal Property Tax Exempted

Figure A7.4: Effective Personal Property Tax Rates: 2018

Table A7.4 reports statistics on the number of property tax accounts, their aggregate assessed value, and how exemptions affect these totals. The number of real property units has increased by 10,000 to 12,000 units each year. This increase is due largely to recorded subdivisions of land and the creation of new parcels. Over the same period, the number of business personal property accounts has declined by about 5.5 percent, which may be a function of the general economic decline. The table clearly shows the toll that exemptions take on the property tax base with nearly 60 percent of real property value exempt and over 60 percent of personal property exempt.


35

2724

19

0

5

10

15

20

25

30

< 10% 10% - 25% 25%-50% 50%-75% >75%

Percent of Personal Property Exempted or Exonerated

Personal Property Exemptions

Num

ber o

f Mun

icip

aliti

es

Source: CRIM and calculations by the author

6

1210

1819

56

2

02468

101214161820

<1% 1%-2% 2%- 3% 3% - 4% 4%-5% 5%-6% 6%-7% 7%-8%Revenue over Assessed Value

Property tax revenue as a percent of total assessed value: Personal Property

Num

ber o

f Mun

icip

aliti

es

Figure A7.4: Effective personal property tax rates: 2018



Table A7.4: Puerto Rico Property Tax Base: 2014-2018

Tax Year

2018 2017 2016 2015 2014

Real Property

number of property units 1,308,599 1,297,307 1,285,694 1,274,012 1,264,317

Total Assessed value (millions)

$19,141 $18,951 $18,750 $18,610 $18,532

number of taxable property units

679,930 669,803 659,001 651,059 642,524

Total taxable value (millions)

$7,990 $7,787 $7,666 $7,702 $7,653

Taxable value as a percent of total value

41.7% 41.1% 40.9% 41.4% 41.3%

Exempted value (millions) $11,151 $11,164 $11,084 $10,908 $10,879 Personal Property

number of accounts 68,465 70,725 70,948 72,188 72,485

Total personal property value (millions)

$12,533 $13,395 $13,292 $12,796 $11,980

number of taxable accounts 46,971 50,178 50,372 49,712 50,190

Taxable personal property value (millions)

$4,662 $5,176 $5,328 $5,384 $5,360

Taxable personal property value as a percent of total value

37.2% 38.6% 40.1% 42.1% 44.7%

Exempted value (millions) $7,871 $8,219 $7,964 $7,412 $6,620 Real and Personal Property

Total Taxable Value As a Percent of Total Property Value

39.9% 40.1% 40.6% 41.7% 42.7%


A7.4.1 Real property exemptionsThe tables and figures in this section highlight how property tax exemptions differ between and within property classes. A key finding is the number of properties receiving some form of property tax exemption and the proportion of property value exempted. The tables also report on the nominal property tax rates between the properties receiving and those not receiving exemptions within the same property class.

Figure A7.5 shows the percent of the assessed real property value that was exempted from the immovable property tax in 2017. The percent of property exempted is reported for 22 property classes. Reported classes include commercial, residential, and industrial properties. Others of note are hotels, warehouses, shopping malls, health facilities, and pharmaceutical manufacturing firms. Figure A7.5 shows that the total value of real property granted an exemption in Puerto Rico is just over 58 percent. The largest exemptions appear to have been granted by the individual contracts that are established between firms and the Commonwealth’s economic development agency. These exemptions are justified by promises of economic development on the Island. For example, economic development agreements lower the assessed value of pharmaceutical manufacturing firms by 88 percent, the assessed value of hotels by 76 percent, and industrial firms by 79 percent. On balance commercial



properties, such as supermarkets, shopping malls, and office buildings receive much smaller reductions in their assessed value.

Figure A7.5: Percent of Real Property Assessed Value Exempted by Land Use Category

Single-family residential homes also collectively receive a large reduction in their assessed value. In 2018, residential properties had 67 percent of their assessed value exempted. This exemption is primarily a result of the $15,000 exemption given to all homeowners. The $15,000 exemption may appear modest in today’s dollars, but it is a substantial portion of a residential property, given the1957-58 value basis for assessments.

Figure A7.6 illustrates the significance of the tax exemption and identifies the fiscal importance of the exemption for classes of property. For example, when an exemption is given to a pharmaceutical property the exemption is, on average, equal to 91.6 percent of the assessed value of the property. For hotels, the exemption is equal to 90 percent of the assessed value. However, when an exemption is given to commercial property the exemption is, on average, equal to 34.7 percent of the assessed value of the property.


52.3%67.4%

53.2%45.2%

18.3%8.5%

13.4%16.6%

12.9%76.4%

2.5%2.7%

0.6%0.6%

19.8%11.8%

26.6%59.6%

88.3%79.2%

57.3%89.7%

58.3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Residential, Vacant

Single-familyCondominiums

Residential, otherMixed use

Commercial, vacantRetail stores

Parking buildingsOffice and office buildings

Hotels, motels, guesthouses, hostelSupermarkets

Motor vehicle-relatedDepartment stores

Shopping mallEntertainment

Commercial, All otherIndustrial, vacant

Warehouse & distribution centersPharmaceutical

Industrial, All otherAgricultural, allInstitutional, all

Total

Percent of assessed value

Land

use

cat

egor

yPercent of Assessed Value Exempted by Land Use Category



Figure A7.6: Average Percent Exemption by Land Use Category

Commercial properties receive fewer and smaller exemptions from the property tax. Taxes on these properties are most likely borne by residents of Puerto Rico. Other taxes, such as the property tax on hotels, receive much larger exemptions; these taxes are borne by non-residents when they pay their hotel bills. The same assumptions could be made for the taxes on pharmaceutical firms. It is likely that the financial benefits to the bottom line of pharmaceutical firms resulting from the property tax exemption are either passed forward to the (usually) non-resident owners of the firms, or perhaps to the final consumer of the manufactured drugs through lower prices. However, many of the drugs produced in Puerto Rico are protected by patents and are somewhat protected from price competition.

A7.4.2 Residential Property ExemptionsThere are thousands of parcels in Puerto Rico with low assessed values. Table A7.5 describes the effect of property tax exemptions on residential properties. Included in this table are single-family residential properties and multifamily properties that are identified in Figure A7.5 as Other Residential. Condominiums are also reported separately in the table. Residential properties currently represent 81 percent of the total property parcels in Puerto Rico. Single-family residential properties number 931,340 and represent 71 percent of the properties on the island. However, they represent just less than 50 percent of the total value of properties in Puerto Rico.

Land

use

cat

egor

y


97.1%95.0%

92.9%74.9%

61.7%96.3%

88.3%93.9%

90.5%90.5%

100.0%82.5%

98.6%89.3%88.2%

34.7%97.5%

88.3%91.6%

88.5%93.2%

98.8%93.9%

0% 20% 40% 60% 80% 100%Residential, Vacant

Single-familyCondominiums

Residential, otherMixed use

Commercial, vacantRetail stores

Parking buildingsOffice and office buildings

Hotels, motels, guesthouses, hostelSupermarkets

Motor vehicle-relatedDepartment stores

Shopping mallEntertainment

Commercial, All otherIndustrial, vacant

Warehouse & distribution centersPharmaceutical

Industrial, All otherAgricultural, allInstitutional, all

Total

Percent of value exempted

Average percent exemption by land use category



If an exemption is granted for residential properties, it is a substantial reduction in the taxable assessed value. Seventy-one percent of all residential properties receive a property tax exemption, while 73 percent of all single-family residential properties receive an exemption. The percent of taxable value exempted ranges from 67 percent for single-family residential parcels to 45 percent for other residential properties. For single-family residential properties receiving an exemption, the average exemption is 95 percent.

Table A7.5: Real Property Tax: Residential Land Use

Properties Receiving Some ExemptionProperties

Receiving no Exemption

Land Use Category

Total Properties

Percent of Properties

Percent Total Value


Percent of Value

Exempted

Average Exemption

Rate

Tax Amount

Over Total Value

Percent of Value

Tax Amount

Over Total Value

Total 1,254,947 81.4% 59.4% 71.8% 64.4% 94.0% 1.32% 28.2% 10.31%

Single-family 931,340 71.2% 49.2% 73.4% 67.4% 95.0% 1.18% 23.9% 10.32%

Condominiums 77,438 5.9% 5.8% 58.8% 53.2% 92.9% 1.45% 38.1% 10.26%

Residential, other

56,597 4.3% 4.4% 64.2% 45.2% 74.9% 2.95% 36.7% 10.31%


Exempt and non-exempt property tax rates differ by a factor of nearly nine. The relative differences in the nominal tax rates between exempt and non-exempt residential properties are highlighted in Table 7.5. By any standard of comparison, the degree of difference in the tax rates between exempt and non-exempt properties is striking. A difference in tax rates between properties within the same class of property is a difficult policy to explain or justify.

A7.4.3 Commercial Properties ExemptionCommercial properties account for three percent of total properties but 15 percent of total value. Table A7.6 offers details on property parcels and property improvements used in commercial activities on the Commonwealth. Classes of property identified in Table A7.6 have substantial differences in value. For example, “retail stores” includes both small retail stores and large department stores. The table also reports on property used by the hotel industry, office buildings, motor vehicle related businesses, and entertainment establishments. Commercial properties, as expected, represent a substantially smaller number of properties but do represent a disproportionate share of total assessed taxable value.

Except for hotels, the percent of commercial properties receiving property tax exemptions is small compared to the other property classes. While only 23 percent of hotels receive an exemption, their exemptions represent 76 percent of the total value of hotels. Supermarkets receive almost no reported property tax exemptions. In total, only 15.8 percent of the total value of commercial property is exempted and only 7.4 percent of the total number of commercial properties receive an exemption. In comparison, 72 percent of residential homes receive an exemption.



However, where exemptions are granted the exempt properties receive a significant tax advantage compared to properties receiving no exemption. (See the shaded columns of Table A7.6) An office building receiving an exemption has property rates that are 13 percent (1.38%/10.28%) of the effective tax rate paid by similar properties not receiving an exemption. More than likely, the properties receiving the exemption are recent builds and those paying the higher tax rate are older establishments. Again, the differences in tax rates within a general class of property are substantial and obviously place non-exempt property owners at a disadvantage.

Table A7.6: Real Property Tax: Commercial Land Use



Land Use Category

Total Properties


Percent Total Value


Percent of Value

Exempted

Average Exemption

Rate

Tax Amount

Over Total Value

Percent of Value

Tax Amount

Over Total Value

Total 38,689 3.0% 15.2% 7.4% 15.8% 77.7% 5.50% 66.2% 10.17%

Retail stores 21,426 1.6% 4.1% 7.1% 13.4% 88.3% 0.84% 85.3% 10.28%

Parking buildings

1,788 0.1% 0.2% 1.3% 16.6% 93.9% 0.55% 82.5% 10.21%

office and office buildings

7,671 0.6% 2.0% 4.8% 12.9% 90.5% 1.38% 85.2% 10.28%

Hotels, motels, guesthouses, hostel

290 0.0% 1.2% 23.8% 76.4% 90.5% 1.13% 14.4% 10.43%

Supermarkets 207 0.0% 0.2% 1.0% 2.5% 100.0% 0.00% 97.5% 10.21%

Motor vehicle-related

2,813 0.2% 0.6% 3.7% 2.7% 82.5% 1.89% 96.6% 10.34%

Department stores

139 0.0% 0.4% 5.0% 0.6% 98.6% 0.49% 99.3% 10.09%

Shopping mall 436 0.0% 1.6% 2.1% 0.6% 89.3% 5.75% 98.2% 9.59%

Entertainment 1,874 0.1% 0.6% 9.1% 19.8% 88.2% 0.82% 78.5% 10.36%

Commercial, All other 2,045 0.2% 4.4% 28.0% 11.8% 34.7% 8.56% 30.6% 10.28%


A7.4.4 Industrial Properties ExemptionsIndustrial properties represent less than two-tenths of one percent of total properties in Puerto Rico but they represent 17.2 percent of total assessed values, as shown in Table A7.7. The number of industrial properties on the tax records is small, even relative to the number of commercial establishments. However, their potential contribution to taxable value is significant.

Industrial properties receive substantially higher exemptions than commercial properties and the loss of property tax revenue is sizeable. Because of the relative value of the industrial properties, any exemption granted to industrial properties has the potential to significantly



impact total property tax revenue. The total value of exemptions from the property tax for industrial property is 77.7 percent compared to 15.8 percent for commercial property. Again, the exemptions for industrial properties are generally the result of tax exemptions granted for economic development in Puerto Rico.

As with the other classes of property, the effective tax rate differences between exempt and non-exempt are substantial. The resulting differences in the effective nominal tax rates for exempt and non-exempt properties are shown in the shaded columns of Table A7.7. Such differences are not inconsequential. These firms operate in a world economy where all firms compete for capital and are motivated to maximize the return on their capital. The differences in the tax rates shown in Table A7.7 are distortionary and likely hamper the ability of some firms to compete for capital.

Table A7.7: Real Property Tax: Industrial Land Use

Land Use Category

Total Properties


Percent Total Value




Percent of Value

Exempted

Average Exemption

Rate

Tax Amount

Over Total Value

Percent of Value

Tax Amount

Over Total Value

Total 3.098 0.2% 17.2% 23.3% 77.70% 88.6% 0.88% 13.2% 10.17%

Warehouse & distribution centers

2,147 0.2% 6.0% 20.1% 59.6% 88.3% 1.02% 33.7% 10.15%

Pharmaceutical 81 0.0% 4.9% 50.6% 88.3% 91.6% 0.68% 5.5% 10.25%

industrial, All other

870 0.1% 6.3% 28.6% 79.2% 88.5% 0.94% 13.1% 10.18%


A7.4.5 Vacant landOver 50 percent of vacant residential land receives an exemption while the number of exemptions is much lower for the other two classes of vacant land, as shown in Table A7.8. Three classes of vacant land are depicted: residential, commercial, and industrial. Vacant land represents 14.5 percent of total parcels in Puerto Rico but only five percent of the total assessed value on the Island. The policy to give fewer exemptions to commercial activities is also evident for vacant commercial land. Only 0.2 percent of commercial vacant land receives an exemption. However, when an exemption is given to commercial vacant land the exemption is over 90 percent of its assessed value. Over one-third of vacant industrial land receives exemptions, totaling over one-quarter of assessed value.

The pattern of significant differences in the nominal tax rates between exempt and non-exempt parcels continues for vacant land as shown in the shaded columns of Table A7.8.



Table A7.8: Real Property Tax: Vacant Land

Land Use Category

Total Properties


Percent Total Value




Percent of Value

Exempted

Average Exemption

Rate

Tax Amount

Over Total Value

Percent of Value

Tax Amount

Over Total Value

Total 190,527 14.6% 5.0% 13.5% 49.8% 97.13% 0.76% 46.2% 10.19%

Residential, vacant

189,572 14.5% 4.7% 13.5% 52.3% 97.1% 0.76% 43.6% 10.19%

Commercial, vacant

730 0.1% 0.2% 9.0% 8.5% 96.3% 0.74% 90.8% 10.43%

industrial, vacant 225 0.0% 0.1% 33.8% 26.6% 97.5% 0.75% 71.4% 9.53%


In sum, the policies that guide real property exemptions in Puerto Rico have been applied aggressively for certain sectors of the economy. This is obvious when the exemptions given to commercial properties are compared to the exemptions given to industrial properties. Commercial properties face substantially higher taxes on their land and improvements. The tables in this section also highlight the extreme differences in nominal property tax rates between properties receiving exemptions and properties not granted exemptions. At the same time, there is little or no evidence that exemptions for economic development actually result in positive GDP growth.

A7.4.6 Business personal property exemptionsIn addition to the differential effective rates across municipalities, the business personal property tax constitutes a significant compliance burden for businesses and places an undue burden on a few large businesses. Table A7.9 reports the distribution of personal property accounts by the total value of the accounts before any exemption. Two-thirds of firms required to complete the filing process reported total personal property value for their firm at less than $5,000. At the other extreme, 50 percent of the revenue billed came from just 178 companies, and 80 percent came from fewer than 1,000 companies.



Table A7.9: Size Distribution of Business Personal Property Accounts: 2016

Account Property ValueNumber of Accounts

Total Property Value (Millions)

Average Amount Billed ($)

Percent of Amount Billed

Total 72,302 $12,532.53 $5,199 100%

$0 11,924 $0 $0 0%

$1 - $1,000 15,895 $7.71 $23 0.1%

$1,001 - $3,000 14,038 $25.93 $82 0.3%

$3,001 - $5,000 6,327 $24.73 $176 0.3%

$5,001 - $10,000 7,553 $54.24 $359 0.7%

$10,001 - $100,000 12,859 $384.94 $1,852 6.3%

$100,001 - $500,000 2,242 $488.56 $13,250 7.9%

$500,001 – $1 million 512 $366.10 $40,428 5.5%

$1 million – $5 million 630 $1,378.65 $106,907 17.9%

$5 million – $10 million 144 $1,026.37 $292,784 11.2%

$10 million – $100 million 160 $3,834.43 $825,284 35.1%

over $100 million 18 $4,940.86 $3,045,020 14.6%


Current exemption practices serve to make the inequities in the system even more pronounced. Table A7.10 reports the effective personal property tax rates by size of account and exemption status. For those firms with a “partial” exemption, the exemptions are generally well above 90 percent and the effective tax rates well below two percent. However, for the 68 percent of firms that receive no exemption, effective rates are around eight percent. Again, the authors emphasize that the eight percent rate is eight percent of current market value, often inventory. Small wonder therefore those firms choose to minimize their inventory or take other evasive action to avoid the tax. Despite these efforts, based on the actual filings and billings, the tax is an administrative burden for two-thirds of firms without generating significant revenue, and an unfair tax burden on those firms not awarded exemptions.



Table A7.10: Effective Tax Personal Property Tax Rates by Size of Firm and Exemption Status

Account Property Value

Accounts With Partial ExemptionAccounts With no

ExemptionPercent of

Firms With no Exemption

Number of

Accounts

Average Exemption (percent of

Property Value)

Average Effective Tax Rate

Number of Accounts

Average Effective

Rate

Total 22,749 98.30% 1.19% 49,553 8.10% 68.5%

$0 11,924 nA

$1 - $1,000 6,050 99.60% 0.03% 9,845 8.05% 61.9%

$1,001 - $3,000 6,300 99.50% 0.04% 7,738 7.99% 55.1%

$3,001 - $5,000 2,781 99.20% 0.07% 3,546 7.96% 56.0%

$5,001 - $10,000 2,908 99.00% 0.08% 4,645 8.00% 61.5%

$10,001 - $100,000 3,417 97.10% 0.36% 9,442 7.95% 73.4%

$100,001 - $500,000 581 88.80% 0.93% 1,661 8.08% 74.1%

$500,001 – $1 million 186 84.10% 1.39% 326 8.11% 63.7%

$1 million – $5 million 302 82.10% 1.65% 328 8.11% 52.1%

$5 million – $10 million 90 82.70% 1.46% 54 8.24% 37.5%

$10 million – $100 million 117 80.20% 1.67% 43 8.09% 26.9%

over $100 million 17 87.00% 0.83% 1 8.14% 5.6%


104 | A8: SiMuLATinG oPTionS foR CoMPREHEnSivE PRoPERTy TAx REfoRM


A8: Simulating Options for Comprehensive Property Tax Reform

The purpose of this appendix is to estimate to the extent possible the fiscal impact of the recommendations made in Chapters 3 and 4. Since Chapter 4 presented a continuum for reforming and enhancing the performance of the property tax, this section considers some of the key elements discussed.

A8.1 Potential Revenue Gain Through the Addition of Missing Housing Stock

The U.S. Census Bureau estimates there are 1.57 million residential dwelling units in Puerto Rico. As of June 2018, CRIM included only 1.07 million residential buildings on the tax roll. To be sure, some of the properties CRIM includes are multiple dwelling unit buildings. Allowing for a range in possible dwelling units per building, it is still the case that between approximately 244,000 and 270,000 residential properties are not included in the current tax roll.

Using the average assessed value per residential property; these missing properties represent about $3.1 billion in assessed value. Depending on the level of residential exemption extended to these properties, the uncollected revenue is between $195 and $330 million annually.

In addressing deficiencies in the current cadaster, it is important to consider where the missing property units may be located. Table A8.1 reports the largest discrepancies between Census estimates and CRIM property counts for single-family homes. Only Carolina and San Juan have CRIM property counts that are higher than Census estimates.

A8: SiMuLATinG oPTionS foR CoMPREHEnSivE PRoPERTy TAx REfoRM | 105


Table A8.1: Discrepancy Between Census Estimates and CRIM Single-Family Dwelling Counts by Municipality

MunicipalitySingle-Family Dwelling

Units (Census)Single-Family

Properties (CRIM)Potential Missing Single-

Family PropertiesPercent

DiscrepancyPuerto Rico 1,243,610 977,131 268,415 27%

Arecibo 37,395 26,309 11,086 42%

Ponce 54,171 46,588 7,583 16%

Barranquitas 10,384 3,716 6,668 179%

vega Alta 14,459 7,792 6,667 86%

Corozal 12,328 5,799 6,529 113%

Hatillo 15,798 9,449 6,349 67%

vega Baja 22,866 16,836 6,030 36%

utuado 12,450 6,507 5,943 91%

Toa Alta 23,812 18,011 5,801 32%

naranjito 10,237 4,478 5,759 129%

yabucoa 13,940 8,258 5,682 69%

San Lorenzo 15,723 10,303 5,420 53%

Moca 14,366 8,984 5,382 60%

Toa Baja 27,803 22,494 5,309 24%

yauco 16,279 11,097 5,182 47%

Camuy 13,472 8,295 5,177 62%

Morovis 11,138 6,117 5,021 82%

Source: CRiM and u.S. Census, American Community Survey, 2016 5-year estimates, and calculations by the authors.

Table A10.11 in Appendix 10 reports the difference in the approximate number of multi-unit buildings in Puerto Rico based on U.S. Census dwelling counts and CRIM multi-unit properties. These numbers are much more difficult to match, but it appears there are about 12,700 multi-unit properties not yet on the CRIM property rolls.

A8.2 Estimating the Impact of New Land CoefficientsEstimating new land coefficients in the aggregate is difficult. Doing so requires matching recent sales prices for vacant land to CRIM assessed values for the same parcels. PRDT reports sales prices to CRIM and financial institutions forward fee appraisals27 to CRIM. As discussed in the opening of Appendix 2, the CRIM digital database includes sales price data and assessed values for many properties. Unfortunately, none of this linked data was available for this analysis.

The best that can be done given available data, is to approximate the relationship using average and median vacant land values for both sales and assessed value at the municipal level. This is problematic because the sales transaction data provided by PRDT does not include land area, only price and land use. There is little reason to assume that the average lot area for properties

27. “Fee appraisals” are privately generated appraisals obtained by financial institutions and other entities seeking a formal, detailed estimate of current market value. For residential properties, such appraisals generally cost more than $300.



sold is equal to the average land area of all vacant parcels within a municipality. Nonetheless, the ratio of sales price to assessed value is instructive.

Figure A8.1 reports the range of ratios of sales price to assessed value for vacant residential plots using both medians and arithmetic averages. The calculations for each municipality are reported in Table A10.12 in Appendix 10.

Overall, the ratio of median sales price to median assessed value is 40.9 while the ratio of averages is 23.0. This suggests that, overall, land prices appear to have increased by somewhere between 25 and 40 times since 1957-58.

More important than the overall increase is the variation across municipalities. Figure A8.1 indicates the range in ratio of averages is from less than a 10-fold increase among a handful of municipalities, to over 100 times in three municipalities. Again, the overall average was a ratio of 23.0.

Averages can easily be influenced by extreme outliers. Figure A8.1 also compares the ratio of medians which are somewhat less susceptible to outliers. Again, the variation across municipalities is quite large, ranging from about 10 to over 100.

A more detailed analysis at the parcel level would yield much more precise adjustment factors for land values. But the available data indicate that land values have increased most strongly in the municipalities listed in Table A8.2. If the Commonwealth ratios reflect the degree of overall increases in land prices, the data in Table A8.2 suggests that a revenue-neutral property tax reform would significantly shift the tax burden. The municipalities listed would see a substantial increase in their relative share of total taxes paid.

Figure A8.1: Ratio of Sales Price to Assessed Value by Municipality

0

5

10

15

20

25

30

35

40

1-10 10-25 25-40 40-55 55-70 70-100 Over 100Ratio value

Ratio of Sales Price to Assessed Value

Medians Averages

Num

ber o

f Mun

icip

aliti

es

Source: CRIM, PRDT and calculations by the authors



Table A8.2: Municipalities With Greatest Apparent Increase in Land Values

MunicipalityRatio of Sales Price to Assessed Value

Averages Medians

Aibonito 155 38

naranjito 140 39

Patillas 94 42

San Lorenzo 34 44

Adjuntas 44 46

Camuy 37 49

Comerío 37 49

Lajas 32 51

Moca 32 53

Aguada 32 54

Caguas 36 57

isabela 34 61

Hatillo 65 62

Quebradillas 74 74

Culebra 60 84

Rincón 62 89

Dorado 50 199

Source: CRiM, PRDT, calculations by the authors

A8.3 Estimating the Impact of New Building Cost CoefficientsEstimating the implications of changing the improvement construction cost coefficients requires detailed data on the development of building technologies and materials since 1957-58. It also requires data on building attributes. While CRIM may have some of this information in its databases, such data were not available for this analysis.

What is available is a general picture of how the average price of new residential construction has changed over time. This trend is reported in Figure A8.2. Note that housing construction technologies have changed markedly over the past 60 years. Assuming that Puerto Rico is similar to the rest of the United States, housing styles and size have also changed significantly. Given these limitations, the authors urge caution in interpreting the trend shown in Figure A8. Nonetheless, it appears that construction costs have increased approximately 10 to 12 times since 1957-58.

Many observers estimate that current property tax valuations understate market values by a factor of about ten. Comparing Census estimates of housing values with average assessed values produces a similar ratio. Given the information from these sources, it appears that adjusting construction cost coefficients to bring them to current values would increase assessed values by a factor of about ten.



Figure A8.2: Average Value of New Private Residential Construction

A8.4 Impact of Residential ExemptionsCurrently, $7.3 billion in taxable value is granted in residential exemptions to 1.07 million residential properties. The average reduction in taxable value from these exemptions is $6,865, and the average percentage of exempted assessed value is 67.5 percent, but the median exemption is 100 percent of assessed value. The median tax paid by property owners not fully exempted is $689 (average is $900). For those with a 100 percent exemption, the tax is zero.

If the value of the exemption were capped at 75 percent of assessed value as currently defined, the average exemption in assessed value would fall to $5,481, and the total taxes billed on residential property would increase by $153 million annually.

• The average tax increase per property would be $144.

• The median tax paid by property owners not currently exempted would increase to $695, and the average to $938.

• The median tax paid by property owners who are currently fully exempted would increase to $215 (average $225).

If the value of the exemption were capped at 50 percent of assessed value as currently defined, the total taxes billed on residential property would increase by $336 million annually.

• The average tax increase per property would be $315.

• The median tax paid by property owners not currently exempted would increase to $872, and the average to $1,038.

Source: Planning Board, Selected Statistics of the Construction Industry: 2016

-

200

400

600

800

1,000

1,200

1,400

1,600

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Average unit value of new private residential construction

Aver

age

Valu

e In

dex

(195

7=10

0)



• The median tax paid by property owners who are currently fully exempted would increase to $431 (average $451)

The current residential exemption is $15,000 for homeowners. If this exemption were reduced to $14,000, the net result would be an additional $1.07 million each year.

A8.5 Revenue Impact of Repealing the Personal Property TaxThe tax on personal property constitutes about 40 percent of current revenues from the property tax. As argued previously, this is much higher than is common in U.S. jurisdictions, and has proven to be quite burdensome for taxpayers. This disproportionate reliance on revenue from the personal property tax is a result of personal property being valued at or near current cost whereas real property values are 60 years out of date.

If the tax were repealed in a single step, the revenue loss would total $409.3 million, based on 2016-17 billed amounts.

If an exemption is granted, in over 95 percent of cases, the exemption is 90 percent of assessed value or higher. If these exemptions were phased out over five years, the annual revenue increase at 2018-19 rates would be approximately $127 million.

However, the impact on municipalities would differ significantly across the Commonwealth. Figure A8.3 displays the first-year impact of a policy intended to phase out the personal property tax over five years. Thus, the figure reports the impact of a 20 percent reduction in the exemptions for business personal property. Table A10.9 in Appendix 10 reports the impact by municipality. Figure A8.3 summarizes the results.

Phasing out the personal property tax exemption will have important implications for the personal property tax base in most municipalities. Reducing the assessed value exemption amount by 20 percent will result in increases in the value of taxable personal property. In 35 municipalities, the first-year impact will be to increase the value of the personal property tax base by 1.7 percent to 20 percent. But for another 13 municipalities, the impact will be to increase the base by over 80 percent, and in four cases, by over 200 percent.



Figure A8.3: Impact of 20 Percent Reduction in Personal Property Tax Exemptions by Municipality in the First Year of a 5-Year Phase Out

A8.6 Impact of a Minimum Tax on Residential PropertyA minimum tax would apply (in most cases) only to residential property.

If a minimum tax of $120 were imposed, residential property tax revenue would increase by $77 million annually, and 62 percent of residential property owners would be impacted.

• A minimum tax of $100 would yield an additional $64 million annually and would affect 61 percent of owners.

• A minimum tax of $150 would yield an additional $98 million annually and would affect 63 percent of owners.

If the minimum tax of $120 were extended to all properties except institutional owners, the annual revenue would increase by an additional $5.8 million for a total of $82.8 million. The average tax obligation would increase from $626 to $691, while the median tax obligation would increase from $17 to $120. Sixty-one percent of taxpayers would be affected by this policy change.

While there are sound arguments in favor of a minimum tax on residential property, the revenue generated is relatively modest at rates that are affordable by the poorest. The tax would fall on the 62 percent of property owners who are not currently taxed. To the extent that these are also among the poor in Puerto Rico, a minimum tax along these lines would be regressive.

In particular, it may be well to explore other options if the municipal service fee is adopted.


0

5

10

15

20

25

Change in taxable value of personal property

Num

ber o

f mun

icip

aliti

es

First year impact of 5-year phase out of personal property exemptions

Figure A8.3: Impact of 20 percent reduction in personal property tax exemptions by municipality



A8.7 Municipal Service Fee on LandLevying a municipal service fee (MSF) on land involves three considerations:

• What should the rate be?

• Should agricultural land be charged a lower rate?

• Should there be a minimum fee?

The rate proposed is $0.11 per square meter of land, or about $0.01 per square foot. While there is limited agricultural land in Puerto Rico, it seems prudent to charge a lower rate on such land. It can be argued that agricultural land benefits less from the types of services being funded by the MSF. However, there is some benefit and agricultural land should not be totally excluded. The rate explored here is one-fourth the rate applied to all other land (except institutional land).

Any minimum fee should be low enough that it is affordable by relatively poor households. At the same time, there should be a minimum fee to encourage civic engagement and participation. However, the minimum fee will not be the major determinate of overall revenue from the MSF. The fee considered here is $75 per year. Raising this fee to $120 would keep the fee at about the equivalent of two days labor at the minimum wage. However, the increase would only yield an additional $40 million annually.

The major determinant of the final revenue potential from the MSF is the rate per square meter of land. A one-penny increase in this rate will change overall revenue by about $80 million per year.

The $0.11 rate recommended here is intended to accomplish two things:

• Generate sufficient revenue to enable the repeal of the personal property tax, and

• Reach the Commonwealth revenue target of $600 million in new revenue

With a minimum rate of $75 and a rate of $0.11 per square meter ($0.0275 for agricultural land), the MSF should generate $1.013 billion per year. The average fee will be $824 and 62 percent of landowners will pay the minimum fee of $75 (hence the need for caution if levied in conjunction with a minimum real property tax).

The overall impact of the fee will differ somewhat depending on whether the MSF obligation is at the minimum rate or not. For those landholders who pay more than the minimum, the median fee will be $201, while the average will be $1,948.

It is also important to consider how the MSF will affect different sectors of the economy. Table A8.3 reports the simulated impact by land use category. These data indicate that residential land comprises the large majority of assessments. Obtaining most revenues from households is a reasonable outcome given that households are the major consumers of municipal services. For all residential categories except vacant land, the median charge will be the $75 minimum.

All land use categories will be impacted since no land is excluded except institutional land. Institutional land includes land that is commonly exempted such as schools, churches,



hospitals, etc. All other land will be subject to the fee, though agricultural land will be charged at one-quarter the normal rate.

From an economic perspective, the municipal service fee should be expected to encourage more efficient land use, more compact development and more investment overall. Since the fee applies only to land, there are no disincentives for investing and improving land.

Table A8.3: Municipal Service Fee by Land Use Category

Land Use Category

Number of Properties


Total MSF ($ Millions)

Percent of Total

MSF

Total Land Area (Millions

M2)

Average MSF

Average Land

Area (m2)

Median MSF

Median Land Area (m2)

Total 1,308,053 100.00% 1,022.24 100.00% 9,223.56 784 7,051 75 388

Residential, vacant land

189,572 14.49% 454.57 44.47% 4,116.87 2,398 21,717 179 1,628

Single-family residential

931,340 71.20% 458.37 44.84% 3,886.76 492 4,173 75 368

Condominiums 77,438 5.92% 13.42 1.31% 79.60 173 1,028 75 128

other residential

56,597 4.33% 27.58 2.70% 231.27 487 4,086 75 350

Mixed use 6,224 0.48% 2.29 0.22% 18.80 368 3,021 75 371

Commercial, vacant land

730 0.06% 0.88 0.09% 7.87 1,211 10,785 120 930

Retail stores 21,426 1.64% 22.35 2.19% 194.56 1,043 9,081 75 335

Parking building 1,788 0.14% 0.22 0.02% 0.73 122 406 75 4

office building, office

7,671 0.59% 12.30 1.20% 108.34 1,604 14,123 75 139

Hotels, motels, etc.

290 0.02% 0.87 0.09% 7.86 2,999 27,110 262 2,382

Supermarkets, meat store

207 0.02% 0.12 0.01% 1.01 567 4,899 120 1,081

Transportation related

2,813 0.22% 7.92 0.77% 71.29 2,816 25,344 133 1,207

Department stores

139 0.01% 0.12 0.01% 1.01 853 7,281 120 621

Shopping mall 436 0.03% 0.76 0.07% 6.69 1,742 15,346 120 403

Restaurant & entertainment

1,874 0.14% 2.61 0.26% 23.01 1,395 12,279 120 451

other commercial

2,045 0.16% 0.67 0.07% 4.70 330 2,300 120 -

industrial, vacant land

225 0.02% 0.46 0.04% 4.17 2,043 18,521 649 5,896

Warehouse 2,147 0.16% 6.36 0.62% 57.28 2,960 26,678 303 2,751

Pharmaceutical 81 0.01% 0.96 0.09% 8.69 11,835 107,300 808 7,350

other industrial 870 0.07% 4.35 0.43% 39.34 4,996 45,214 538 4,893

institutional 3,534 0.27% - 0.00% 169.70 - 48,019 - 1,086

Agricultural 606 0.05% 5.07 0.50% 184.01 8,359 303,640 865 31,443

Source: CRiM, Calculations by the authors

A9: PRoPERTy TAx LAW iSSuES | 113


A9: Property Tax Law IssuesThis appendix summarizes some of the legal aspects of the current property tax.

A9.1 Property Tax Calendar, Discounts and Penalties The lien date, or the date on which real and personal property in Puerto Rico are valued by CRIM is January 1. Personal property is self-reported in Puerto Rico and the report is due on May 15. When personal property is reported on forms created by CRIM, the filings must also include the Balance Sheet, Profit and Loss Statement, Cash Flow Statement, and notes to the Financial Statements. The forms filed must be reviewed by a Certified Public Accountant. The personal property forms must be filed electronically for firms with a business volume exceeding $3,000,000.

The real property tax in Puerto Rico is due on July 1 and January 1. The tax year covers July to June but the valuation period covers January to January. The payment date occurs six months after the taxable value is established.

Property owners are notified by CRIM by mail, based on the known address of record. Payments received after the due date incur penalties. Discounts are granted for timely payment as follows:

• 10 percent discount if paid within 30 days of notification

• 5 percent discount if paid between 31 and 60 days

• No discount if paid between 61 and 90 days

• After 90 days, interest accrues at 10 percent

In addition, payments received between 121 and 150 days incur a five percent surcharge, and an additional five percent surcharge is added for payments after 151 days.

Personal property taxes are paid in four equal installments: August 15, November 15, February 15, and May 15. Like the real property, personal property owners receive a ten percent discount if the bill is paid within 30 days of being due. Late payment penalties for personal property are similar to those for real property, except payments beyond 90 days are subject to a 15 percent penalty.

Failure to pay the property tax on real property can result in the property being attached and sold. Minimum sales prices for both real and personal property are codified and the responsibility of establishing the acceptable bid price is granted to CRIM and includes the tax due and penalties and interest associated with the unpaid tax. All actions taken against past due property tax are subject to public notice requirements.

Taxpayers that chose to challenge their real and personal property tax obligation must file within 30 days of the receipt of the tax bill. Appeals are made to the Court of First Instance and the decisions of this court can be appealed to the Puerto Rico Supreme Court. In the case of real and personal property, appeals must be accompanied with a partial payment of the

114 | A9: PRoPERTy TAx LAW iSSuES


contested amount of the tax bill. A successful appeal will result in the partial payment being returned to the taxpayer. There are few instances of appeals of the property tax.

A9.2 Defining Property Tax Bases Each of the property tax bases in Puerto Rico has a unique definition:

• Real Property

- All tangible real property is appraised as taxable unless deemed exempt

- Real property includes land, subsoil, objects, devices and structures that are attached to the land in a way that implies permanency

• Personal Property Tax Base

- Tangible personal property includes machinery, containers, instruments, and devices not attached to the land or building in a manner that implies permanence.

- Intangible personal property such as bonds, equity shares, copyrights, trademarks, franchise, and all “matters” that are “susceptible” to being defined as private property.

- Personal property does not cover checking accounts, saving accounts, or other personal “credits.”

• Inventory Property Tax Base

- All inventory held by commercial and industrial firms in Puerto Rico.

The treatment of intangible personal property is particularly problematic. Such property is often highly mobile and easily hidden. Many jurisdictions have taken the position that a tax on intangible property becomes a tax on only the honest taxpayer.

A10: STATiSTiCS By MuniCiPALiTy | 115


A10: Statistics by MunicipalityThis appendix reports a series of relevant statistics by municipality. The tables are intended to provide municipality-specific details to support the analysis presented in earlier sections.

Table A10.1: Property Tax Revenue by Municipality

Municipality 2016 Population

2016 Property Tax

Revenue (millions)

Property Tax Per Capita Municipality 2016

Population

2016 Property Tax

Revenue (millions)

Property Tax Per Capita

Cataño 24,998 $26.61 $1,064.65 vieques 8,806 $1.70 $192.54

Maricao 5,774 $5.43 $939.73 Las Piedras 38,027 $7.42 $195.08

Guaynabo 89,142 $79.03 $886.59 San Germán 32,325 $5.70 $176.42

San juan 346,534 $246.41 $711.07 Rincón 14,347 $2.52 $175.89

Las Marías 8,646 $5.37 $621.05 Lajas 23,435 $3.88 $165.50

Carolina 158,227 $85.12 $537.94 Añasco 27,521 $4.43 $160.84

Mayagüez 77,613 $38.77 $499.51 San Sebastián 38,142 $6.01 $157.68

Dorado 37,441 $18.65 $498.07 San Lorenzo 38,082 $5.85 $153.65

Bayamón 184,213 $80.55 $437.27 Santa isabel 22,217 $3.12 $140.33

Caguas 132,079 $56.82 $430.22 Arroyo 18,220 $2.55 $140.07

Culebra 1,789 $0.68 $380.54 isabela 42,700 $5.86 $137.30

Cayey 44,767 $16.74 $374.02 Toa Alta 73,849 $9.52 $128.86

Humacao 53,805 $19.95 $370.76 naguabo 26,428 $3.38 $127.99

Barceloneta 24,440 $8.76 $358.52 Sabana Grande 23,171 $2.94 $126.70

fajardo 32,208 $11.44 $355.33 Salinas 28,777 $3.53 $122.53

Ponce 144,999 $49.58 $341.92 Guayanilla 19,109 $2.30 $120.57

Toa Baja 80,088 $27.10 $338.43 juana Díaz 47,252 $5.68 $120.28

Manatí 39,911 $12.23 $306.41 Loíza 26,577 $3.16 $119.00

Aibonito 23,566 $7.14 $302.90 Camuy 32,354 $3.77 $116.41

Aguadilla 54,525 $15.92 $291.96 Quebradillas 24,171 $2.77 $114.46

Canóvanas 46,362 $13.28 $286.42 Patillas 17,412 $1.99 $114.15

Barranquitas 28,924 $8.18 $282.74 Coamo 39,459 $4.45 $112.87

Morovis 31,487 $8.64 $274.43 yabucoa 34,332 $3.84 $111.98

Gurabo 47,163 $12.93 $274.22 Lares 26,564 $2.95 $111.18

Guayama 41,998 $11.31 $269.42 Moca 37,055 $3.86 $104.06

Hatillo 40,598 $10.73 $264.18 Maunabo 11,068 $1.14 $103.43

Trujillo Alto 68,165 $16.84 $247.12 Ciales 16,993 $1.71 $100.55

vega Alta 38,140 $9.42 $246.86 Aguas Buenas 26,382 $2.54 $96.45

Cabo Rojo 49,333 $11.95 $242.16 Guánica 16,864 $1.57 $93.19

Río Grande 50,976 $12.08 $237.01 Aguada 38,853 $3.62 $93.16

Hormigueros 16,260 $3.68 $226.54 jayuya 14,976 $1.28 $85.23

Arecibo 87,864 $19.74 $224.66 utuado 29,508 $2.49 $84.43

Peñuelas 21,075 $4.67 $221.76 Corozal 34,370 $2.60 $75.77

Cidra 40,551 $8.97 $221.21 villalba 23,085 $1.73 $74.80

juncos 39,453 $8.35 $211.70 naranjito 28,746 $2.13 $74.17

Luquillo 18,646 $3.91 $209.61 florida 11,980 $0.89 $73.89

Ceiba 11,920 $2.42 $202.63 orocovis 21,519 $1.26 $58.55

yauco 36,632 $7.30 $199.38 Adjuntas 18,276 $1.06 $57.97

vega Baja 53,602 $10.55 $196.91 Comerío 19,654 $1.03 $52.47

Source: 2015-2016 Municipal audits

116 | A10: STATiSTiCS By MuniCiPALiTy


Table A10.2: Intergovernmental Transfers

Municipality2016

Population

Total Intergovernmental

Transfers Per Capita

Federal Transfers Per

Capita

Commonwealth Transfers Per Capita

Percent Federal

Culebra 1,789 $2,536 $621 $1,915 24%

vieques 8,806 $1,192 $169 $1,023 14%

Barceloneta 24,440 $1,067 $811 $256 76%

Maunabo 11,068 $1,059 $329 $730 31%

orocovis 21,519 $838 $398 $440 47%

jayuya 14,976 $753 $99 $654 13%

Sabana Grande 23,171 $703 $348 $355 50%

florida 11,980 $692 $145 $547 21%

Ceiba 11,920 $681 na na

Comerío 19,654 $647 na na

Peñuelas 21,075 $638 $308 $330 48%

Patillas 17,412 $614 $130 $484 21%

Guayama 41,998 $580 $348 $231 60%

utuado 29,508 $551 $281 $270 51%

Guánica 16,864 $535 $66 $468 12%

fajardo 32,208 $512 na na

villalba 23,085 $505 $123 $382 24%

Ciales 16,993 $503 $102 $401 20%

Las Marías 8,646 $501 na na

Quebradillas 24,171 $497 $188 $309 38%

Guayanilla 19,109 $468 $86 $382 18%

Rincón 14,347 $465 $101 $364 22%

Guaynabo 89,142 $463 $248 $216 53%

Hormigueros 16,260 $459 $141 $318 31%

Luquillo 18,646 $444 $148 $296 33%

Manatí 39,911 $444 $294 $150 66%

San juan 346,534 $444 $350 $93 79%

Lajas 23,435 $441 $97 $344 22%

Arroyo 18,220 $435 na na

Adjuntas 18,276 $433 na na

Aguas Buenas 26,382 $402 na na

San Sebastián 38,142 $397 $180 $217 45%

yabucoa 34,332 $392 $72 $321 18%

Cayey 44,767 $389 $250 $139 64%

Lares 26,564 $386 na na

naranjito 28,746 $379 $88 $291 23%

Coamo 39,459 $367 $105 $262 29%

Salinas 28,777 $364 $42 $322 12%

Mayagüez 77,613 $361 $201 $161 55%

Humacao 53,805 $360 $260 $100 72%

naguabo 26,428 $353 $69 $284 20%

yauco 36,632 $337 $107 $230 32%

vega Baja 53,602 $335 $223 $112 67%

Bayamón 184,213 $330 $255 $75 77%

Camuy 32,354 $325 $92 $233 28%

juncos 39,453 $323 $76 $247 24%

juana Díaz 47,252 $322 $181 $141 56%



Municipality2016

Population

Total Intergovernmental

Transfers Per Capita

Federal Transfers Per

Capita

Commonwealth Transfers Per Capita

Percent Federal

Aguada 38,853 $314 $112 $201 36%

San Germán 32,325 $314 $120 $193 38%

Caguas 132,079 $304 $207 $97 68%

Ponce 144,999 $300 $210 $90 70%

Corozal 34,370 $288 $49 $239 17%

Santa isabel 22,217 $284 $51 $233 18%

Cidra 40,551 $283 $70 $213 25%

Loíza 26,577 $283 na na

San Lorenzo 38,082 $281 $45 $237 16%

Dorado 37,441 $273 $200 $73 73%

Añasco 27,521 $263 na na

Aguadilla 54,525 $261 $175 $86 67%

isabela 42,700 $259 $92 $167 36%

Toa Baja 80,088 $256 $189 $67 74%

Moca 37,055 $236 $32 $204 14%

Cataño 24,998 $206 na na

Trujillo Alto 68,165 $196 $78 $118 40%

Arecibo 87,864 $196 $93 $103 47%

Hatillo 40,598 $194 $38 $156 20%

Las Piedras 38,027 $191 na na

Carolina 158,227 $183 $111 $71 61%

Gurabo 47,163 $145 na na

Aibonito 23,566 $140 na na

Barranquitas 28,924 $132 na na

Morovis 31,487 $122 $64 $58 52%

Maricao 5,774 $120 na $120

Toa Alta 73,849 $107 $36 $71 34%

Cabo Rojo 49,333 $95 na na

Canóvanas 46,362 $85 na na

vega Alta 38,140 $83 $25 $59 30%

Río Grande 50,976 $51 $29 $22 57%

Puerto Rico 3,406,520 $340 40%

Source: 2015-2016 Municipal audits and calculations by the authors “na” = intergovernmental transfers were not disaggregated by source in the 2015-2016 audit

Table A10.2: Intergovernmental Transfers (continued)



Table A10.3: Revenue Structure by Municipality: 2016

Municipality2016

PopulationProperty

TaxSales Tax

Municipal License

Tax

Construction Excise Tax

Other Own-

Source

Intergovernmental Transfers

San juan 346,534 36.2% 9.4% 17.1% 3.7% 10.9% 22.6%

Bayamón 184,213 36.5% 12.4% 15.4% incl 8.2% 27.6%

Carolina 158,227 46.9% 13.4% 15.8% 2.4% 5.6% 15.9%

Ponce 144,999 36.5% 13.6% 13.7% incl 4.1% 32.0%

Caguas 132,079 38.1% 14.1% 15.6% 2.6% 2.7% 26.9%

Guaynabo 89,142 39.0% 6.6% 22.8% incl 11.2% 20.4%

Arecibo 87,864 37.7% 7.6% 14.6% 1.0% 6.5% 32.8%

Toa Baja 80,088 40.3% 10.7% 14.4% incl 4.1% 30.5%

Mayagüez 77,613 35.7% 10.6% 11.1% 0.8% 15.9% 25.9%

Toa Alta 73,849 36.1% 7.8% 6.8% 1.1% 18.1% 30.1%

Trujillo Alto 68,165 42.8% 9.3% 10.0% incl 3.8% 34.0%

Aguadilla 54,525 32.3% 9.2% 19.6% 1.5% 8.4% 28.9%

Humacao 53,805 30.0% 9.2% 27.4% 1.2% 3.1% 29.1%

vega Baja 53,602 23.9% 6.8% 13.2% incl 15.4% 40.7%

Río Grande 50,976 46.3% 12.3% 10.6% incl 20.9% 9.9%

Cabo Rojo 49,333 46.8% 8.9% 8.8% 2.2% 14.9% 18.3%

juana Díaz 47,252 21.0% 8.8% 8.2% 0.7% 5.2% 56.1%

Gurabo 47,163 48.1% 9.5% 12.3% 2.0% 2.7% 25.4%

Canóvanas 46,362 47.3% 12.4% 19.2% 1.2% 5.8% 14.0%

Cayey 44,767 32.1% 8.6% 12.9% incl 13.1% 33.4%

isabela 42,700 21.2% 11.2% 10.3% incl 17.4% 40.0%

Guayama 41,998 23.8% 6.9% 13.2% incl 5.0% 51.2%

Hatillo 40,598 34.3% 16.6% 14.6% incl 9.3% 25.2%

Cidra 40,551 27.4% 6.0% 29.0% incl 2.6% 35.1%

Manatí 39,911 24.5% 10.5% 21.4% incl 8.2% 35.5%

Coamo 39,459 19.1% 6.6% 5.7% 1.7% 4.6% 62.2%

juncos 39,453 19.2% 4.2% 38.8% incl 8.6% 29.3%

Aguada 38,853 15.5% 8.4% 5.7% incl 18.1% 52.2%

San Sebastián 38,142 22.2% 8.3% 7.1% incl 6.5% 55.8%

vega Alta 38,140 48.0% 11.2% 12.6% incl 12.0% 16.2%

San Lorenzo 38,082 25.3% 7.9% 13.1% 4.6% 2.7% 46.4%

Las Piedras 38,027 30.0% 4.6% 17.0% 2.3% 16.8% 29.3%

Dorado 37,441 45.2% 9.5% 13.3% incl 7.3% 24.8%

Moca 37,055 22.1% 8.3% 6.9% incl 12.7% 50.0%

yauco 36,632 28.2% 9.7% 8.7% incl 5.7% 47.6%

Corozal 34,370 17.1% 5.5% 7.0% incl 5.6% 64.9%

yabucoa 34,332 16.6% 5.3% 16.2% incl 3.8% 58.1%

Camuy 32,354 21.5% 7.9% 5.2% incl 5.2% 60.2%

San Germán 32,325 18.8% 7.2% 11.0% incl 29.6% 33.3%

fajardo 32,208 28.2% 11.9% 14.1% 1.2% 3.8% 40.7%

Morovis 31,487 54.6% 9.2% 5.4% incl 6.5% 24.3%

utuado 29,508 11.6% 7.1% 2.8% 0.5% 1.9% 76.0%

Barranquitas 28,924 56.1% 4.2% 5.2% 1.6% 6.6% 26.3%

Salinas 28,777 20.3% 8.3% 6.3% incl 4.8% 60.3%

naranjito 28,746 12.6% 8.8% 6.6% incl 7.4% 64.5%

Añasco 27,521 25.9% 10.8% 11.5% 1.5% 8.0% 42.3%

Loíza 26,577 24.1% 6.7% 3.4% 0.7% 7.9% 57.2%



Municipality2016

PopulationProperty

TaxSales Tax

Municipal License

Tax

Construction Excise Tax

Other Own-

Source

Intergovernmental Transfers

Lares 26,564 18.2% 6.4% 4.3% 0.9% 6.9% 63.2%

naguabo 26,428 21.9% 8.0% 5.7% 0.2% 3.6% 60.5%

Aguas Buenas 26,382 16.7% 7.2% 4.2% 0.4% 2.1% 69.4%

Cataño 24,998 52.6% 9.8% 21.3% incl 6.2% 10.2%

Barceloneta 24,440 16.3% 16.6% 13.4% incl 5.1% 48.6%

Quebradillas 24,171 14.8% 6.4% 4.0% incl 10.2% 64.5%

Aibonito 23,566 51.9% 7.5% 13.4% 1.4% 1.9% 23.9%

Lajas 23,435 23.1% 8.6% 4.1% incl 2.7% 61.5%

Sabana Grande

23,171 12.1% 4.8% 3.8% 0.1% 12.2% 67.0%

villalba 23,085 10.2% 5.3% 10.2% 1.3% 4.5% 68.6%

Santa isabel 22,217 21.4% 16.1% 10.5% 0.8% 8.1% 43.2%

orocovis 21,519 5.6% 3.6% 1.8% 0.4% 8.5% 80.1%

Peñuelas 21,075 17.1% 3.1% 25.5% incl 5.1% 49.2%

Comerío 19,654 6.5% 5.1% 3.2% 0.5% 4.0% 80.7%

Guayanilla 19,109 14.7% 7.6% 6.4% 0.6% 13.6% 57.1%

Luquillo 18,646 24.3% 8.8% 5.1% incl 10.3% 51.5%

Adjuntas 18,276 10.1% 8.0% 1.6% 1.7% 3.4% 75.2%

Arroyo 18,220 15.9% 4.8% 5.7% 0.2% 24.2% 49.2%

Patillas 17,412 13.8% 6.8% 3.2% 0.8% 1.4% 74.1%

Ciales 16,993 13.4% 8.7% 3.2% incl 7.8% 66.9%

Guánica 16,864 10.6% 7.2% 2.3% incl 19.3% 60.7%

Hormigueros 16,260 20.4% 10.8% 9.3% incl 18.0% 41.4%

jayuya 14,976 7.4% 5.9% 10.0% incl 11.7% 65.0%

Rincón 14,347 18.1% 9.9% 3.7% incl 20.4% 47.8%

florida 11,980 8.4% 8.9% 2.3% incl 1.7% 78.7%

Ceiba 11,920 18.5% 7.0% 2.3% 1.9% 8.4% 62.1%

Maunabo 11,068 7.4% 9.1% 1.0% 0.4% 6.9% 75.3%

vieques 8,806 11.5% 7.2% 3.8% 2.2% 4.0% 71.4%

Las Marías 8,646 46.7% 11.9% 1.0% 0.3% 2.5% 37.6%

Maricao 5,774 68.0% 16.8% 2.4% incl 4.2% 8.7%

Culebra 1,789 9.0% 21.8% 2.7% 3.6% 2.6% 60.2%

Puerto Rico 3,406,520 32.5% 9.7% 14.4% incl 9.9% 33.4%

“incl” = Construction Excise tax revenue included in “other own-source”

Source: 2015-2016 Municipal audits and calculations by the authors

Table A10.3: Revenue Structure by Municipality: 2016 (continued)



Tabl

e A

10.4

: Per

sona

l Pro

pert

y Va

lue,

Exe

mpt

ions

and

Tax

Rev

enue

Mun

icip

ality

Taxa

ble

Pers

onal

P

rope

rty

Acc

ount

s

Tota

l Est

imat

ed V

alue

Exe

mpt

ions

Exo

nera

tions

Net

Tax

able

Val

ueTa

x Le

vied

on

Per

sona

l P

rope

rty

% E

xem

pt O

r E

xone

rate

d“E

ffec

tive”

Ta

x R

ate

Num

ber

Num

ber

Valu

e (m

illio

ns)

Num

ber

Valu

e (m

illio

ns)

Num

ber

Valu

e (m

illio

ns)

Num

ber

Valu

e (m

illio

ns)

Valu

e (m

illio

ns)

Adj

unta

s2

86

26

55

.83

02

32

.08

01

11

0.7

47

13

63

.00

30

.19

04

8.5

%3

.3%

Agu

ada

1,2

70

1,1

75

24

.29

53

84

.81

05

82

3.2

24

59

01

6.2

62

1.1

11

33

.1%

4.6

%

Agu

adill

a1

,72

91

,58

71

69

.09

99

29

9.6

11

52

82

.69

31

,03

66

6.7

95

4.5

62

60

.5%

2.7

%

Agu

as

Bue

nas

31

22

67

6.7

79

91

.18

91

07

0.5

41

15

55

.04

90

.42

12

5.5

%6

.2%

Aib

onito

59

75

58

11

6.9

47

50

10

4.1

85

24

01

.40

72

82

11

.35

60

.83

29

0.3

%0

.7%

Aña

sco

58

85

55

94

.47

15

07

2.0

16

24

50

.97

72

85

21

.47

81

.65

07

7.3

%1

.7%

Are

cibo

2,0

22

1,8

00

15

8.6

74

11

79

4.0

76

62

52

.79

01

,10

06

1.8

07

5.1

49

61

.0%

3.2

%

Arr

oyo

16

81

52

38

.30

91

13

0.1

36

47

0.2

31

99

7.9

42

0.6

62

79

.3%

1.7

%

Bar

celo

neta

53

74

98

54

9.3

13

34

47

9.6

72

15

80

.59

83

25

69

.04

45

.75

18

7.4

%1

.0%

Bar

ranq

uita

s6

44

59

21

2.0

38

22

1.4

29

31

21

.40

72

64

9.2

03

0.6

75

23

.6%

5.6

%

Bay

amón

4,3

79

3,8

16

70

1.0

47

12

92

36

.68

87

28

3.9

95

3,0

57

46

0.3

65

34

.73

03

4.3

%5

.0%

Cab

o R

ojo

1,0

81

99

72

6.6

46

48

5.4

89

40

21

.81

65

68

19

.34

11

.32

12

7.4

%5

.0%

Cag

uas

3,1

33

2,6

11

42

3.6

35

16

01

65

.64

75

16

2.8

50

2,0

42

25

5.1

39

19

.76

93

9.8

%4

.7%

Cam

uy7

63

69

72

4.9

65

71

11

.89

82

72

1.4

72

36

91

1.5

95

0.7

92

53

.6%

3.2

%

Can

óvan

as6

47

57

29

6.0

89

23

56

.75

11

41

0.7

74

42

73

8.5

64

3.2

12

59

.9%

3.3

%

Car

olin

a3

,79

53

,18

28

95

.80

91

18

57

8.4

22

53

02

.59

82

,62

53

14

.78

92

9.3

70

64

.9%

3.3

%

Cat

año

61

55

00

25

9.0

46

56

11

1.3

99

11

60

.53

83

67

14

7.1

09

12

.25

44

3.2

%4

.7%

Cay

ey8

61

78

51

55

.57

03

17

4.9

92

23

91

.30

65

35

79

.27

26

.80

24

9.0

%4

.4%

Cei

ba2

14

19

16

.37

11

53

.10

57

20

.37

01

16

2.8

96

0.1

68

54

.5%

2.6

%

Cia

les

28

42

66

6.1

37

23

2.0

44

10

80

.64

31

42

3.4

49

0.2

87

43

.8%

4.7

%

Cid

ra6

56

60

41

15

.35

33

57

5.7

75

24

61

.19

43

51

38

.38

43

.19

76

6.7

%2

.8%

Coa

mo

64

05

71

26

.87

13

31

4.6

91

24

81

.21

52

99

10

.96

50

.91

35

9.2

%3

.4%

Com

erío

26

52

52

6.1

34

17

1.7

44

11

50

.83

41

24

3.5

55

0.2

52

42

.0%

4.1

%

Cor

ozal

65

86

12

18

.37

42

26

.32

02

33

0.5

90

36

41

1.4

64

0.8

98

37

.6%

4.9

%

Cul

ebra

10

59

11

.71

44

0.0

70

23

0.1

49

68

1.4

95

0.1

02

12

.8%

6.0

%



Mun

icip

ality

Taxa

ble

Pers

onal

P

rope

rty

Acc

ount

s

Tota

l Est

imat

ed V

alue

Exe

mpt

ions

Exo

nera

tions

Net

Tax

able

Val

ueTa

x Le

vied

on

Per

sona

l P

rope

rty

% E

xem

pt O

r E

xone

rate

d“E

ffec

tive”

Ta

x R

ate

Num

ber

Num

ber

Valu

e (m

illio

ns)

Num

ber

Valu

e (m

illio

ns)

Num

ber

Valu

e (m

illio

ns)

Num

ber

Valu

e (m

illio

ns)

Valu

e (m

illio

ns)

Dor

ado

90

56

91

11

5.3

75

58

65

.91

51

23

0.5

52

54

74

8.9

08

4.3

19

57

.6%

3.7

%

faja

rdo

1,0

61

94

91

53

.41

26

19

3.9

15

27

21

.18

76

55

58

.31

03

.98

36

2.0

%2

.6%

flor

ida

19

81

90

3.4

80

14

0.6

28

10

30

.50

07

62

.35

10

.19

63

2.4

%5

.6%

Guá

nica

27

52

50

13

.33

61

87

.97

21

07

0.5

07

13

24

.85

70

.41

76

3.6

%3

.1%

Gua

yam

a8

41

71

32

76

.08

32

72

21

.99

42

23

1.3

50

48

25

2.7

39

4.2

61

80

.9%

1.5

%

Gua

yani

lla3

15

28

31

7.8

33

16

13

.08

71

35

0.4

17

14

24

.32

80

.38

27

5.7

%2

.1%

Gua

ynab

o2

,98

62

,16

27

85

.46

41

65

38

2.2

36

17

40

.97

41

,92

64

02

.25

53

2.5

02

48

.8%

4.1

%

Gur

abo

57

64

62

17

3.6

25

30

13

9.2

26

11

60

.47

93

33

33

.91

92

.45

18

0.5

%1

.4%

Hat

illo

1,0

68

95

91

38

.57

11

02

55

.63

52

89

1.3

39

58

38

1.5

97

5.7

53

41

.1%

4.2

%

Hor

mig

uero

s4

44

41

82

2.1

09

40

4.0

64

14

60

.38

42

50

17

.66

11

.38

32

0.1

%6

.3%

Hum

acao

1,3

10

1,1

48

33

6.5

44

71

25

1.4

10

34

51

.55

97

71

83

.57

45

.70

87

5.2

%1

.7%

isab

ela

1,2

24

1,1

38

98

.85

16

56

6.4

93

48

72

.67

96

31

29

.68

02

.17

67

0.0

%2

.2%

jayu

ya2

66

24

38

3.5

41

20

77

.06

19

70

.53

51

34

5.9

45

0.3

61

92

.9%

0.4

%

juan

a D

íaz

69

56

23

29

6.2

65

28

27

3.8

85

26

71

.33

13

43

21

.04

81

.75

39

2.9

%0

.6%

junc

os5

40

48

91

,15

8.0

46

34

1,1

34

.62

11

79

0.9

00

29

22

2.5

24

1.8

76

98

.1%

0.2

%

Laja

s4

57

41

81

6.5

76

51

9.2

42

18

10

.93

71

96

6.3

97

0.5

33

61

.4%

3.2

%

Lare

s5

48

51

21

6.8

19

92

7.5

76

20

60

.90

12

24

8.3

42

0.6

74

50

.4%

4.0

%

Las

Mar

ías

15

01

37

2.1

13

17

0.3

86

64

0.1

99

62

1.5

28

0.0

94

27

.7%

4.5

%

Las

Pie

dras

69

05

97

28

7.7

88

44

27

1.3

09

21

30

.87

03

54

15

.60

91

.06

69

4.6

%0

.4%

Loíz

a2

38

22

95

.35

21

41

.33

18

00

.27

21

44

3.7

49

0.3

65

29

.9%

6.8

%

Luqu

illo

42

73

36

9.8

21

13

0.3

83

10

80

.44

72

22

8.9

91

0.6

14

8.5

%6

.3%

Man

atí

1,2

44

1,1

27

55

2.3

84

62

49

1.0

34

24

71

.04

58

45

60

.30

54

.56

58

9.1

%0

.8%

Mar

icao

96

89

15

.17

62

51

2.4

47

27

0.1

02

42

2.6

28

0.1

53

82

.7%

1.0

%

Mau

nabo

16

91

54

2.2

63

11

0.6

60

66

0.2

98

82

1.3

05

0.0

89

42

.3%

3.9

%

May

ague

z2

,21

62

,01

61

85

.64

38

54

7.2

04

51

22

.15

81

,47

31

36

.28

11

1.6

93

26

.6%

6.3

%

Moc

a9

32

87

46

5.4

09

52

32

.33

24

09

1.8

71

44

53

1.2

07

2.0

53

52

.3%

3.1

%

Mor

ovis

42

53

83

11

.97

82

03

.86

51

59

0.6

56

20

97

.45

70

.52

83

7.7

%4

.4%

Tabl

e A

10.4

: Per

sona

l Pro

pert

y Va

lue,

Exe

mpt

ions

and

Tax

Rev

enue

(con

tinue

d)



Mun

icip

ality

Taxa

ble

Pers

onal

P

rope

rty

Acc

ount

s

Tota

l Est

imat

ed V

alue

Exe

mpt

ions

Exo

nera

tions

Net

Tax

able

Val

ueTa

x Le

vied

on

Per

sona

l P

rope

rty

% E

xem

pt O

r E

xone

rate

d“E

ffec

tive”

Ta

x R

ate

Num

ber

Num

ber

Valu

e (m

illio

ns)

Num

ber

Valu

e (m

illio

ns)

Num

ber

Valu

e (m

illio

ns)

Num

ber

Valu

e (m

illio

ns)

Valu

e (m

illio

ns)

nag

uabo

36

63

33

24

.71

34

01

4.4

86

12

70

.52

31

76

9.7

05

0.6

34

60

.7%

2.6

%

nar

anjit

o7

85

73

41

5.4

30

12

1.9

89

33

41

.34

83

96

12

.09

30

.94

72

1.6

%6

.1%

oro

covi

s5

11

47

27

.63

31

41

.76

12

66

1.0

98

20

04

.77

40

.28

83

7.5

%3

.8%

Pat

illas

23

42

19

5.8

72

11

2.0

19

11

00

.48

21

03

3.3

70

0.2

81

42

.6%

4.8

%

Peñ

uela

s3

74

32

48

8.8

36

17

74

.60

41

31

0.3

87

18

71

3.8

45

0.9

11

84

.4%

1.0

%

Pon

ce3

,44

42

,92

94

00

.15

71

54

14

3.6

45

85

44

.12

61

,99

82

52

.38

62

1.0

24

36

.9%

5.3

%

Que

brad

illas

62

75

80

10

.76

02

91

.19

12

80

1.3

52

28

38

.21

70

.56

12

3.6

%5

.2%

Rin

cón

41

03

83

10

.97

11

95

.12

31

44

0.7

62

23

65

.08

50

.34

75

3.6

%3

.2%

Río

Gra

nde

73

66

16

66

.14

62

73

3.0

52

18

71

.02

84

21

32

.06

72

.19

05

1.5

%3

.3%

Sab

ana

Gra

nde

41

53

90

26

.91

12

61

8.2

89

18

00

.66

61

97

7.9

56

0.6

63

70

.4%

2.5

%

Sal

inas

44

74

03

36

.28

53

12

3.3

79

17

40

.84

72

09

12

.06

01

.00

56

6.8

%2

.8%

San

Ger

mán

74

46

95

58

.90

54

23

2.7

30

26

61

.05

24

09

25

.12

31

.90

45

7.3

%3

.2%

San

jua

n1

4,9

58

10

,76

61

,97

3.8

71

47

88

97

.47

71

,29

67

.76

69

,28

21

,06

8.6

28

88

.65

24

5.9

%4

.5%

San

Lor

enzo

47

84

36

99

.30

02

67

5.1

02

17

30

.81

02

48

23

.38

81

.92

57

6.4

%1

.9%

San

Seb

astía

n1

,29

11

,17

33

7.9

14

12

91

1.6

00

54

32

.02

75

38

24

.28

71

.41

43

5.9

%3

.7%

San

ta is

abel

35

83

37

68

.34

64

04

3.9

38

90

0.3

41

21

42

4.0

67

2.1

25

64

.8%

3.1

%

Toa

Alta

79

77

27

18

.29

81

20

.76

12

59

1.0

69

47

21

6.4

69

1.3

72

10

.0%

7.5

%

Toa

Baj

a1

,57

61

,41

32

62

.93

45

51

43

.49

73

55

1.4

66

1,0

49

11

7.9

71

10

.70

55

5.1

%4

.1%

Truj

illo

Alto

88

27

47

46

.34

72

42

.94

01

31

0.7

37

60

84

2.6

70

3.6

61

7.9

%7

.9%

utu

ado

65

55

90

13

.42

85

25

.58

52

68

1.0

32

28

96

.81

10

.46

54

9.3

%3

.5%

vega

Alta

63

35

67

69

.92

52

43

5.9

54

17

40

.74

03

90

33

.23

21

.90

05

2.5

%2

.7%

vega

Baj

a1

,26

61

,14

62

51

.63

15

02

02

.43

33

30

1.5

40

79

34

7.6

58

3.9

70

81

.1%

1.6

%

vieq

ues

22

01

91

6.6

07

11

2.8

68

39

0.2

14

15

03

.52

40

.31

14

6.7

%4

.7%

villa

lba

40

83

67

26

.60

01

41

9.8

15

19

70

.99

91

64

5.7

87

0.4

82

78

.2%

1.8

%

yabu

coa

50

04

41

70

.66

04

36

1.0

59

20

00

.84

82

13

8.7

53

0.7

73

87

.6%

1.1

%

yauc

o7

54

70

0 5

0.6

74

2

0 2

0.6

18

2

67

1.3

05

4

25

28

.75

1

2.3

95

4

3.3

%4

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Pue

rto

Ric

o8

0,4

14

68

,46

51

2,5

32

.52

8

3,8

66

7,7

76

.06

7

19

,65

4 9

3.9

69

4

6,9

71

4,6

62

.49

2

37

5.9

23

62

.8%

3.0

%

Sou

rce:

CR

iM

Tabl

e A

10.4

: Per

sona

l Pro

pert

y Va

lue,

Exe

mpt

ions

and

Tax

Rev

enue

(con

tinue

d)



Tabl

e A

10.5

: Rea

l Pro

pert

y Va

lue,

Exe

mpt

ions

and

Rev

enue

Mun

icip

ality

Tota

l Ass

esse

d Va

lue

Exe

mpt

ions

Exo

nera

tions

Net

Tax

able

Taxe

s Le

vied

on

Rea

l P

rope

rty

Perc

ent

of V

alue

E

xem

pted

“Eff

ectiv

e”

Tax

Rat

eN

umbe

r of

P

rope

rtie

sVa

lue

(mill

ions

)N

umbe

r of

P

rope

rtie

sVa

lue

(mill

ions

)N

umbe

r of

P

rope

rtie

sVa

lue

(mill

ions

)N

umbe

r of

P

rope

rtie

sVa

lue

(mill

ions

)

Adj

unta

s6

,16

8 3

8.3

73

2

64

1.6

28

2

,77

0 1

8.6

79

4

,14

1 1

8.0

66

1

.50

5

52

.9%

3.9

%

Agu

ada

15

,82

3 1

21

.67

8

28

8 7

.65

9

7,2

19

59

.13

5

9,9

34

54

.88

3

4.8

46

5

4.9

%4

.0%

Agu

adill

a2

5,8

39

32

0.5

78

5

67

83

.64

3

12

,98

5 1

11

.70

8

14

,86

0 1

25

.22

6

12

.93

6

60

.9%

4.0

%

Agu

as

Bue

nas

9,1

39

68

.69

6

17

4 1

.99

7

4,4

37

36

.35

7

5,8

86

30

.34

2

3.1

34

5

5.8

%4

.6%

Aib

onito

9,1

98

88

.72

4

32

8 1

6.6

96

5

,22

8 4

1.6

25

4

,50

6 3

0.4

03

2

.83

7

65

.7%

3.2

%

Aña

sco

9,9

94

10

3.5

60

2

09

15

.68

4

5,2

90

44

.58

3

5,6

43

43

.29

3

4.1

91

5

8.2

%4

.0%

Are

cibo

34

,33

3 4

01

.65

4

1,0

85

85

.58

4

18

,13

2 1

57

.23

0

17

,75

2 1

58

.83

9

18

.38

3

60

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4.6

%

Arr

oyo

7,5

84

61

.52

4

35

2 3

.52

6

4,7

26

36

.88

2

2,7

78

21

.11

6

2.1

81

6

5.7

%3

.5%

Bar

celo

neta

9,1

19

66

8.4

27

4

38

51

6.3

04

5

,83

1 4

8.0

24

3

,47

7 1

04

.09

9

10

.00

4

84

.4%

1.5

%

Bar

ranq

uita

s5

,54

4 4

7.8

24

2

13

6.4

63

2

,60

6 2

1.0

79

3

,29

5 2

0.2

83

1

.89

2

57

.6%

4.0

%

Bay

amón

70

,66

3 1

,04

5.9

32

1

,50

3 7

6.2

24

4

8,4

38

49

1.0

80

2

9,5

98

47

8.6

28

4

5.7

32

5

4.2

%4

.4%

Cab

o R

ojo

30

,14

7 2

59

.01

3

69

2 1

0.0

15

1

2,6

26

11

2.7

55

1

9,4

35

13

6.2

44

1

3.7

33

4

7.4

%5

.3%

Cag

uas

49

,00

3 7

35

.26

0

1,4

20

65

.61

6

33

,60

7 3

30

.59

5

22

,90

1 3

39

.04

9

33

.13

3

53

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4.5

%

Cam

uy1

2,2

70

85

.69

6

30

7 2

.27

5

5,9

32

48

.31

7

6,9

66

35

.10

4

3.6

26

5

9.0

%4

.2%

Can

óvan

as1

5,6

75

19

0.6

48

1

,13

4 1

4.3

41

9

,28

6 8

7.6

65

7

,97

0 8

8.6

42

9

.15

7

53

.5%

4.8

%

Car

olin

a6

4,7

22

1,3

28

.47

4

2,0

90

36

2.2

29

4

3,6

88

47

1.3

89

3

0,5

29

49

4.8

56

5

6.0

67

6

2.8

%4

.2%

Cat

año

6,4

31

15

2.6

15

1

95

24

.95

8

4,7

17

45

.86

5

3,0

03

81

.79

2

7.7

66

4

6.4

%5

.1%

Cay

ey1

7,0

98

21

2.6

04

5

68

26

.76

4

9,6

65

84

.00

7

9,7

63

10

1.8

33

1

0.7

74

5

2.1

%5

.1%

Cei

ba6

,04

1 5

6.3

70

3

46

3.9

92

3

,38

5 2

8.9

50

2

,88

3 2

3.4

29

2

.18

6

58

.4%

3.9

%

Cia

les

6,3

25

42

.89

6

20

6 2

.86

5

2,7

95

19

.73

3

3,9

06

20

.29

8

2.0

97

5

2.7

%4

.9%

Cid

ra1

4,4

65

20

7.8

84

2

82

64

.60

0

7,9

88

70

.54

8

8,2

22

72

.73

6

8.9

45

6

5.0

%4

.3%

Coa

mo

14

,73

6 1

23

.52

4

61

1 1

1.2

78

8

,96

0 7

2.3

75

6

,59

2 3

9.8

71

4

.11

9

67

.7%

3.3

%

Com

erío

3,9

05

30

.10

6

21

6 2

.47

6

1,9

21

14

.25

0

2,1

24

13

.38

0

1.2

15

5

5.6

%4

.0%

Cor

ozal

8,0

68

64

.25

8

16

2 2

.26

2

4,2

18

32

.35

8

4,5

00

29

.63

9

2.9

13

5

3.9

%4

.5%

Cul

ebra

1,4

76

13

.29

6

18

0 0

.88

5

23

0 1

.57

1

1,1

36

10

.84

0

0.9

57

1

8.5

%7

.2%

Dor

ado

13

,35

3 2

89

.66

4

1,0

61

44

.51

1

8,1

44

87

.10

6

7,4

09

15

8.0

47

1

6.6

87

4

5.4

%5

.8%

faja

rdo

17

,64

9 2

51

.25

2

90

7 5

0.1

87

1

0,1

87

92

.32

0

8,1

18

10

8.7

45

1

1.2

33

5

6.7

%4

.5%

flor

ida

3,8

89

29

.46

2

14

6 1

.04

4

2,3

21

18

.08

0

1,6

85

10

.33

8

1.0

68

6

4.9

%3

.6%

Guá

nica

7,9

30

70

.90

9

80

2 8

.07

4

4,4

56

33

.10

6

3,1

93

29

.73

0

3.1

45

5

8.1

%4

.4%

Gua

yam

a1

7,6

26

57

8.2

86

1

,21

5 3

77

.66

7

10

,08

8 8

2.7

97

7

,37

9 1

17

.82

1

11

.87

6

79

.6%

2.1

%

Gua

yani

lla6

,37

2 5

4.5

89

3

65

7.5

08

3

,62

1 2

6.2

69

2

,85

4 2

0.8

12

2

.25

4

61

.9%

4.1

%

Gua

ynab

o3

3,1

76

81

5.6

27

1

,27

7 5

8.9

66

2

0,7

78

26

1.4

43

2

3,8

52

49

5.2

18

4

9.8

78

3

9.3

%6

.1%



Mun

icip

ality

Tota

l Ass

esse

d Va

lue

Exe

mpt

ions

Exo

nera

tions

Net

Tax

able

Taxe

s Le

vied

on

Rea

l P

rope

rty

Perc

ent

of V

alue

E

xem

pted

“Eff

ectiv

e”

Tax

Rat

eN

umbe

r of

P

rope

rtie

sVa

lue

(mill

ions

)N

umbe

r of

P

rope

rtie

sVa

lue

(mill

ions

)N

umbe

r of

P

rope

rtie

sVa

lue

(mill

ions

)N

umbe

r of

P

rope

rtie

sVa

lue

(mill

ions

)

Gur

abo

16

,12

1 2

88

.93

4

71

0 7

7.0

53

1

1,0

77

11

5.0

92

8

,48

1 9

6.7

90

1

1.1

24

6

6.5

%3

.8%

Hat

illo

13

,23

9 1

32

.49

2

28

2 6

.82

1

7,2

86

63

.20

6

6,9

49

62

.46

5

5.6

53

5

2.9

%4

.3%

Hor

mig

uero

s6

,79

7 7

2.5

60

1

70

4.7

02

4

,30

2 3

8.6

83

2

,90

2 2

9.1

75

2

.86

8

59

.8%

4.0

%

Hum

acao

23

,50

7 4

01

.44

8

1,0

29

96

.22

4

13

,13

8 1

27

.21

2

12

,82

1 1

78

.01

3

15

.71

7

55

.7%

3.9

%

isab

ela

21

,73

2 3

80

.18

3

52

6 2

20

.43

9

10

,48

4 8

3.6

65

1

2,4

72

76

.07

8

7.0

98

8

0.0

%1

.9%

jayu

ya4

,53

7 3

7.2

28

2

36

5.4

67

2

,32

6 1

7.6

71

2

,54

5 1

4.0

90

1

.13

8

62

.2%

3.1

%

juan

a D

íaz

18

,03

9 2

45

.54

7

1,3

13

94

.11

7

11

,82

4 9

7.4

34

6

,37

4 5

3.9

95

5

.03

8

78

.0%

2.1

%

junc

os1

4,4

56

60

5.0

75

1

,01

2 4

59

.66

2

9,1

55

79

.66

8

5,5

09

65

.74

4

7.4

49

8

9.1

%1

.2%

Laja

s1

1,9

95

90

.02

9

32

2 5

.53

3

5,6

66

45

.01

9

6,9

21

39

.47

7

4.8

67

5

6.2

%5

.4%

Lare

s8

,79

3 6

5.3

10

1

91

3.5

55

4

,18

5 3

2.8

31

5

,57

7 2

8.9

23

2

.91

5

55

.7%

4.5

%

Las

Mar

ías

3,3

23

20

.75

4

10

3 0

.68

5

1,3

40

9.6

04

2

,42

8 1

0.4

64

0

.85

6

49

.6%

4.1

%

Las

Pie

dras

13

,30

4 1

96

.56

3

46

2 4

4.0

61

8

,48

9 8

1.2

20

6

,64

1 7

1.2

82

7

.26

6

63

.7%

3.7

%

Loíz

a8

,08

0 7

8.1

17

8

05

7.4

17

4

,41

4 3

8.0

00

3

,40

2 3

2.7

00

3

.83

6

58

.1%

4.9

%

Luqu

illo

9,5

65

10

6.4

47

4

22

6.3

20

4

,99

5 4

8.1

24

5

,54

5 5

2.0

03

4

.59

2

51

.1%

4.3

%

Man

atí

15

,02

6 2

71

.02

7

31

4 1

06

.07

7

8,5

76

75

.68

4

7,5

52

89

.26

7

8.2

45

6

7.1

%3

.0%

Mar

icao

1,7

31

12

.04

5

85

1.7

47

5

95

3.6

83

1

,26

6 6

.61

5

0.6

83

4

5.1

%5

.7%

Mau

nabo

4,5

53

33

.19

0

45

2 2

.35

6

2,3

92

18

.34

6

2,0

76

12

.48

8

1.2

28

6

2.4

%3

.7%

May

ague

z3

5,0

87

42

7.6

17

8

13

42

.06

2

16

,21

0 1

45

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9

22

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39

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6

25

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7

44

.0%

5.9

%

Moc

a1

4,6

02

99

.86

9

18

3 4

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2

6,8

18

54

.37

9

9,1

48

41

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9

3.9

66

5

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%4

.0%

Mor

ovis

7,5

85

66

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3

25

3 1

.90

7

4,5

93

38

.22

8

3,5

73

26

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8

2.8

58

6

0.3

%4

.3%

nag

uabo

10

,17

7 9

8.0

47

5

57

8.5

34

6

,28

6 5

5.7

58

4

,38

4 3

3.7

55

3

.31

8

65

.6%

3.4

%

nar

anjit

o6

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2 5

2.0

10

1

54

1.5

63

3

,38

1 2

7.3

01

3

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2 2

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46

2

.27

5

55

.5%

4.4

%

oro

covi

s5

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8.4

83

9

5 1

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9

2,3

85

18

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0

3,6

63

18

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4

1.5

00

5

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%3

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Pat

illas

7,2

30

52

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6

27

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3

4,0

56

30

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9

3,4

23

19

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3

1.9

99

6

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%3

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Peñ

uela

s7

,65

1 2

98

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7

65

9 2

20

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3

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69

29

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9

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48

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6

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65

8

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%1

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ce5

7,6

13

79

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69

4

,04

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38

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6

35

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10

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23

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43

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42

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2

56

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%

Que

brad

illas

10

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9 7

8.3

60

2

06

3.1

27

5

,49

7 4

3.8

51

5

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6 3

1.3

82

2

.77

1

60

.0%

3.5

%

Rin

cón

8,5

19

71

.68

0

14

1 6

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9

3,2

92

26

.48

6

5,9

09

38

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6

3.4

26

4

5.9

%4

.8%

Río

Gra

nde

22

,58

7 3

15

.90

11

,22

6 5

9.7

63

1

1,8

71

11

8.4

04

1

2,0

21

13

7.7

34

1

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28

5

6.4

%4

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na G

rand

e9

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4 7

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79

33

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3

5,5

75

45

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3

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36

24

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3

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39

6

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%3

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Sal

inas

12

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2 1

07

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8

1,0

11

15

.76

0

6,8

76

53

.02

3

4,9

12

38

.64

4

3.9

92

6

4.0

%3

.7%

San

Ger

mán

13

,60

2 1

26

.13

9

31

9 1

2.8

76

6

,96

8 6

1.9

66

7

,87

1 5

1.2

98

5

.17

1

59

.3%

4.1

%

San

jua

n1

41

,79

0 2

,84

9.6

68

6

,31

6 3

19

.83

7

79

,08

0 8

77

.92

4

85

,81

71

,65

1.9

07

1

66

.99

2

42

.0%

5.9

%

Tabl

e A

10.5

: Rea

l Pro

pert

y Va

lue,

Exe

mpt

ions

and

Rev

enue

(con

tinue

d)



Mun

icip

ality

Tota

l Ass

esse

d Va

lue

Exe

mpt

ions

Exo

nera

tions

Net

Tax

able

Taxe

s Le

vied

on

Rea

l P

rope

rty

Perc

ent

of V

alue

E

xem

pted

“Eff

ectiv

e”

Tax

Rat

eN

umbe

r of

P

rope

rtie

sVa

lue

(mill

ions

)N

umbe

r of

P

rope

rtie

sVa

lue

(mill

ions

)N

umbe

r of

P

rope

rtie

sVa

lue

(mill

ions

)N

umbe

r of

P

rope

rtie

sVa

lue

(mill

ions

)

San

Lor

enzo

13

,68

4 1

22

.39

1

31

8 9

.46

6

8,1

80

69

.67

8

7,1

35

43

.24

8

4.4

24

6

4.7

%3

.6%

San

S

ebas

tían

18

,99

4 1

46

.97

9

32

1 1

0.8

08

8

,94

2 7

3.2

58

1

1,9

31

62

.91

3

5.7

12

5

7.2

%3

.9%

San

ta is

abel

8,7

85

85

.44

8

66

4 1

5.0

79

5

,46

6 4

3.3

04

3

,04

6 2

7.0

64

2

.93

1

68

.3%

3.4

%

Toa

Alta

21

,67

6 2

56

.94

0

1,0

00

12

.62

8

15

,22

2 1

61

.60

1

10

,67

8 8

2.7

11

9

.37

1

67

.8%

3.6

%

Toa

Baj

a2

5,6

06

31

7.3

49

1

,53

4 1

8.3

42

1

8,6

36

17

3.3

07

8

,56

7 1

25

.70

0

14

.67

5

60

.4%

4.6

%

Truj

illo

Alto

23

,13

4 3

14

.19

7

62

6 1

2.5

41

1

5,8

12

17

5.3

31

1

1,9

41

12

6.3

25

1

3.3

65

5

9.8

%4

.3%

utu

ado

9,5

40

64

.41

1

26

0 1

.40

6

4,2

20

31

.51

5

6,1

97

31

.49

0

2.7

26

5

1.1

%4

.2%

vega

Alta

11

,51

7 1

52

.30

4

1,1

93

13

.66

2

6,4

04

60

.72

8

5,8

99

77

.91

4

6.7

63

4

8.8

%4

.4%

vega

Baj

a2

0,5

99

21

3.1

27

1

,49

8 1

1.0

78

1

3,9

32

11

5.7

20

7

,67

1 8

6.3

29

8

.91

8

59

.5%

4.2

%

vieq

ues

5,1

32

38

.16

4

1,7

64

9.3

38

1

,55

4 1

0.5

59

2

,28

2 1

8.2

66

1

.97

8

52

.1%

5.2

%

villa

lba

5,9

18

48

.20

5

25

0 3

.70

7

3,4

86

27

.28

1

2,7

16

17

.21

7

1.6

49

6

4.3

%3

.4%

yabu

coa

10

,88

7 9

9.1

40

5

04

9.9

63

6

,29

1 5

1.0

33

5

,17

8 3

8.1

43

4

.13

1

61

.5%

4.2

%

yauc

o1

4,0

45

13

4.3

46

5

67

12

.28

8

8,2

85

71

.63

7

6,5

62

50

.42

1

5.2

09

6

2.5

%3

.9%

Pue

rto

Ric

o1

,30

8,5

99

19

,14

1.3

82

5

5,1

20

4,0

86

.37

4

75

5,4

81

7,06

5.43

6

67

9,9

30

7,9

89

.57

2

81

9.5

69

5

8.3

%4

.3%

Sou

rce:

CR

iM

Tabl

e A

10.5

: Rea

l Pro

pert

y Va

lue,

Exe

mpt

ions

and

Rev

enue

(con

tinue

d)



Table A10.6: Personal Property Tax Accounts by Size Distribution: 2016

Account Property ValueNumber of Accounts

Total Property Value

(Millions)

Average Amount

Billed ($)

Total Amount Billed

(Millions)

Percent of

Accounts

Percent of Total Value

Percent of

Amount Billed

Total 72,302 $12,532.53 $5,199 $375.92 100% 100% 100%

$0 11,924 $0 $0 $0 16.5% 0% 0%

$1 - $1,000 15,895 $7.71 $23 $0.37 22.0% 0.1% 0.1%

$1,001 - $3,000 14,038 $25.93 $82 $1.15 19.4% 0.2% 0.3%

$3,001 - $5,000 6,327 $24.73 $176 $1.11 8.8% 0.2% 0.3%

$5,001 - $10,000 7,553 $54.24 $359 $2.71 10.4% 0.4% 0.7%

$10,001 - $100,000 12,859 $384.94 $1,852 $23.81 17.8% 3.1% 6.3%

$100,001 - $500,000 2,242 $488.56 $13,250 $29.71 3.1% 3.9% 7.9%

$500,001 - $1 million 512 $366.10 $40,428 $20.70 0.7% 2.9% 5.5%

$1 million - $5 million 630 $1,378.65 $106,907 $67.35 0.9% 11.0% 17.9%

$5 million - $10 million 144 $1,026.37 $292,784 $42.16 0.2% 8.2% 11.2%

$10 million - $100 million 160 $3,834.43 $825,284 $132.05 0.2% 30.6% 35.1%

over $100 million 18 $4,940.86 $3,045,020 $54.81 0.02% 39.4% 14.6%

Source: CRiM statistics and calculations by the authors

Table A10.7: Personal Property Accounts Receiving At Least Partial Exemptions: 2016


Number of Accounts Receiving Exemption

Total Property

Value (Millions)

Average of Exemption (percent of

Property Value)

Average Amount

Billed Per Account ($)

Total Amount Billed

(millions)

Percent of All

Accounts Receiving Exemption

Average Effective Tax Rate

Total 22,749 $9,244.95 98.3% $4,818 $109.61 37.7% 1.186%

$0

$1 - $1,000 6,050 $3.14 99.6% $0 $0.00 38.1% 0.033%

$1,001 - $3,000 6,300 $11.64 99.5% $1 $0.00 44.9% 0.037%

$3,001 - $5,000 2,781 $10.86 99.2% $3 $0.01 44.0% 0.066%

$5,001 - $10,000 2,908 $20.59 99.0% $6 $0.02 38.5% 0.078%

$10,001 - $100,000 3,417 $89.28 97.1% $95 $0.33 26.6% 0.364%

$100,001 - $500,000 581 $136.76 88.8% $2,189 $1.27 25.9% 0.930%

$500,001 - $1 million 186 $133.61 84.1% $9,984 $1.86 36.3% 1.390%

$1 million - $5 million 302 $687.65 82.1% $37,459 $11.31 47.9% 1.645%

$5 million - $10 million 90 $625.93 82.7% $101,829 $9.16 62.5% 1.464%

$10 million - $100 million 117 $2,773.45 80.2% $394,993 $46.21 73.1% 1.666%

over $100 million 17 $4,752.04 87.0% $2,319,857 $39.44 94.4% 0.830%




Table A10.8: Personal Property Accounts Receiving NO Exemptions: 2016


Number of Accounts


Total Property

Value (millions)

Average Amount Billed Per Account

($)

Total Amount Billed

(millions)

Percent Receiving no Exemption

Average Effective

Rate

Total 49,553 $3,287.58 $5,374 $266.31 68.5% 8.101%

$0 11,924 $0 $0 $0 nA nA

$1 - $1,000 9,845 $4.57 $37 $0.37 61.9% 8.050%

$1,001 - $3,000 7,738 $14.29 $148 $1.14 55.1% 7.987%

$3,001 - $5,000 3,546 $13.87 $311 $1.10 56.0% 7.955%

$5,001 - $10,000 4,645 $33.66 $580 $2.69 61.5% 8.003%

$10,001 - $100,000 9,442 $295.66 $2,488 $23.49 73.4% 7.945%

$100,001 - $500,000 1,661 $351.80 $17,119 $28.43 74.1% 8.083%

$500,001 - $1 million 326 $232.49 $57,798 $18.84 63.7% 8.105%

$1 million - $5 million 328 $691.00 $170,850 $56.04 52.1% 8.110%

$5 million - $10 million 54 $400.44 $611,042 $33.00 37.5% 8.240%

$10 million - $100 million 43 $1,060.98 $1,996,077 $85.83 26.9% 8.090%

over $100 million 1 $188.82 $15,372,796 $15.37 5.6% 8.142%


Table A10.9: First Year Impact of 5-Year Phase Out of Personal Property Exemption by Municipality (In Thousands Except Percentages)

Municipality

Total Personal Property

Assessed Value

Total Exemption

Value

Total Taxable Value

Taxable Value With 20%

Exemption Phase Out

Percent Change

in Taxable Value

Current Tax Billed

Change in Taxes

Billed

Adjuntas 5,830 2,827 3,003 3,568 18.8% 190 36

Aguada 24,295 8,034 16,262 17,868 9.9% 1,111 110

Aguadilla 169,099 102,305 66,795 87,256 30.6% 4,562 1,397

Aguas Buenas

6,779 1,730 5,049 5,395 6.9% 421 29

Aibonito 116,947 105,592 11,356 32,474 186.0% 832 1,548

Añasco 94,471 72,993 21,478 36,077 68.0% 1,650 1,121

Arecibo 158,674 96,867 61,807 81,180 31.3% 5,149 1,614

Arroyo 38,309 30,367 7,942 14,015 76.5% 662 506

Barceloneta 549,313 480,270 69,044 165,098 139.1% 5,751 8,001

Barranquitas 12,038 2,835 9,203 9,770 6.2% 675 42

Bayamón 701,047 240,682 460,365 508,501 10.5% 34,730 3,631

Cabo Rojo 26,646 7,305 19,341 20,802 7.6% 1,321 100

Caguas 423,635 168,497 255,139 288,838 13.2% 19,769 2,611

Camuy 24,965 13,370 11,595 14,269 23.1% 792 183

Canóvanas 96,089 57,525 38,564 50,069 29.8% 3,212 958

Carolina 895,809 581,020 314,789 430,993 36.9% 29,370 10,842

Cataño 259,046 111,937 147,109 169,496 15.2% 12,254 1,865

Cayey 155,570 76,298 79,272 94,531 19.2% 6,802 1,309

Ceiba 6,371 3,474 2,896 3,591 24.0% 168 40

Ciales 6,137 2,688 3,449 3,987 15.6% 287 45

Cidra 115,353 76,969 38,384 53,778 40.1% 3,197 1,282

Coamo 26,871 15,906 10,965 14,147 29.0% 913 265



Municipality


Assessed Value

Total Exemption

Value

Total Taxable Value


Exemption Phase Out

Percent Change

in Taxable Value

Current Tax Billed

Change in Taxes

Billed

Comerío 6,134 2,578 3,555 4,071 14.5% 252 37

Corozal 18,374 6,910 11,464 12,846 12.1% 898 108

Culebra 1,714 219 1,495 1,539 2.9% 102 3

Dorado 115,375 66,467 48,908 62,201 27.2% 4,319 1,174

fajardo 153,412 95,102 58,310 77,330 32.6% 3,983 1,299

florida 3,480 1,129 2,351 2,577 9.6% 196 19

Guánica 13,336 8,479 4,857 6,553 34.9% 417 146

Guayama 276,083 223,343 52,739 97,408 84.7% 4,261 3,609

Guayanilla 17,833 13,505 4,328 7,029 62.4% 382 238

Guaynabo 785,464 383,209 402,255 478,897 19.1% 32,502 6,193

Gurabo 173,625 139,705 33,919 61,860 82.4% 2,451 2,019

Hatillo 138,571 56,974 81,597 92,992 14.0% 5,753 803

Hormigueros 22,109 4,448 17,661 18,551 5.0% 1,383 70

Humacao 336,544 252,969 83,574 134,168 60.5% 5,708 3,456

isabela 98,851 69,172 29,680 43,514 46.6% 2,176 1,014

jayuya 83,541 77,596 5,945 21,464 261.0% 361 944

juana Díaz 296,265 275,217 21,048 76,092 261.5% 1,753 4,585

juncos 1,158,046 1,135,522 22,524 249,629 1008.3% 1,876 18,918

Lajas 16,576 10,179 6,397 8,433 31.8% 533 170

Lares 16,819 8,477 8,342 10,038 20.3% 674 137

Las Marías 2,113 585 1,528 1,645 7.7% 94 7

Las Piedras 287,788 272,179 15,609 70,045 348.8% 1,066 3,718

Loíza 5,352 1,603 3,749 4,070 8.6% 365 31

Luquillo 9,821 830 8,991 9,157 1.8% 614 11

Manatí 552,384 492,079 60,305 158,721 163.2% 4,565 7,450

Maricao 15,176 12,549 2,628 5,137 95.5% 153 146

Maunabo 2,263 958 1,305 1,496 14.7% 89 13

Mayaguez 185,643 49,362 136,281 146,153 7.2% 11,693 847

Moca 65,409 34,203 31,207 38,047 21.9% 2,053 450

Morovis 11,978 4,521 7,457 8,362 12.1% 528 64

naguabo 24,713 15,008 9,705 12,706 30.9% 634 196

naranjito 15,430 3,337 12,093 12,761 5.5% 947 52

orocovis 7,633 2,859 4,774 5,346 12.0% 288 34

Patillas 5,872 2,502 3,370 3,870 14.8% 281 42

Peñuelas 88,836 74,991 13,845 28,843 108.3% 911 987

Ponce 400,157 147,771 252,386 281,940 11.7% 21,024 2,462

Quebradillas 10,760 2,543 8,217 8,726 6.2% 561 35

Rincón 10,971 5,885 5,085 6,262 23.1% 347 80

Río Grande 66,146 34,080 32,067 38,883 21.3% 2,190 466

Sabana Grande

26,911 18,955 7,956 11,747 47.6% 663 316

Salinas 36,285 24,226 12,060 16,905 40.2% 1,005 404

San Germán 58,905 33,782 25,123 31,880 26.9% 1,904 512

Table A10.9: First Year Impact of 5-Year Phase Out of Personal Property Exemption by Municipality (In Thousands Except Percentages) (continued)



Municipality


Assessed Value

Total Exemption

Value

Total Taxable Value


Exemption Phase Out

Percent Change

in Taxable Value

Current Tax Billed

Change in Taxes

Billed

San juan 1,973,871 905,243 1,068,628 1,249,677 16.9% 88,652 15,020

San Lorenzo 99,300 75,912 23,388 38,571 64.9% 1,925 1,250

San Sebastían 37,914 13,627 24,287 27,012 11.2% 1,414 159

Santa isabel 68,346 44,279 24,067 32,923 36.8% 2,125 782

Toa Alta 18,298 1,829 16,469 16,835 2.2% 1,372 30

Toa Baja 262,934 144,963 117,971 146,964 24.6% 10,705 2,631

Trujillo Alto 46,347 3,677 42,670 43,405 1.7% 3,661 63

utuado 13,428 6,617 6,811 8,134 19.4% 465 90

vega Alta 69,925 36,694 33,232 40,570 22.1% 1,900 420

vega Baja 251,631 203,973 47,658 88,453 85. 6% 3,970 3,398

vieques 6,607 3,082 3,524 4,141 17.5% 311 54

villalba 26,600 20,813 5,787 9,949 71.9% 482 347

yabucoa 70,660 61,907 8,753 21,135 141.4% 773 1,093

yauco 50,674 21,923 28,751 33,135 15.3% 2,395 365

Puerto Rico 12,532,528 7,870,036 4,662,492 6,236,499 33.8% 375,923 126,907


Table A10.9: First Year Impact of 5-Year Phase Out of Personal Property Exemption by Municipality (In Thousands Except Percentages) (continued)



Table A10.10: Discrepancy Between Census Estimates and CRIM Single-Family Dwelling Counts for All Municipalities

MunicipalitySingle-Family Dwelling Units

(Census)

Single-Family Properties (CRIM)

Potential Missing Single-Family

Properties

Percent Discrepancy

Arecibo 37,395 26,309 11,086 42%

Ponce 54,171 46,588 7,583 16%

Barranquitas 10,384 3,716 6,668 179%

vega Alta 14,459 7,792 6,667 86%

Corozal 12,328 5,799 6,529 113%

Hatillo 15,798 9,449 6,349 67%

vega Baja 22,866 16,836 6,030 36%

utuado 12,450 6,507 5,943 91%

Toa Alta 23,812 18,011 5,801 32%

naranjito 10,237 4,478 5,759 129%

yabucoa 13,940 8,258 5,682 69%

San Lorenzo 15,723 10,303 5,420 53%

Moca 14,366 8,984 5,382 60%

Toa Baja 27,803 22,494 5,309 24%

yauco 16,279 11,097 5,182 47%

Camuy 13,472 8,295 5,177 62%

Morovis 11,138 6,117 5,021 82%

isabela 18,938 13,940 4,998 36%

Lares 11,234 6,240 4,994 80%

Manatí 16,599 11,772 4,827 41%

Mayagüez 29,619 24,888 4,731 19%

Caguas 44,534 39,966 4,568 11%

Canóvanas 17,144 12,595 4,549 36%

orocovis 8,053 3,657 4,396 120%

San Germán 13,885 9,544 4,341 45%

Loíza 10,216 5,891 4,325 73%

San Sebastián 16,548 12,435 4,113 33%

villalba 8,612 4,521 4,091 90%

Coamo 15,479 11,390 4,089 36%

Humacao 22,035 17,949 4,086 23%

Las Piedras 14,183 10,325 3,858 37%

Aguadilla 21,391 17,609 3,782 21%

Bayamón 60,509 56,831 3,678 6%

Comerío 6,363 2,830 3,533 125%

Salinas 13,175 9,706 3,469 36%

Añasco 10,695 7,269 3,426 47%

Gurabo 16,243 12,991 3,252 25%

Dorado 14,545 11,390 3,155 28%

Aguada 12,708 9,686 3,022 31%

Río Grande 19,510 16,531 2,979 18%

Guayanilla 7,977 5,041 2,936 58%

Sabana Grande 10,155 7,249 2,906 40%

Cabo Rojo 22,292 19,396 2,896 15%

Patillas 8,371 5,531 2,840 51%

Adjuntas 7,144 4,322 2,822 65%

juana Díaz 17,979 15,170 2,809 19%



MunicipalitySingle-Family Dwelling Units

(Census)

Single-Family Properties (CRIM)

Potential Missing Single-Family

Properties

Percent Discrepancy

Peñuelas 8,555 5,844 2,711 46%

naguabo 10,613 8,098 2,515 31%

juncos 14,511 11,999 2,512 21%

Aibonito 9,330 6,908 2,422 35%

Ciales 6,714 4,301 2,413 56%

Quebradillas 9,599 7,234 2,365 33%

Cidra 12,926 10,581 2,345 22%

Trujillo Alto 17,988 15,693 2,295 15%

jayuya 5,561 3,275 2,286 70%

Guayama 16,609 14,343 2,266 16%

Guánica 8,657 6,442 2,215 34%

Aguas Buenas 8,390 6,237 2,153 35%

Cataño 7,968 5,861 2,107 36%

Lajas 10,235 8,358 1,877 22%

Ceiba 6,162 4,308 1,854 43%

Maunabo 4,880 3,043 1,837 60%

Cayey 14,863 13,093 1,770 14%

Barceloneta 9,167 7,488 1,679 22%

Las Marías 3,804 2,198 1,606 73%

florida 4,712 3,143 1,569 50%

Guaynabo 24,396 22,827 1,569 7%

Hormigueros 6,803 5,308 1,495 28%

Santa isabel 8,763 7,277 1,486 20%

Maricao 2,543 1,159 1,384 119%

Arroyo 7,804 6,531 1,273 19%

vieques 4,710 3,438 1,272 37%

Rincón 5,416 4,722 694 15%

fajardo 14,120 13,529 591 4%

Culebra 1,115 679 436 64%

Luquillo 8,049 7,690 359 5%

Carolina 48,291 48,463 - 0%

San juan 97,599 99,363 - 0%

Puerto Rico 1,243,610 977,131 268,415 27%

Source: CRiM; u.S. Census, American Community Survey, 5-year estimates 2012-2016; calculations by the authors

Table A10.10: Discrepancy Between Census Estimates and CRIM Single-Family Dwelling Counts for All Municipalities (continued)



Table A10:11: Comparison of Assessed Values and Sales Prices: Vacant Residential Parcels

Municipality

CRIM Valuations Treasury Property TransactionsRatio of Sales to Assessed Value

Number of Parcels

Average Assessed

Value

Median Assessed

Value

Number of Parcels

Average Sales Price

Median Sales Price

Medians Averages

overall 189,572 $4,719 $734 7852 $108,430 $30,000 40.9 23.0

Barceloneta 1,012 $118,475 $860 62 $275,631 $37,876 44.1 2.3

juana Díaz 2,274 $38,782 $1,391 92 $98,155 $38,500 27.7 2.5

Gurabo 1,854 $33,472 $612 68 $102,205 $35,000 57.2 3.1

Manatí 2,149 $10,160 $814 105 $60,796 $40,000 49.1 6.0

Cataño 218 $19,249 $2,000 4 $168,750 $120,000 60.0 8.8

Trujillo Alto 2,445 $4,662 $1,198 42 $41,365 $29,000 24.2 8.9

villalba 1,116 $3,041 $644 47 $28,074 $17,000 26.4 9.2

yabucoa 2,168 $2,657 $530 80 $25,930 $19,000 35.8 9.8

Arroyo 765 $3,476 $909 23 $34,610 $20,000 22.0 10.0

Ceiba 849 $3,368 $840 19 $35,868 $25,000 29.8 10.7

Salinas 1,868 $3,009 $1,021 76 $41,039 $30,000 29.4 13.6

Maricao 492 $2,341 $445 11 $32,627 $16,000 36.0 13.9

Coamo 2,674 $2,323 $1,050 110 $32,399 $17,000 16.2 13.9

Guayanilla 1,073 $2,875 $784 67 $43,787 $50,000 63.8 15.2

naguabo 1,560 $3,358 $839 82 $51,321 $29,500 35.2 15.3

florida 551 $1,531 $710 25 $23,495 $20,500 28.9 15.3

Las Piedras 2,439 $2,438 $689 75 $38,028 $24,148 35.0 15.6

Bayamón 4,856 $4,210 $851 146 $67,269 $31,315 36.8 16.0

Añasco 2,178 $2,324 $530 107 $37,442 $25,000 47.2 16.1

yauco 2,240 $2,708 $709 75 $44,352 $24,000 33.9 16.4

Maunabo 1,112 $2,518 $1,072 31 $42,013 $25,000 23.3 16.7

fajardo 1,430 $5,616 $1,944 52 $97,381 $40,000 20.6 17.3

Sabana Grande

1,743 $1,761 $550 45 $31,339 $18,700 34.0 17.8

utuado 2,646 $1,447 $617 137 $25,750 $16,079 26.1 17.8

juncos 1,946 $2,189 $522 46 $39,099 $19,000 36.4 17.9

Ciales 1,699 $1,766 $650 71 $31,937 $23,000 35.4 18.1

vega Alta 1,992 $2,241 $803 52 $40,856 $21,500 26.8 18.2

orocovis 1,447 $1,431 $657 158 $26,282 $20,075 30.6 18.4

Corozal 1,983 $1,727 $700 180 $32,070 $25,000 35.7 18.6

Mayagüez 6,396 $2,456 $590 142 $46,301 $21,789 36.9 18.9

Toa Alta 2,653 $2,314 $770 96 $43,855 $35,000 45.5 18.9

Barranquitas 1,555 $1,520 $576 197 $29,925 $20,000 34.7 19.7

Humacao 3,133 $4,696 $1,310 190 $94,856 $40,000 30.5 20.2

jayuya 924 $1,416 $570 47 $29,007 $18,000 31.6 20.5

Peñuelas 1,508 $4,652 $681 46 $96,640 $25,000 36.7 20.8

Río Grande 2,775 $8,196 $1,610 96 $173,468 $41,500 25.8 21.2

Las Marías 975 $1,179 $563 48 $25,812 $16,250 28.9 21.9

San Sebastián

5,729 $1,510 $491 305 $33,147 $20,000 40.7 22.0

vieques 1,508 $4,381 $582 51 $96,980 $38,000 65.3 22.1

Guánica 1,016 $3,112 $1,086 33 $72,894 $25,000 23.0 23.4



Municipality

CRIM Valuations Treasury Property TransactionsRatio of Sales to Assessed Value

Number of Parcels

Average Assessed

Value

Median Assessed

Value

Number of Parcels

Average Sales Price

Median Sales Price

Medians Averages

Aguas Buenas

2,364 $1,407 $412 60 $33,998 $21,250 51.6 24.2

Cayey 2,854 $2,404 $730 103 $58,373 $35,500 48.6 24.3

Cidra 3,191 $1,964 $673 124 $47,850 $27,700 41.2 24.4

Aguadilla 6,009 $2,064 $530 311 $51,401 $35,447 66.9 24.9

Hormigueros 1,023 $3,183 $590 20 $79,358 $23,881 40.5 24.9

Canóvanas 1,935 $4,031 $1,422 52 $100,728 $30,000 21.1 25.0

Santa isabel 1,216 $3,455 $1,245 66 $87,026 $24,750 19.9 25.2

San juan 6,693 $14,225 $3,320 163 $368,229 $75,000 22.6 25.9

vega Baja 2,165 $3,600 $1,099 81 $93,592 $40,000 36.4 26.0

Lares 2,141 $1,298 $617 136 $34,144 $21,000 34.0 26.3

Arecibo 6,291 $2,220 $743 222 $60,400 $30,000 40.4 27.2

Guaynabo 2,804 $9,476 $2,087 94 $258,482 $44,786 21.5 27.3

San Germán 3,286 $2,228 $596 99 $61,174 $20,000 33.6 27.5

Loíza 820 $2,772 $621 12 $76,813 $7,750 12.5 27.7

Morovis 1,239 $1,793 $720 78 $50,458 $35,000 48.6 28.1

Guayama 2,323 $3,441 $903 65 $98,108 $20,000 22.1 28.5

Cabo Rojo 7,664 $2,610 $1,200 352 $75,383 $41,200 34.3 28.9

Moca 5,010 $1,285 $472 224 $40,911 $25,000 53.0 31.8

Lajas 2,961 $2,291 $750 142 $73,045 $38,000 50.7 31.9

Aguada 5,103 $1,241 $425 265 $40,163 $23,000 54.1 32.4

isabela 6,111 $1,814 $443 265 $61,335 $27,000 60.9 33.8

San Lorenzo 2,698 $1,405 $460 92 $48,134 $20,125 43.8 34.3

Caguas 3,711 $4,594 $700 123 $165,534 $40,000 57.1 36.0

Luquillo 1,041 $3,496 $1,465 29 $129,440 $40,000 27.3 37.0

Comerío 837 $1,475 $687 43 $55,113 $34,000 49.5 37.4

Camuy 3,502 $1,420 $612 199 $53,149 $30,000 49.0 37.4

Adjuntas 1,585 $1,346 $538 80 $58,640 $25,000 46.5 43.6

Toa Baja 999 $6,131 $920 39 $278,378 $23,000 25.0 45.4

Dorado 944 $8,750 $1,857 97 $433,761 $370,000 199.2 49.6

Culebra 499 $3,737 $1,957 24 $224,465 $164,000 83.8 60.1

Rincón 2,492 $1,279 $450 175 $78,761 $40,000 88.9 61.6

Carolina 2,869 $8,356 $1,744 90 $525,866 $53,000 30.4 62.9

Hatillo 3,046 $1,943 $660 98 $126,265 $41,000 62.1 65.0

Quebradillas 2,947 $1,585 $500 92 $116,648 $37,000 74.0 73.6

Patillas 1,456 $1,548 $430 31 $145,443 $18,000 41.9 94.0

naranjito 1,619 $1,200 $510 115 $167,393 $20,000 39.2 139.5

Aibonito 1,864 $1,951 $663 93 $301,985 $25,000 37.7 154.8

Ponce 5,309 $6,156 $1,260 159 $1,152,721 $22,000 17.5 187.3

Source: CRiM and PRDT, calculations by the authors

Table A10:11: Comparison of Assessed Values and Sales Prices: Vacant Residential Parcels (continued)

134 | A11: RELATED MuniCiPAL finAnCE iSSuES


A11: Related Municipal Finance Issues

During the collection and analysis of the data for this report, the authors encountered several issues directly related to municipal finance in Puerto Rico. Pursuing these issues is beyond the scope of this analysis. However, they should be noted as they provide starting points for further research and policy development.

Assignment of FunctionsAs noted in the body of the report, many governmental functions typically assigned to local governments are retained at the Commonwealth level in Puerto Rico. There are undoubtedly historical reasons for the current assignment. The question is whether such arrangements should continue, especially for the largest municipalities.

A variety of alternative arrangements could be considered as suggested in the Fiscal Plan. Some services could be reassigned to some of the larger municipal governments. In other cases, several municipalities could share services within a region if economies of scale and scope can be achieved.

Evaluating which typical local government services and functions should be assigned to which levels and governmental units merits additional study and discussion.

Evaluation of Municipal Funding SourcesThe sources and uses of municipal funding merits further study. For example, the excise tax on new construction in Puerto Rico is not consistent with such charges elsewhere in the United States. Whether this pattern should change and, if so how, merits research and discussion.

The municipal license tax also bears further study. This business tax provides significant revenues for municipalities, but its efficiency and fairness is unknown.

Intergovernmental Transfers The current Fiscal Plan calls for the phasing out of all Commonwealth transfers to municipalities. Assessing the efficiency of local government services in Puerto Rico is beyond the scope of this analysis, and no conclusions are offered regarding any potential savings that may result from restructuring local services. However, it is important to recognize the pervasive nature of intergovernmental transfers in municipal finance.

The transfer of revenue from one level of government to another level of government, generally labeled as intergovernmental transfers, intergovernmental revenue (IGR), or grants-in-aid is a ubiquitous policy. In the United States, there are transfers from the federal government to state governments and territories, and transfers from state governments and territories to local governments. Substantial portions of the federal funds that are initially

A11: RELATED MuniCiPAL finAnCE iSSuES | 135


transferred to state governments are eventually transferred to local governmental units. This pattern of IGR between the federal government and state and local governments is not only widespread; it has been a prominent factor in government finances for many decades.

A similar pattern of IGR occurs in other countries including developed, transitional, and developing governments. Central governments throughout the world are engaged in IGR. Bahl and Bird report that IGR transfers from the central government to subnational governments ranged from 38 percent of expenditures in high-income countries, 40 percent in developing countries, and 29 percent in transitional countries.28

In Puerto Rico, substantial differences exist in the capacity of local governments to fund public services. If municipal governments are divided in quartiles based on the level of per capita property tax collections in 2017, the differences are disconcerting. The top quarter of municipal governments have an average per capita property tax of $462, the next quarter of municipalities average $207, the third quarter of municipalities average $126 per capita, and the last quarter of municipalities receive an average per capita property tax of $86.29 Even after significant reforms in the property tax, it is likely such disparities will persist.

Whether or not transfers from the Commonwealth to municipalities should be eliminated merits careful study. If eliminated, other policies to assure funding equity across municipalities should be considered.

28. Roy Bahl and Richard M. Bird. (2018). Fiscal Decentralization and Local Finance in Developing Countries: Development from Below. Edward Elgar Publishing, Northampton, MA, USA.

29. The values reported are total collections (current and prior years) per capita. Some of the variance is due to differences in collection rates, but 85 percent of the difference is due to variations in the taxable base per capita.

136 | GLoSSARy


GlossaryTax Term Definition

Horizontal Equity

Horizontal equity is an equity concept that states that individuals with similar income and assets should pay the same amount in taxes. Horizontal equity should apply to individuals considered equal regardless of the tax system in place. One of two main concepts regarding tax fairness. The other is vertical equity

Fee Appraisals Fee appraisals are privately solicited appraisals obtained by financial institutions and other entities seeking a formal, detailed estimate of current market value.

Municipal Service Fee

a per unit tax assessed on the area of land owned

Property Tax Administration

Property tax administration involves developing and maintaining an accurate list of taxpayers, valuing all properties in accordance with legally defined standards, delivering tax notices and promptly processing any appeals, achieving acceptable tax collection rates, and actively pursuing tax avoiders.

Property Tax Policy

Property tax policy defines what is taxable, who will be taxed, how (and by whom) the tax base will be valued, what the rate will be, who will calculate and distribute tax notices, how taxpayer appeals will be processed, and who will be responsible for enforcement and collection.

Revenue Buoyancy

Revenue buoyancy is an indicator to measure efficiency and responsiveness of revenue mobilization in response to growth in the gross domestic product or national income. A tax is said to be buoyant if the tax revenues increase more than proportionately in response to a rise in national income or output.

Value Banding An approach to property taxation where each property is assigned to one of several bands based on property value, and the tax is set as a fixed amount for each band.

Vertical Equity Vertical equity is an equity concept that states that the amount of tax paid should be proportional to the income capacity of the taxpayer. This is based on the idea that those who have the ability to pay more taxes should contribute more than those who have less financial capacity. This is one of two main concepts regarding tax fairness. The other is horizontal equity.

Documents

Property Taxes in Puerto Rico · 2019-03-27 · Property Taxes in Puerto Rico: Assessment and Recommendations Gary C. Cornia, PhD Lawrence C. Walters, PhD March 2019