In a significant ruling, the Court of Appeals of Puerto Rico has reversed a lower court's decision regarding construction taxes imposed on Jacob Linares Carrión, doing business as JJ Service, LLC. The court's decision, issued on May 28, 2026, affects contractors working with public utility entities and clarifies the authority of municipalities to impose construction taxes.

The case stemmed from a dispute between JJ Service, LLC and the Municipality of Adjuntas over the imposition of construction taxes. JJ Service was contracted by the Puerto Rico Electric Power Authority (AEE) to perform repairs and replacements of utility poles and lights. The Municipality of Adjuntas charged JJ Service a construction tax of $61,292.35, which JJ Service paid under protest, arguing that the Municipality lacked the legal authority to impose such a tax.

The conflict arose because JJ Service contended that the AEE, as a public entity, was exempt from municipal taxes under Puerto Rico law. The Municipality, however, argued that the work was contracted through a private entity, LUMA Energy, and therefore, the tax was applicable. This disagreement led to JJ Service filing a lawsuit seeking a declaratory judgment that the Municipality had no authority to impose the tax and requesting a refund of the amount paid.

The case was initially heard in the Utuado Superior Court, which ruled in favor of JJ Service, declaring that the Municipality could not impose the construction tax due to the AEE's exemption. The Municipality of Adjuntas appealed the ruling, leading to the case being reviewed by the Court of Appeals.

The Court of Appeals, led by Judge Domínguez Irizarry, examined the legal framework surrounding the case. The court found that while the Municipal Code of Puerto Rico allows municipalities to impose construction taxes, this authority does not extend to projects contracted by private entities on behalf of public agencies. The court stated, "the AEE is the owner of the work in question and, being exempt from municipal taxes, the Municipality could not impose such a tax on the contractor."

The court also noted that the lower court had erred in its interpretation of the law regarding the exemption for public entities. The ruling emphasized that the exemption provided to the AEE does not automatically extend to contractors working for the AEE. The court concluded that the Municipality of Adjuntas had the right to impose the construction tax on JJ Service for the work performed.

This ruling has significant implications for contractors in Puerto Rico, particularly those working on projects for public entities. It clarifies that municipalities retain the authority to impose construction taxes, even when the work is done for public agencies, as long as the contractor is a private entity. This decision may lead to increased scrutiny and compliance requirements for contractors working on public projects.

The court's ruling also sets a precedent regarding the interpretation of tax exemptions for public entities and their applicability to private contractors. It reinforces the principle that tax exemptions must be clearly defined and cannot be broadly interpreted to include third parties unless explicitly stated in the law.

Looking ahead, the Municipality of Adjuntas may consider further legal options in response to the ruling, although the court's decision appears to be final. There are currently no indications of related cases pending that would directly challenge this ruling.