The Supreme Court of Puerto Rico has ruled in the case of Continental Lord, Inc. v. Municipio Autónomo De Morovis, clarifying the process for challenging municipal construction taxes. This decision, issued on August 28, 2026, affects contractors and municipalities across Puerto Rico by establishing guidelines on when a taxpayer must exhaust administrative remedies before seeking judicial review.
The case arose when Continental Lord, Inc. was contracted by the Puerto Rico Electric Power Authority (AEE) to replace utility poles and wiring in Morovis. The Municipio Autónomo de Morovis notified Continental that they were required to pay construction taxes for the work. Continental disputed this requirement, arguing that AEE was exempt from such taxes under Puerto Rican law. To avoid delaying the project, Continental paid the tax under protest and sought a refund.
After submitting a reconsideration request to the municipality, which went unanswered, Continental filed a lawsuit seeking a refund and a declaratory judgment that they were not liable for the taxes. Initially, the lower court ruled in favor of Continental, but the municipality later appealed, claiming that the court lacked jurisdiction because Continental had not exhausted all administrative remedies.
The Supreme Court addressed the dispute, focusing on whether a taxpayer must exhaust administrative remedies when challenging a municipality's authority to impose a tax. The court ruled that a taxpayer does not need to exhaust all administrative remedies before seeking judicial review if the challenge concerns the municipality's power to impose the tax rather than the amount owed. The court stated, "a taxpayer does not have to exhaust administrative remedies when the issue is whether a municipality has the authority to impose a tax." This ruling was made by Judge Associado Erick V. Kolthoff Caraballo.
This ruling clarifies the legal landscape for contractors and municipalities in Puerto Rico. It establishes that when a contractor believes a municipality lacks the authority to impose a tax, they may seek judicial review without first exhausting administrative remedies. This decision aims to prevent municipalities from indefinitely delaying responses to taxpayer inquiries, which could lead to unfair burdens on contractors.
The ruling also emphasizes the importance of timely responses from municipalities to reconsideration requests. If a municipality fails to respond within the statutory timeframe, the taxpayer can interpret this as a tacit rejection, allowing them to seek judicial review. This aspect of the ruling is significant for contractors who may otherwise face delays in their projects due to unresolved tax disputes.
Looking ahead, this ruling may influence how municipalities approach tax assessments and their communication with contractors. It could lead to more efficient processes for resolving disputes over municipal taxes. Additionally, the decision sets a precedent that may affect future cases involving municipal tax authority and the rights of contractors in Puerto Rico.
The case may still be appealed, but the Supreme Court's ruling is binding unless overturned by a higher court or through new legislation. As of now, there are no related cases pending that directly address this issue.