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Private sector takes fight against Caguas tax to court

Members of the private sector doing business in Caguas sued the town over a new temporary tax.

Faced with a recent 70 percent hike in municipal taxes payable to Caguas, a group of companies representing a broad sample of businesses — restaurants, supermarkets, cash & carries, retail store chains, and telecommunications carriers — filed a lawsuit against the town to challenge the levy.

Effective July 1, the town of Caguas passed an ordinance imposing a temporary tax applicable to the business volume generated by companies reporting $3 million or more in earnings.

The plaintiffs claim the tax in effect through June 30, 2021 represents an additional contribution that exceeds what is allowed under the Autonomous Municipalities Law, and is “a selective, almost confiscatory tax, and its effect on the economy of Caguas and the island would be devastating,” the group said in a statement issued Wednesday.

The plaintiffs are: the Puerto Rico Restaurant Association; the Puerto Rico Chamber of Food Marketing, Industry and Distribution (known as MIDA by its Spanish acronym); the Puerto Rico Retail Trade Association; Ralph’s Food Warehouse Inc.; J.F. Montalvo Cash & Carry Inc.; Wendco of Puerto Rico Inc.; International Restaurant Services Inc.; South American Restaurants Corp.,; BMJ Foods P.R. Inc.; Claro Puerto Rico; Encanto Restaurants Inc.,; and Arcos Dorados Puerto Rico LLC.

This is the second lawsuit filed against the town of Caguas, after auto dealership Caguas Expressway Motors went to court against the tax on July 5.

In the claim filed Wednesday, the plaintiffs informed of their fiduciary responsibility and the legitimate interest in defending the interests of each of its members and consumers. The lawsuit also seeks to ensure that their constitutional rights are enforced and not adversely affected by illegal and unconstitutional actions by the Municipality of Caguas.

Earlier this week, Caguas Mayor William Miranda Torres said while he would not discuss the legal claims against the temporary tax, he stressed he will defend it in court because it is legal and “will provide us with the necessary tools to protect the environment for investment and progress in Caguas and will put us in a better position to maintain infrastructure and essential services to citizens, especially those most in need.”

Miranda said the new tax will make up for the $8.5 million less it will receive from the central government as part of austerity measures in place in the Fiscal Plan, and its inability to access some $26 million locked up at the Government Development Bank.

“Everyone who knows about management knows that a $34.5 million reduction in one stroke represents a dislocation that dramatically affects municipal operations,” he said.

Through the new tax, Caguas expects to shore up between $11 million and $13 million annually from about 200 businesses that surpass the $3 million revenue threshold, which it will couple with municipal expense reductions and its own cutbacks to mitigate the shortfall, municipal officials said.

“Today we operate with a budget that is $24.5 million lower than last year. But the fiscal reality of the island does not accept evasiveness, it requires a union of purposes. There are no untouchables when the responsibility is collective,” the mayor said.

Author Details
Author Details
Business reporter with 30 years of experience writing for weekly and daily newspapers, as well as trade publications in Puerto Rico. My list of former employers includes Caribbean Business, The San Juan Star, and the Puerto Rico Daily Sun, among others. My areas of expertise include telecommunications, technology, retail, agriculture, tourism, banking and most other segments of Puerto Rico’s economy.

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