President Laura Chinchilla and the legislature have quietly removed an expiration deadline on the luxury home tax.
The original law, No. 8683, contained a clause, Article 19, that specified that the tax would only last for 10 years. Many accepted the luxury home tax because of the expiration date.
Without any public comment and in an obscure way, the legislature passed Aug. 25 a revision of the tax law. That was No. 8981. The new measure reaffirmed that the tax should be paid in the first 30 days of the calendar year and that persons who purchase property are responsible for the entire tax when it is due. That means that buyers should require those closing the deal to prorate the luxury home tax if the property is subject to the law.
In a single sentence in Article F of the Aug. 25 law, the legislature repealed Article 19 of the luxury tax measure, which was passed Nov. 19, 2008. The tax is supposed to help build decent homes for those living in slums, but the government has not done that yet with the money that came in at the first of 2009, 2010, and 2011. However, the tax collecting agency, the Dirección General de Tributación, has made a lot of publicity chasing down professional soccer players who did not pay the tax.
Now the tax appears to join the nation’s other levies that will be collected annually forever.
There was no public announcement of the new law, but a copy showed up in the La Gaceta official newspaper. Even with a close reading of the text, most would not realize the effect. There was no mention of this repeal on public statements by the legislature either.
The 2008 law can be found HERE.
A copy of the law extending the tax can be foundHERE!
The luxury tax is based on a sliding scale from .25 percent to .55 percent, depending on the value of the dwelling and the grounds immediately around it.
According to the original law, properties equal to or less than 100 million colons (now about $196,250) are exempt from the tax, but the president has the power to change that number. Owners of properties valued at more than 100 million colons up to 250 million (about $490,600) pay the lowest tax, .25 percent of the estimated value.
The tax was sold to the public as a 10-year assessment to eliminate slums, and many expats thought that this was a reasonable levy, particularly since it would go away in 10 years. The measure seems to have had an effect on the real estate market, although the extent is hard to tell because there are other factors influencing sales.
The biggest problem with the luxury home tax was that the value was based on a complicated evaluation of the replacement cost of a property rather than the market value. Many homeowners had to hire experts to establish a value under the government’s complex system.
The expiration date was deleted during a period when all legislation has to be initiated by the chief executive. Casa Presidencial is desperate for funds, and nearly half of the future budget is financing by borrowing. The possibility exists that the money from the luxury home tax could be diverted into the general budget with another inconspicuous legal change.