A property tax (IPTU) rate based on the area of the property has no basis in the Constitution, the Full Bench of the STF held when establishing Theme 1,455.
The Full Bench of the Supremo Tribunal Federal (STF, Brazil’s Federal Supreme Court) established the following thesis in Theme 1,455 of general repercussion: an IPTU (municipal urban property tax) rate based on the area of the property is unconstitutional. In practice, the municipality may not charge a higher percentage merely because the property is larger.
How the case reached the Supreme Court
The dispute arose in Chapecó, in the State of Santa Catarina. A municipal supplementary law increased the tax for properties with greater floor area. The state court recognised the unconstitutionality of the rule, relying on an STF precedent summary (súmula) on progressive taxation. It also ordered the assessment to be corrected to a rate of 0.5% and the overpaid amounts to be refunded.
The municipality appealed. It argued that the Constitution allows different rates according to use. In its view, a larger built area would indicate more intensive use of urban land.
Why floor area is not a valid criterion
The STF rejected the argument. According to the reporting Justice’s reasoning, the area of the property is not to be confused with value, location or use. Moreover, municipalities may not create grounds for increasing the tax beyond those provided for in the Constitution. Article 156, paragraph 1, items I and II, of the Federal Constitution, as worded by Constitutional Amendment 29/2000, deals with progressive taxation according to the value of the property and with differentiation according to location and use.
Selectivity based on use and purpose has limits. It covers categories already settled in case law, such as built properties, residential and non-residential properties. The spatial dimension of the property, on the other hand, does not fit within these classifications.
What owners and business operators should check
Anyone paying IPTU should check the law of their own municipality. If it sets the rate according to floor area, the assessment may be subject to review. Companies holding several properties, such as warehouses, stores and plots of land, deserve particular attention, because the difference in rates is multiplied.
Our understanding is that the thesis weakens any charge based solely on the size of the property. Even so, the available text provides no information on the modulation of effects, deadlines for refunds or offsetting. Nor does it state what will happen to the laws of other municipalities applying a similar criterion.
Before applying for a review of assessments or a refund of amounts paid, the concrete step is to read the judgment and the reporting Justice’s opinion and to check the date of publication.
Read other legal news items commented on by the firm and the articles by Moraes de Freitas Advogados.