Bonds issued by the government of Puerto Rico and its subdivisions are exempt from federal, state, and local taxes (so called "triple tax exemption"). However, unlike other triple tax exempt bonds, Puerto Rican bonds uphold such exemption regardless of where the bond holder resides. This has made Puerto Rican bonds extremely attractive to municipal investors as they may inure from holding a bond issued by a state or municipality different from the one where they reside. This advantage strives from the restriction typically imposed by municipal bonds enjoying triple tax exemption where such exemptions solely apply for bond holders that reside in the state or municipal subdivision that issues them. This factor, along with many others, led Puerto Rico to issue bonds up to today's outstanding debt of US$71 billion—an amount approximately equal to about 68% of Puerto Rico's

gross domestic product Gross domestic product (GDP) is a money, monetary Measurement in economics, measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjec ...

(GDP). These actions, along with a series of negative cash flows and a depression, ultimately led to Puerto Rico's government-debt crisis.

Bonds

* The Puerto Rico Sales Tax Revenue Bonds (commonly known as COFINA bonds) are

government bonds A government bond or sovereign bond is a form of bond issued by a government to support public spending. It generally includes a commitment to pay periodic interest, called coupon payments'','' and to repay the face value on the maturity date ...

issued by the Urgent Interest Fund Corporation (COFINA) to pay the extraconstitutional

public debt of Puerto Rico The public debt of Puerto Rico is the money borrowed by the government of Puerto Rico through the issue of securities by the Government Development Bank and other government agencies. History In May 2007, local economists expressed serious conc ...

. The bonds are primarily used to provide funds to the

government of Puerto Rico The government of Puerto Rico is a republican form of government with separation of powers, subject to the jurisdiction and sovereignty of the United States.Government Development Bank A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a ...

and the Public Financing Corporation. They are issued under resolutions adopted by COFINA's board of directors will be payable from and secured by a security interest created by the Resolution in a specified portion of the

Puerto Rico Sales and Use Tax Taxation in Puerto Rico consists of taxes paid to the United States federal government and taxes paid to the Government of the Commonwealth of Puerto Rico. Payment of taxes to the federal government, both personal and corporate, is done through ...

("Pledged Sales Tax"). Legislation enacted in 2006 approved for the first time in Puerto Rico a sales and use tax of 5.5% for the benefit of the central government, and a separate 1.5% for the benefit of

municipalities of Puerto Rico The municipalities of Puerto Rico (Spanish: ''municipios de Puerto Rico'') are the second-level administrative divisions in the Commonwealth of Puerto Rico. There are 78 such administrative divisions covering all 78 incorporated towns and cities ...

Law No. 91 of 2006
also created a dedicated sales tax fund, to be held and owned by COFINA separate and apart from the government's general fund, and provided, among other things, that each fiscal year the first receipts of the government's Sales and Use Tax, in the amount specified in the law, be deposited in this special dedicated fund and applied to the payment of the Sales Tax Revenue Bonds. * Tax Revenue Anticipation Notes (TRANS)

Notes

References

{{Government finances in Puerto Rico Public debt of Puerto Rico Government bonds issued by Puerto Rico