New ruling that limits municipal powers regarding the road tax

An Important Limit on Municipalities: The Need to Demonstrate Effective Service Delivery and the Proportionality of the Tax

By Marìa Soledad González

1.Summary

Administrative Court No. 1 of Trenque Lauquen rendered judgment in the case “Cornejo, Pedro José and others v. Municipality of Daireaux,” in which four taxpayers owning rural properties challenged the municipal road network conservation, repair, and improvement tax for the 2022, 2023, and 2024 fiscal periods.

The court declared the tax unlawful with respect to parcels lacking reasonable road access, upheld its validity for those with at least one passable road, and found an unreasonable disproportion between revenue collected and the cost of service of approximately 22.95% (2022) and 27.88% (2023).

The ruling constitutes a significant precedent in municipal retributive tax matters, establishing concrete parameters for evaluating the reasonableness of tax quantification.

2. Background and Context

Pedro José Cornejo, El Matico SA, Susana de la Serna, and SACFIL SA — all owners of rural properties in the district of Daireaux, Province of Buenos Aires — filed suit against the Municipality of Daireaux before the administrative court.

They challenged the legitimacy and constitutionality of the municipal road network conservation, repair, and improvement tax, regulated under Arts. 157 to 162 of Fiscal Ordinance No. 618/97 and the Tax Ordinances for fiscal years 2022, 2023, and 2024.¹

In general terms, the “road tax” has as its taxable event the municipality’s provision of maintenance, repair, and improvement services for rural roads. Its tax base is determined by the number of hectares of the covered properties, and taxpayers are generally the title holders, usufructuaries, or possessors of such properties. The amount payable is calculated using a fixed value per hectare, which may vary depending on the zone and total area farmed.

The central grounds for the challenge were twofold: (i) the municipality’s failure to effectively provide road maintenance services on the roads adjacent to their parcels, and (ii) the distortion of the tax concept, as the plaintiffs alleged a manifest disproportion between the tax amount and the actual cost of the service, with surplus funds being diverted to general revenue.

The plaintiffs had previously exhausted administrative remedies, all of which were rejected by the municipality. A precautionary injunction to suspend payment had been denied at first instance and upheld on appeal by the Administrative Court of Appeals of San Martín. During the proceedings, Cornejo and El Matico SA paid the debt for the 2022 and 2023 periods, though with reservation of rights.

3. Analysis of the Judgment

3.1. Municipal Taxing Powers

The court began by framing the matter within the constitutional framework of municipal autonomy (Arts. 5 and 123 of the National Constitution; Arts. 190 to 197 of the Buenos Aires Provincial Constitution). Citing the Supreme Court of Justice of Argentina (CSJN) precedents in “Rivademar” (Fallos 312:326) and “Esso Petrolera” (Fallos 344:2123), among others, the court reaffirmed that Buenos Aires municipalities are empowered to create and collect taxes for the services they provide, but that such power must respect the constitutional principles of taxation and alignment with provincial and federal tax regimes.

3.2. Legal Nature of the Tax: Effective Service Delivery as an Essential Requirement

The ruling provided an extensive doctrinal analysis distinguishing between a retributive tax (tasa) and a general tax (impuesto).

Following the consolidated jurisprudence of the CSJN (Fallos 312:1575, “Compañía Química”; 332:1503, “Laboratorios Raffo”; “Gasnor”, among others), the judge reiterated that a retributive tax differs from a general tax in requiring, as a factual prerequisite, the provision of a specific, effective, and individually directed public service to the taxpayer.

The court noted that the distinction between the two types of levy is not merely academic, but serves an essential role in coordinating taxing powers among different levels of government. Indeed, the Federal Revenue Sharing Act (No. 23,548) excludes from the prohibition on tax analogues only retributive taxes on services actually rendered.

Regarding the concept of “potential provision” of services, the court defined its scope in accordance with current jurisprudence of the Supreme Court of the Province of Buenos Aires (SCJBA): potentiality is linked exclusively to the taxpayer’s refusal or resistance to receive the service, and must not be confused with the illegitimacy of a municipality that merely organizes a service and demands payment without actually providing it (SCJBA case 73.508 “Capaccioni”, 14.2.21; B. 63.745 “Automóvil Club Argentino”, 29.12.20; A.76.741 “Y.P.F. S.A. v. Municipality of General Pueyrredón”, 3.12.21).

3.3. Assessment of Effective Service Delivery

The judge first noted that the legal distortion of the concept of a “retributive tax” can arise mainly in two scenarios: (i) by defect, i.e., in the absence of organized or delivered service; or (ii) by excess, when the tax is intended to fund general services, meaning the link between the levy and governmental activity does not materialize in an effective and individualized provision of a service relating to an equally individualized subject matter.

The court then recalled a key principle: the burden of proving effective service delivery lies with the service provider, as it is in the best position to demonstrate it (CSJN Fallos 275:407; 319:2211; 335:1987, among others).

Applying this to the case at hand, the court concluded that it had been established (through expert testimony and statements from municipal officials) that the municipality had an organized structure in place to provide road network maintenance services. However, it clarified that this does not in itself legitimize collection of the tax; effective service delivery to each taxpayer must also be demonstrated, under standards of reasonableness. Given the nature of the tax, the court held that the service effectively provided should ensure circulation along rural roads, guaranteeing at least one passable road providing access to the property that gives rise to the tax obligation, enabling the taxpayer to access the property and remove agricultural produce under reasonable conditions.

The court reviewed the expert report of a civil engineer who surveyed approximately 380 km of rural roads in the areas where the properties are located. The report found that only 41% of the road network was in acceptable condition for travel; the remaining 59% was inadequate. Only 4% was rated “very good,” whereas, given the available resources, it should have been 70%.

Despite these findings, the judge clarified that the expert report alone does not constitutionally invalidate the tax. For collection to be valid, it must be shown that the service meets at least minimum efficiency standards — not that it is provided to the highest possible standard.

For this purpose, each parcel’s situation was individually assessed to determine whether there existed a reasonable and passable access route:

• Parcels with reasonable access (claim dismissed): Parcels with reasonable access to the “grain route” or Provincial Road 65 were considered to have received partial service sufficient to constitutionally justify collection of the tax.
• Parcels without reasonable access (claim upheld): For parcels without reasonable access — where access roads were in fair or poor condition (barely passable or impassable) — the tax was declared unlawful for the 2022, 2023, and 2024 periods, entitling the taxpayers to a refund of amounts paid.

A notable aspect is that the expert concluded that his findings could be extrapolated to prior periods, reasoning that it would be illogical to assume the municipality had allowed service quality to deteriorate after the dispute began.

3.4. Reasonable Equivalence Between Revenue Collected and Cost of Service

The second pillar of the ruling addressed the quantification of the tax and its relationship to the overall cost of the service. Drawing on the concurring opinion of Justice Lorenzetti in “Esso” (Fallos 344:2123), the court reaffirmed that a tax may not exceed the cost of the service beyond a reasonable and limited margin, as it is not permissible to use revenue from a divisible service to fund other municipal services or functions.

The quantitative analysis was as follows:

Service-related accrued revenue:

FY 2022: $344,589,440 (tax: $286,504,499 + Law 13,010 revenue sharing: $58,084,941).

FY 2023: $564,091,125 (tax: $474,348,685 + Law 13,010 revenue sharing: $89,742,441).

Direct costs (per accounting expert report):

FY 2022: $184,287,108. FY 2023: $275,268,491.

Indirect costs (judicial estimation):

Given the impossibility of precisely calculating indirect costs in accounting terms, the judge estimated them at 33% of total accrued tax obligations, by analogy with the confiscatory threshold used by the CSJN (Fallos 206:247, among others). This yielded $94,546,485 for 2022 and $156,535,066 for 2023.

Results:

For 2022: disproportion of $65,755,847, equivalent to 22.95% of accrued tax obligations.

For 2023: disproportion of $132,287,568, equivalent to 27.88% of accrued tax obligations.

The court declared the tax unlawful to the extent of this excess, finding it violated the principle of reasonableness (Arts. 17 and 28 of the National Constitution). It should be noted that for the 2024 period, the same analysis could not be performed as the corresponding accounting expert report had not been produced.

4. The Court’s Holdings

First, the judge declared the fiscal claim and/or tax payment unlawful and unconstitutional with respect to parcels where it had been established that road maintenance and conservation services had not been provided.

Second, the court declared that for the 2022 and 2023 fiscal years, there existed an unreasonable disproportion between total revenues and expenditures relating to the road network maintenance tax, rendering 22.95% and 27.88% of the respective accrued tax obligations unlawful (Arts. 17 of the National Constitution and 31 of the Provincial Constitution).

Finally, the court declared void the individual administrative acts issued, insofar as they were inconsistent with the reasoning set forth in the judgment regarding the partial unlawfulness of the tax.

5. Significance of the Ruling

The ruling confirms that effective service delivery is an indispensable condition for the validity of a retributive tax, and that it is the municipality that must demonstrate such delivery, particularly when the taxpayer denies having received it. The mere existence of an organized administrative structure is insufficient.

Moreover, taxpayers who can demonstrate that access roads to their properties are in fair or poor condition have grounds to challenge the tax, at least with respect to those parcels.

Certain aspects of the ruling, however, merit closer examination. First, the existence of at least one reasonable access road as a condition for the tax’s validity does not in itself mean that the municipality has actually provided the service. Second, the judicial method of estimating indirect costs at 33% of accrued tax obligations — by analogy with the confiscatory threshold — is a methodologically questionable tool. This standard was designed for a different purpose (determining when a tax absorbs a substantial portion of a taxpayer’s income or capital) and is applied here to cost quantification without specific economic or accounting justification.

From a quantitative standpoint, the declaration that the excess is unlawful (22.95% in 2022 and 27.88% in 2023) enables all taxpayers in the municipality — not only the plaintiffs — to assess whether the tax they pay bears a reasonable relationship to the cost of the service actually rendered.

A key holding of the ruling is its categorical conclusion that revenue from a retributive tax is not freely available to the municipality: it must be reasonably allocated to the direct and indirect costs attributable to service delivery.

Finally, the case underscores the importance of expert evidence — both engineering and accounting — in proceedings of this kind. The engineering expert’s report enabled a parcel-by-parcel assessment of road conditions, while the accounting report was decisive in quantifying the disproportion between revenues and expenditures.

6. Conclusion

The judgment in “Cornejo v. Municipality of Daireaux” constitutes a significant precedent in municipal retributive tax law in the Province of Buenos Aires. Its principal contribution lies in having articulated concrete and operational criteria for evaluating both the effectiveness of service delivery and the reasonableness of tax quantification, in a context — rural road taxes — where litigation is on the rise.

For agricultural producers, the ruling reaffirms that a retributive tax is only valid where the service is effectively provided and its cost is proportionate.

 

¹ Additionally, they challenged the tax on brand and mark control (“guide tax”) and the requirement of Art. 19 of OI 2024, which required no outstanding municipal debt to access livestock transport guides. However, on this point, the judge found that they lacked standing as they had not demonstrated being taxable subjects of this particular levy.