In a recent decision, the Superior Court of Justice (STJ) established the understanding that a municipality can start charging property tax on property that has become part within city limits, even if Incra has not held a prior hearing.

In the trial of REsp 2.105.387/SP, which took place on May 14, the owner of a property located in São José do Rio Preto, state of São Paulo, filed a lawsuit for the annulment of the collection of IPTU. The argument was that the property would still have rural destination and Incra had not been notified about the change in land use. In addition, the taxpayer claimed that the municipality did not have an specific law that identified the property as part of its urban area.

The dispute refers to the question of the necessary requirements for a property to cease to be taxed by the Rural Territorial Property Tax (ITR) and to be taxed by the IPTU.

The IPTU is the tax levied on urban properties, while the ITR is levied on rural properties, as provided for in articles 29 and 32 of the National Tax Code. However, according to the court precedents (Topic 174 of the STJ), the definition of which tax will be applied to each property depends on the analysis of the spatial criteria – which takes into account the location of the property – and the criteria of destination – which considers rural properties intended for agricultural, livestock or agribusiness extractive exploitation, regardless of their location.

For a property to cease to be rural and start to be considered urban, some requirements must be observed. According to the Statute of the City (Law 10.257/01), municipalities that intend to expand the urban perimeter must define, by law, the parameters and guidelines for urban renewal of the areas in question, especially in relation to infrastructure, road system and public equipment.

In cases where the property is in a rural area, but is used for urban activity, the owner, as a general rule, must contact the municipality through an administrative procedure, to file for conversion based on the mischaracterization of the ownership in the capacity of owner as rural.

Once the procedure is completed, the property will be registered in the municipal registry and will be taxed by the IPTU. In this case, after the conclusion of the procedure in the municipality, the owner must request the decharacterization of the property at Incra.

When the property is included within city limits by law, the municipality may, from then on, start taxing by the IPTU.

To make the decharacterization, however, it is necessary that the municipality itself send a request to the regional superintendence of Incra and request the change of the registration of the property. This request can cover more than one property, as long as the properties and their respective owners are properly described.

In both cases, the understanding is that it is not up to Incra to authorize the conversion of the land to urban, as provided for in article 53 of Law 6.766/79, but only to cancel the registration. The administrative procedure at Incra, therefore, aims only at the cancellation of the rural registration and, with that, no longer to apply the collection of the ITR.

Incra has already expressed itself in this regard through Normative Instruction 82/15, by defining that its performance in urban subdivision processes is restricted to relevant cadastral updates. There is, therefore, no need to hear in the agency.

In the trial of REsp 2.105.387/SP, STJ also considered that the communication to Incra is only a procedural rule. The aiming is to enable the Federal Government to verify the use and location of the property, to assess whether issues related to land planning are being addressed. In other words, this communication is not related to the taxation of the property and the exercise of the municipal competence to tax.

At the moment when it ceases to be part of the rural zone and becomes part within urban limits defined by the municipal law, the property can already be considered urban. In this sense, it is up to incidence the taxable event of the IPTU and the taxation by the ITR is excluded.

The STJ's understanding favors the municipalities, since it authorizes the immediate collection of the IPTU. Considering that the IPTU is much higher than the ITR, owners of rural properties, especially in large areas, must be aware of legal updates that may affect their properties within urban limits and change the way taxation is done.