Island residents emerged in droves on Sunday to narrowly reject a plebiscite on whether the territory should become the United State's 51st state.
The outcome was a defeat for Gov. Pedro Rossello's year-long campaign to achieve statehood for Puerto Rico.
Results of the plebiscite showed that 48% of voters chose to remain a territory, 46% chose statehood, and 4% voted for complete independence. Puerto Rico has been a possession of the United States since 1952.
According to plebiscite officials, 2% of voters left their ballots blank in protest of the entire election process. Puerto Rican officials said that 73% of the island's registered voters participated on Sunday.
The bond industry paid close attention to the plebiscite's results, as Puerto Rico's general obligation bonds carry a triple-tax free advantage.
If the statehood resolution had been passed, the matter would have gone before Congress for approval.
Opponents of the statehood resolution said that certain federal income tax breaks that corporations enjoy in Puerto Rico would disappear if statehood was approved.
According to Section 936 of the Internal Revenue Service's rules, profits earned by corporations in Puerto Rico are exempted from federal income taxes. Many of the largest companies -- especially pharmaceutical concerns -- do some of their most lucrative manufacturing on the island.
If Puerto Rico became a state, it would lose the exemption and companies might move their business to other countries, anti-statehood activists said.
Puerto Rico is rated Baa1 by Moody's Investors Service and A by Standard & Poor's Corp.
