Puerto Rico Sales and Use Tax Collection

Posted on March 04, 2019

Since the Supreme Court decision on the South Dakota vs. Wayfair case, we’ve noticed many states reviewing the way economic nexus can be established with out of state retailers. This decision has encouraged many states to start legislation to take advantage of the benefits of this new ruling. Others, like the US territory of Puerto Rico, have seen the ruling as an ally on their quest to collect sales and use tax though online retailers.

Puerto Rico started their online tax collecting endeavor with the establishment of Law #1-2011 on January 31, 2011 named Internal Revenue Code for a New Puerto Rico. This law replaced Law # 120-94 of October 31, 1994. One of the goals of this law was the establishment of the basis on which Puerto Rico will handle the collection of taxes and the due dates for the payment of these taxes to the government. This includes taxes to be collected and paid from retailers who sell tangible goods in Puerto Rico through the internet, regardless if they have physical presence on the island or not.

With this law, the payment of use tax was implemented requiring citizens to pay for use tax on their internet purchases even if the retailer did not impose a sales tax. To clarify the language on sales and use tax, the Puerto Rico legislature approved two more laws in subsequent years: Law #42-2013 on June 30, 2013 and the most recent Law # 25-2017 of April 29, 2017. Law #42-2013 was created with the main purpose of adding amendments to help with the collection of sales and use tax (also known as IVU by its Spanish acronym).

The biggest change on this legislation came with the approval of Law #25-201. With this amendment the government of Puerto Rico introduced reporting requirements for online retailers. One of these requirements obligates all online retailers that do not collect sales taxes with customers in Puerto Rico, to inform all their customers that they must pay use tax on their purchases. This notice must be included on the bill, receipt, and any other physical or electronic means. They must also file a monthly report with all the sales transactions for each month. On this sales report, retailers must include names, addresses, dates, category of the purchase, and whether it is sale tax exempt or not.

The retailers that fail to comply with this law are subject to fines. Many retailers, including Amazon, have agreed to collect and remit sales taxes as well as comply to reporting to avoid paying fines. The Puerto Rico DOR (Departamento de Hacienda) is expecting to increase their yearly online sales tax collection from $15 million to $40 million.

All these laws were enacted before the Wayfair case decision, but the Supreme Court’s decision gives them a more robust backup to be upheld in court. In a recent interview, Francisco Parés Alicea, the Deputy Secretary of Internal Revenue at the Puerto Rico Treasury Department, stated that after December 2018 his agency will start to assemble invoices to send to those customers who had the legal obligation to pay use tax on online purchases where sales tax was not charged. 

Tips for the Taxpayer

Be well informed of the sales and use tax laws specific to transactions occurring in Puerto Rico. If sales tax is not being charged on the invoice, question the reason. If no exemptions exist for the transaction, self-accrue and remit use tax. Compliance with sales and use tax laws is best obtained at the time of transaction rather than at a later date under audit.

For More Information

If you are interested in learning more about this topic or other tax topics, please visit our Tax Publications under News and Publications at www.allynintl.com.

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Contact us and we can provide a customized cost-effective solution to meet your company’s needs. For further information on Allyn Tax services, please contact: tax@allynintl.com.

Contributor: Luis Rivera 

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