Studies show that some 1.4 million people in the Commonwealth of Puerto Rico (more than a third of population) do their shopping online, with annual online purchases in the U.S. territory now at $458 million. The size of the average online transaction in Puerto Rico has almost tripled in the past six years.
It’s a fair bet, then, that sooner or later you’re going to be selling online into Puerto Rico, which has a sales tax. Every U.S. state with a sales tax has economic nexus thresholds – does Puerto Rico?
Nexus for two years
Effective 2021, Puerto Rico instituted an economic nexus for businesses making more than $100,000 in total gross sales or at least 200 transactions a year there. Such companies must register with the Puerto Rico Department of Treasury and collect and remit Puerto Rico sales tax.
Puerto Rico sales and use tax is in Spanish “Impuesto a las Ventas y Uso,” aka IVU. The tax rate is 11.5%; the municipality where the sale took place receives 1% of that and the government of Puerto Rico receives the remaining 10.5%. An ailing economy drove the government to increase the base sales tax rate more than 4% in 2015.
Every merchant engaged in any business in Puerto Rico must register with the Puerto Rico Treasury Department by creating an account at the Unified System of Internal Revenues (SURI) website. This registration must be made 30 days before you start to sell with economic nexus in Puerto Rico; a fine for non-timely registration could be $10,000.
You remit the IVU charged to the Department of the Treasury by filing a monthly return through SURI no later than the 20th day of the following the month in which the taxes are collected or in which the transaction subject to the tax takes place. (Imported goods are also subject to the IVU at port.)
What’s taxable and what’s exempt?
Taxable items consist of tangible personal property, taxable services, admissions, digital products and “bundled transactions.” Excluded from this definition include professional associations and certain membership fees; stamps issued by professional associations, the Commonwealth of Puerto Rico or the federal government; air and maritime tickets; real property; and bingos, raffles and lottery.
Exempt transactions include prescription medicines; insulin; taxable items acquired for certain manufacturing operations (e.g., raw materials); and food and ingredients for food (except for prepared food, diet supplements, sweets and carbonated drinks).
Designated professional services and B2B services are taxed at a 4% rate. Some of these services are architects and landscape architects; CPAs and tax return specialists; agents, vendors and real estate companies; draftsmen; appraisers of real estate; and engineers and surveyors.
There is a credit for purchases of products manufactured in Puerto Rico for purposes of sales and use tax, generally 10% of the excess of the purchases of eligible products over the average of the purchases of eligible products for three out of ten prior taxable years.
Though Puerto Rico has many sales tax similarities to U.S. states, there seem to just enough differences to warrant attention before you sell there.
Sales tax is more complicated than ever, and everyone who says they’re simplifying sales tax is still leaving the hardest parts – and the liability – up to you. Contact TaxConnex to learn what it means when sales tax is all on us.