For additional information, do not hesitate to contact our offices. Our address is:
Fiddler González & Rodríguez, P.S.C., P.O. Box 363507, San Juan, PR 00936-3507.
We welcome your questions and comments.
Myrna Y. Medina-Massanet
*Special Tax Counsel
On July 1, 2014, the Governor of Puerto Rico signed into law House Bill No. 2041, now Act No. 80-2014 (“Act No. 80-2014”), which deals with excise taxes and sales and use taxes, particularly the use tax component. Act No. 80-2014 constitutes a major overhaul of the sales and use tax system. It has an important impact on resellers, mainly on those who import tangible personal property into Puerto Rico. The following is a summary of certain provisions of the statute.
I. Excise Taxes
Act No. 80-2014 amended the provision related to the imposition of excise taxes upon vehicles to establish a different classification for “manual hitch or light duty trailers,” which are subject to an excise tax equal to six point six percent (6.6%) of the taxable price in Puerto Rico, but not less than $750.00.
II. Sales and Use Taxes (“SUT”)
First, it is important to highlight that Act No. 80-2014 moved the effectiveness of the collection of the use tax on imported goods for resale from July 1, 2014 to August 1, 2014. In general, pursuant to Act No. 80-2014, any tangible personal property introduced into Puerto Rico or that arrives to Puerto Rico on or after August 1, 2014 is subject to use tax, regardless of whether such property is for resale or placed in a foreign tax zone.
Act No. 80-2014 excludes trailers of manual hitch and light duty trailers from the definition of tangible personal property. Thus, such trailers are only subject to excise taxes.
Act No. 80-2014 provides that the Secretary may treat merchants who do not meet the 80% test as resellers if under all the facts and circumstances it could be determined that such merchants are engaged in reselling taxable items.
c. Eligible resellers
Act No. 80-2014 keeps the definition of eligible resellers, but it introduces two exceptions under which merchants are considered eligible resellers, regardless whether they retire at least 80% of their inventory for resale to exempt persons or for exportation. These two exceptions are:
1. A wholesaler or retailer in the business of selling textbooks may be issued an eligible reseller certificate covering purchases or imports of textbooks; and
2. Retailers authorized to sell under the Supplemental Nutrition Assistance Program (known for its Spanish acronym as “PAN”) and the Special Supplemental Nutrition Program for Women, Infants, and Children (known as “WIC”) may be issued an eligible reseller certificate covering purchases or imports of food and food ingredients, excluding alcoholic beverages and tobacco.
The wholesaler waivers (eligible and registered wholesalers) and the eligible manufacturer waiver are valid for sales made before August 1, 2014.
e. Sourcing rules
For purposes of determining the municipality where the sale of telecommunication services and cable or satellite television occur, it will be used the customer’s billing address.
f. Presumption of correctness
Act No. 80-2014 sets forth that the merchant seller should exercise a sufficient degree of care to prevent that the merchant purchaser acquires taxable items using the exemption certificate, eligible reseller certificate or an Exempt Purchases Certificate which, in line with information related to the industry or activity of the purchaser, as it appears on said Certificate, it would be unreasonable to be acquired without the payment of the SUT.
g. Exemption Certificate
Act No. 80-2014 added that a manufacturing plant requesting an exemption certificate should provide to the Puerto Rico Treasury Department evidence that the manufacturer identification number is still valid.
1. Exemption for Taxable Items in Transit
Act No. 80-2014 clarifies that the exemption for taxable items temporarily introduced into Puerto Rico when applied to construction it refers to specialized construction equipment not available in Puerto Rico.
2. Exemption applicable to Alcoholic Beverages
Act No. 80-2014 exempts alcoholic beverages introduced into Puerto Rico which are placed in a bonded warehouse from the imposition of the use tax provided certain time limits requirements are met. Said exemption does not apply to alcoholic beverages deposited in a foreign trade zone.
3. Exemption for Giveaways
Act No. 80-2014 establishes that a Certificate of Importation of Promotional Material Exempt from Use Tax issued by the Puerto Rico Tourism Company must be obtained in order to avail of the use tax exemption applicable to promotional material (“giveaways”). Said certificate must be provided to release the promotional material without the imposition of the use tax.
4. Bona Fide Farmers
Act No. 80-2014 exempts bona fide famers, who are duly certified by the Puerto Rico Agriculture Department, from the payment of SUT on the purchase of certain articles acquired to be used exclusively in their farming businesses. To that effect, the bona fide farmers must provide a certificate of exempt purchases to the merchant seller in every transaction.
5. Exempt Business under Tourism Development Acts
Act No. 80-2014 incorporates to the Code, in general, the exemption from SUT provided in the Puerto Rico Tourism Development Act of 2010, as amended (“2010 PRTDA”). In addition, it sets forth that such exemption applies to any similar statute, whether predecessor or successor. In general, any concessionaire under the 2010 PRTDA or any similar statute is 100% exempt from the imposition of the SUT in the acquisition of articles used in the tourism activity which do not constitute inventory. In order to claim this exemption, the concessionaire must provide to a certificate of exempt purchases to the merchant seller in each transaction.
i. New Use Tax Declaration for the Release of Personal Property or Use Tax Declaration of Imports (Form SC 2970)
Pursuant to Act No. 80-2014, any person who imports tangible personal property into Puerto Rico has to file a detailed declaration with respect to such tangible personal property introduced into Puerto Rico. Said declaration is a requirement for obtaining the release of the tangible personal property imported. The declaration does not apply for purposes of the municipal SUT.
j. New Use Tax Return on Imports (Form SC 2915D)
In addition to the use tax declaration, any person who imports tangible personal property into Puerto Rico must file a monthly return for use tax on imports no later than the 10th day of the month following the month in which the transaction subject to the use tax occurred. The return for use tax on imports is not a requirement to obtain the release of the tangible personal property imported. This return does not apply for purposes of the municipal SUT.
k. SUT Return (Form SC 2915A)
Act No. 80-2014 sets forth a new due date for filing the monthly SUT return and remitting the sales tax (and any use tax on items not reported in the use tax return on imports). Under Act No. 80-2014, the merchant must file the monthly SUT return no later than the 20th day of the month following the month during which the taxable event occurred. This return will be used by a merchant with reseller certificate to claim any credits he/she/it is entitled to.
l. Payment of Use Tax
According to Act No. 80-2014, as a general rule, the use tax applicable to taxable items imported into Puerto Rico on or after August 1, 2014, must be paid before taking possession of the taxable items, except in certain cases. The following are exceptions to the general due date:
1. the 10th day of the month following the introduction of the tangible personal property into Puerto Rico: (a) when such tangible personal property is imported by a bonded merchant and the bond covers the corresponding use tax amount; (b) when there is a correction of the amount included in the use tax declaration; (c) when said tangible personal property is introduced using the postal services or an air carrier; and (d) when the personal tangible property is introduced by electronic means; and
2. the 20th day of the month following the taxable event: (a) when the merchant retires inventory for personal use, to be used in the business, to distribute as samples or promotional articles, or to distribute as a gift; and (b) when inventory previously introduced was lost because it deteriorated, wore out or because of a fire, hurricane, earthquake, or other fortuitous cause.
m. Use Tax Bond
The Use Tax Bond allows a merchant to obtain the release of the tangible personal property introduced into Puerto Rico without paying the use tax with the declaration. As stated above, in the case of a bonded merchant, the use tax will be due no later than the 10th day of the month following the introduction of the tangible personal property. The merchant must post a bond to guarantee the use tax plus 25% of said amount to cover any surcharges, interest or administrative fines that may be imposed. The use tax bond amount available will be adjusted for each release of the imported tangible personal property.
n. Credit for SUT paid by a Merchant Reseller
1. Any registered merchant holding a reseller certificate may claim a credit of the SUT paid on purchases or imports of taxable items for resale.
2. Act No. 80-2014 states that a merchant reseller must claim the credit in the monthly SUT return.
3. The credit may not exceed 75% of the SUT liability shown on the monthly SUT return. Pursuant to Act No. 80-2014, the Secretary –by regulation, circular letter or any other determination- may increase or decrease the 75% threshold for specific industries.
4. According to Act No. 80-2014, the Secretary must establish a reseller credit control account for each registered merchant with a reseller certificate. The purpose of this account is to reflect the amount of the credit available.
5. The reseller credit control account will be adjusted by the Secretary, the seller of the merchant reseller and the merchant seller. Act No. 80-2014 incorporates penalties related to the reseller credit control account which may be imposed.
If you have any questions in regards to the above, please do not hesitate to contact our offices so that we may explain the amendments to the provisions of the Code in more detail. Our address is: Fiddler González & Rodríguez, PSC, P.O. Box 363507, San Juan, PR 00936-3507. Fax (787) 754-7532. Our website is www.fgrlaw.com
***IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any United States federal tax advice in this communication (including any attachments) is not intended or written by Fiddler González & Rodríguez, P.S.C. to be used, and cannot be used, for the purpose of (i) avoiding any penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. **
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**©2014 Fiddler, González & Rodríguez, P.S.C. This Watch has been prepared by Fiddler, González & Rodríguez, P.S.C. for informational purposes only and does not constitute legal advice. This information does not create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. Fiddler, González & Rodríguez, P.S.C. and its members assume no responsibility to inform you of additional changes in law or any other legal issues related to the matters advised in this e-mail.