Summary: A mix of considerations, getting a sales tax permit in Puerto Rico is not as straightforward as it sounds. Read on for more information about the business decisions involved and whether it makes sense for your company to get a sales tax permit in Puerto Rico.
If you read our blog, States Where Notice and Reporting Requirements Still Matter, you know that the sales threshold for Puerto Rico’s Notice and Reporting requirement is $0 (so a single sale can create a reporting obligation). Alternatively, you can voluntarily register for a sales tax permit in Puerto Rico. However, before diving into getting a sales tax permit in Puerto Rico, there is more information you should be aware of.
To comply with Puerto Rico’s Notice and Reporting Requirements, you must (1) notify the buyer on their invoice or receipt that they need to pay tax directly to the government, (2) provide a quarterly report to Puerto Rico with a list of all purchases made by residents, (3) provide an annual notice to purchasers each year, and (4) provide the Treasury with a copy of each notice.
The penalty for not complying with Puerto Rico’s Notice and Reporting Requirements is $100 for each transaction. Failure to file a quarterly report is $5,000 for each failure. And failure to file the annual report is $500 for each failure.
For many, voluntarily registering for a sales tax permit seems like an “easier” option than complying with Puerto Rico’s Notice and Reporting Requirements.
While Puerto Rico may update its permit registration process in the future, it is important to note that currently registering for a sales tax permit in Puerto Rico triggers the opening of a corporate income tax account. Corporate income tax in Puerto Rico is the equivalent of paying tax to the IRS in the United States.
The current Corporate Income Tax rate in Puerto Rico 18.5% plus a graduated surtax. Some companies may qualify for an Alternative Minimum Tax rate instead. Every corporation is required to file both an annual tax return and an annual report. The annual report requires an additional fee of USD 150.
Effective July 1, 2020, Amazon plans to begin to collect and remit sales tax to Puerto Rico. However, we are not aware of other marketplace providers collecting and remitting tax to Puerto Rico as of the writing of this blog.
If you only sell on Amazon, then your sales tax obligations with Puerto Rico will be managed by Amazon effective 7/1/2020. This may not necessarily be true on other platforms. If you are not prepared to either comply with the Notice and Reporting Requirements in Puerto Rico or get a sales tax permit in Puerto Rico, you could look into restricting sales to Puerto Rico on other platforms where you sell your products.
Lastly, if all of this just makes your head spin, remember that TaxValet can help you sort out your sales tax needs with our Done-for-You Sales Tax Service. Feel free to schedule an initial consultation here.