United States

Puerto Rico: Use Tax Notice and Reporting Law Enacted

Jul 24, 2017
From KPMG TaxWatch

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Effective July 1, 2017, a merchant classified as a “non-withholding agent” is subject to certain notice and reporting obligations, but will not be required to collect and remit Puerto Rico sales and use tax. A non-withholding agent is defined as any merchant engaged in “mail order sales” whose sole contact with Puerto Rico is that the buyer of the merchant’s goods is a resident individual or a business in Puerto Rico. “Mail order sales” means the sale of tangible personal property by a merchant outside of Puerto Rico ordered by any means, including mail and the Internet, and transported to a person in Puerto Rico (regardless of whether it is transported to the person who ordered the property).

The Act imposes three obligations on a non-withholding agent. First, a non-withholding agent must include on any invoice or receipt a notice that the sale may be subject to sales or use tax and that the buyer is obligated to declare and pay any such tax. Second, a non-withholding agent must submit quarterly reports to the Puerto Rico Treasury Department regarding purchases by Puerto Rico buyers. The report must include details such as the purchaser’s name and delivery address; purchase dates; the value, quantities, and a description of each purchase; and the category of the purchase, including whether it is exempt or taxable (to the extent known). These reports are due by the last day of the month following the end of the calendar quarter. Finally, an annual report must be provided to all Puerto Rico buyers via first class mail by January 31 regarding purchases made over the previous calendar year. There are specific requirements for mailing this report, including that the envelope must state “important tax information included.” In addition, the annual report must include information much like that included in the quarterly reports made to the Department, although a description of each purchase is not required in the annual report. A copy of the annual report provided to buyers must be sent to the Department within 30 days of being submitted to a buyer. The Act imposes penalties for noncompliance, including $100 for every failure to send a proper notification at the time of purchase, $5,000 for each failure to file a quarterly report to the Department, and $500 for each failure to send an annual report to the customer. For more information on these reporting requirements, please contact Philippe Stephanny at 202-533-3082.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.