Ask the Tax Expert: Taxing Sales to Puerto Rico Destinations?

Charles Maniace
August 25, 2014

Another answer in a series of Ask the Tax Expert series, where Taxware Tax Research experts answers your sales and use tax questions.   The following question was recently submitted:

Q. Would a company making sales to PR destinations be affected? We do not have operations in PR, but sell to customers in PR.

A.  As an unincorporated territory of the United States, Puerto Rico’s sales tax laws are required to respect the requirements of the United States Constitution. From a practical perspective, this means Puerto Rico cannot impose an obligation to collect its sales and use tax (IVU) on an organization unless that organization has a physical presence (nexus) with Puerto Rico.

Nexus is a complicated topic and US jurisdictions are allowed to have somewhat different standards as to what level of physical presence is required in order to create a tax collection and remittance obligation. However, each state is required to have a standard that has physical presence as its foundation. In other words, states cannot articulate nexus requirements that are based on economic presence alone. Generally, this means that in some way the organization must be deemed to have either people or property within the jurisdiction. Taxware does not provide direct guidance as to whether or not your organization has nexus with the Commonwealth of Puerto Rico. That decision should be made by someone within your organization or a trusted tax advisor. The process, often called a Nexus Study, requires a comprehensive analysis of the manner in which you do business and a comparison against the nexus standards as articulated by Puerto Rico. We hope this information is helpful. Thank you for your question.   Have a sales and use tax question?  Ask a Taxware Tax Expert

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Charles Maniace

Chuck is Vice President –Regulatory Analysis & Design at Sovos, a global provider of software that safeguards businesses from the burden and risk of modern tax. An attorney by trade, he leads a team of attorneys and tax professionals that provide the tax and regulatory content that keeps Sovos customers continually compliant. Over his 20-year career in tax and regulatory automation, he has provided analysis to the Wall Street Journal, NBC, Bloomberg and more. Chuck has also been named to the Accounting Today list of Top 100 Most Influential People four times.
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