Keys to Unlocking the Puerto Rico Sales Tax Puzzle

David Armas
September 6, 2022

Are you making sales into or within Puerto Rico? Would you like to expand into PR but are uncertain of the sales tax compliance hurdles you may face? (¡¿Habláis Español?!) If so, you’ll want to understand the tax implications of your activities and be aware of the key sales tax issues and unique tax situation on the Island of Enchantment.

Puerto Rico’s unique hybrid sales tax (or Impuesto Sobre Ventas y Uso (IVU)) structure contains elements of both value added tax (VAT) and traditional U.S. sales tax. Additionally, there are requirements and compliance systems in place that can be difficult to navigate, even for sales tax pros. The vast majority of information found on the Puerto Rico Revenue Department (Departamento de Hacienda) webpage is also in Spanish, which can make it feel daunting for non-Spanish speakers to understand how this hybrid sales tax works, what it applies to and how to complete processes like registration and filing returns.

Since Wayfair, Puerto Rico has also adopted economic nexus thresholds that you will need to monitor your sales against to ensure your company is compliant, even if you have no physical presence on the island. With collection requirements in place for both remote sellers and marketplace facilitators effective January 1, 2021, there’s no time like the present to dig into Puerto Rico sales tax requirements so you are prepared to handle your obligations.

Where to start with Puerto Rico sales tax

A good place to begin is understanding the basics of Puerto Rico sales taxes and determining your liability. Here are a few areas to consider looking in to:

  • Understand Puerto Rico’s unique sales tax structure including rates and rules, VAT-like components and how it differs from state sales tax as you may know it today.
  • Learn the nexus standards in Puerto Rico for both physical presence and economic nexus, including how it is being enforced, to understand you sales tax liability. This includes what nexus requirements look like for sales tax at the municipal (municipio) level vs. the commonwealth level.
  • Understand the registration process for sales tax so you are prepared to collect tax if you exceed Puerto Rico’s economic nexus thresholds or establish physical presence.
  • Find out how to file electronic returns through the Unified Internal Revenue System (SURI), Puerto Rico’s web platform for tax services.
  • If you discover your company has had nexus in Puerto Rico for some period of time, learn what actions (including corrective actions like voluntary disclosure agreements) to take so you can come into compliance.
  • Discover best practices for companies doing business in Puerto Rico and when a local certified advisor is critical to help provide guidance for sales tax issues like a notification of error.
  • Consider the potential benefits of utilizing a sales tax software provider to simplify compliance in Puerto Rico.

Whether you’re in the tax, general accounting, accounts payable, sales, tax technology, or purchasing and credit areas, it’s important to understand sales tax details in Puerto Rico. Employees who work in companies or with clients that are (or may be) tasked with managing Puerto Rico sales tax as part of their responsibilities should all gain experience and exposure to Puerto Rico sales tax.

Working with the right sales tax partner can help clarify Puerto Rico sales tax essentials like rates and rules, nexus standards, and the compliance process for filing returns. They can also help you understand what Puerto Rico considers to be nexus-creating activities, ensuring you know what to do if you have obligations but are not yet compliant.

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Author

David Armas

David Armas is a Regulatory Counsel at Sovos in the Regulatory Analysis and Design Departmentwith a focus ondomestic salesand usetaxes and related fees. David is a member of the Massachusetts Bar and holds aBachelor of Sciencein Computational Mathematicsfrom Embry-Riddle University, as well as a Juris Doctorfrom Boston College Law School.
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