So, you need to know about sales tax in the Island of Enchantment . Look no further!
Whether you’ve fully set up shop in Puerto Rico, or simply ship there once in a while, it’s important you know whether your business is liable to their sales taxes. This guide will tell you everything you need to know, plus direct you to the right places for handling any sales tax responsibility you may have.
What’s taxable in Puerto Rico?
Services
Services include professional services provided by lawyers, architects, landscapers, etc. The definition can be pretty wide, and many exemptions can apply. Your best bet would be to check with Puerto Rico’s Department of Revenue website to confirm your service is even taxable.
Tangible products
Tangible products, as you might guess, are physical items. Puerto Rico taxes most tangible products, but there can be exemptions! To be absolutely clear about which products are subject to sales tax, and which are exempt, check Puerto Rico’s Department of Revenue website.
Digital products
Digital products are goods that are delivered or accessed electronically, usually through the internet. Media streaming services and eBooks usually fall into this category, too, but rules can vary. Check Puerto Rico’s Department of Revenue website to be sure.
Do you have nexus in Puerto Rico?
The word “nexus” refers to a commercial connection in the state. Nexus determines the following questions for a state tax agency: Do you do business here, what kind, and how much? And when you do have nexus, that means you’re obligated to collect tax on your sales there.
So the first question for you to answer is whether you have nexus in Puerto Rico.
You probably have nexus in Puerto Rico if any of the following points describe your business:
- A physical presence in Puerto Rico: a store, an office, a warehouse or distribution center, storage space, you, an employee, a representative, etc.
- A significant amount of sales in Puerto Rico within twelve months. (*)
*This is called an economic nexus, a sales tax nexus determined by economic activity, i.e. - the amount of sales you make in a particular state. Any kind of economic activity could trigger the nexus, once your total sales reach a certain threshold amount.
The threshold in Puerto Rico is $100,000 in annual sales or 200 separate sales transactions, whichever your business reaches first. To learn more about how this works, check out the Ultimate Guide to US Economic Nexus.
How to register for sales tax in Puerto Rico
Okay, so you have nexus! Now what?
The next crucial step in complying with Puerto Rico sales tax is to register for a sales tax permit. It’s actually illegal to collect tax without a permit. So to get all your ducks in a row, start with tax registration first.
You can find directions about how to register in Puerto Rico on their Department of Revenue website.
When registering for sales tax, you should have at least the following information at hand:
- Your personal contact info
- Your business contact info
- Social security number (SSN) or Employer Identification Number (EIN)
- Business entity (sole-proprietor, LLC, S-Corp, etc.)
- Bank account info (account number and routing number) where you’ll deposit the collected sales tax
How to file taxes in Puerto Rico
When tax time rolls around in Puerto Rico, whether it’s monthly or annually, you must do three things:
1. Calculate how much sales tax you owe
2. File a sales tax return
3. Make a payment
Other Puerto Rico tax info
Penalties
If you miss a filing or payment deadline, certain penalties can apply. Such a pain! Check the state’s website for up-to-date penalty fees.
Discounts
On a brighter note, you could be eligible for sales tax discounts in Puerto Rico! Usually these discounts are designed to save you a bit of money, as a reward for complying with the sales tax system. Check the state’s website for up-to-date discount policies.
Sales Tax Holidays
One final tricky aspect about Puerto Rico sales tax are the sales tax holidays. During these days of the year, you aren’t required to charge sales tax, and buyers will expect to not be charged. Check the state’s website for current sales tax holidays.
Related articles
- The Quick Guide to U.S. Sales Tax Nexus
- The Ultimate Guide to US Economic Nexus
- How the Wayfair decision on US sales tax will affect your business — and how it won’t?
- What You Must Know About Sales Tax if You Have Customers in the United States
- US Sales Tax for eCommerce: How to comply
- Sales Tax for Digital Products in the U.S.
- Sales Taxes for SaaS Products in the U.S.
Resources
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the tax authorities.