Marketplace facilitators to collect Puerto Rico sales tax on third-party sales
Puerto Rico is requiring marketplace facilitators to collect and remit the tax due on all sales made through their platform in Puerto Rico, including third-party sales, under newly enacted Act 40-2020 (House Bill 2419).
The new collection requirements for marketplace facilitators took effect retroactively, on January 1, 2020. However, legislation approved by the House and pending in the Senate (House Bill 2482) would move the effective date to October 1, 2020.
The measure defines “marketplace facilitator” as any entity that facilitates the sale of tangible personal property, specified digital products, or taxable services by:
- Advertising, listing, or promoting sales of the above by marketplace sellers, and
- Directly or indirectly collecting payment from the purchaser and transmitting it to the marketplace seller
Puerto Rico has encouraged out-of-state sellers to voluntarily collect and remit tax on Puerto Rico sales since July 1, 2017, under Administrative Determination No. 17-04, which imposed notification and reporting requirements on certain non-collecting remote sellers.
No. 17-04 also established a new category of trader: Non-retention or non-withholding agents who perform mail-order sales and whose sole contact with Puerto Rico is the buyer. Despite its name, “mail-order sale” includes electronic commerce. See Puerto Rico to require use tax notification and reporting for more details.
Act 40-2020 amends the definition of “mail-order sales” to include any sale of tangible personal property, specific digital products, or taxable services by a marketplace seller through a marketplace facilitator. It also makes the marketplace facilitator the withholding agent responsible for collecting Puerto Rico sales and use tax on behalf of third-party sellers.
Amazon began collecting and remitting Puerto Rico sales tax on both direct and third-party sales on April 1, 2018. However, marketplaces haven’t been obligated to collect sales tax on third-party sales in Puerto Rico until now.
Higher sales threshold for exempt B2B services
In addition to establishing new collection requirements for marketplaces, the act increases the threshold for exempt business-to-business (B2B) sales.
Prior to March 1, 2019, B2B services provided by businesses with an annual business volume of $50,000 or less were exempt from Puerto Rico sales tax. Services by businesses with higher annual business volumes were taxable.
On March 1, 2019, that threshold jumped to $200,000. Act 40-2020 further increases the threshold to $300,000, exempting even more B2B services. Only businesses with more than $300,000 in annual sales must collect tax on their sales of B2B services.
The Puerto Rico Department of Treasury will provide additional guidance for these and other sales and use tax changes, including effective dates, in the coming weeks.
The 2021 sales tax changes report: midyear update
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