Puerto Rico adopts economic nexus, taxes remote sales

Like 45 states, parts of Alaska, Washington, D.C., Puerto Rico has adopted economic nexus. As of January 1, 2021, businesses making more than $100,000 in total gross sales or at least 200 transactions in Puerto Rico annually are required to register with the Puerto Rico Department of Treasury and collect and remit Puerto Rico sales tax.

When out-of-state sellers must collect Puerto Rico sales tax

Regulation No. 9237 (December 8, 2020) authorizes the territory to impose a sales tax collection obligation on certain businesses that have no physical presence in the territory. An economic connection is sufficient, provided the remote retailer meets the $100,000 sales or 200 transactions economic nexus threshold.

The regulation speaks of “mail order sales” rather than “internet sales,” but it applies to remote online sales as well. To illustrate this point and remove any doubt, the regulation describes several possible scenarios about Merchant V — a company with “no property, employees, or business activities in Puerto Rico” that engages in no direct or indirect marketing activities in the territory.

In one scenario, Merchant V makes a $150,000 online sale to a customer in Puerto Rico. Because the transaction exceeds the $100,000 economic nexus threshold, Merchant V is “engaged in the taxable item sales business in Puerto Rico, and therefore has a link with Puerto Rico.” The regulation explains that because “the online sales activities it carries out with Puerto Rico are considered continuous, recurring, and in the ordinary course of business for exceeding the amount of $100,000,” economic nexus is established. 

How economic nexus affects marketplace sellers

A marketplace seller that makes direct sales into the territory (in addition to marketplace sales) is required to register then collect and remit Puerto Rico sales tax on its direct sales if its direct sales to Puerto Rico buyers exceed the $100,000 sales or 200 transactions threshold in the “accounting year.”

Marketplace facilitators have been responsible for collecting and remitting the tax due on all sales made through the marketplace platform in Puerto Rico since January 1, 2020. As of May 24, 2021, marketplaces that facilitate sales of prepared foods in the commonwealth may apply to collect the reduced rate of tax that applies to those sales.

Economic nexus trumps noncollecting seller use tax reporting option

Remote sellers that establish economic nexus with Puerto Rico are required to register then collect and remit applicable Puerto Rico sales taxes. There’s no get-out-of-jail-free card.

Puerto Rico also has a special requirement for non-withholding agents, also known as noncollecting sellers.

As of July 1, 2017, remote businesses that don’t have nexus with Puerto Rico and therefore aren’t required to register for Puerto Rico sales tax must comply with Puerto Rico’s notification and reporting requirements. 

For more information, see the following:

Additional details about Puerto Rico economic nexus can be found in the English translation of Regulation No. 9237. More information about collection requirements in other states is available in our state-by-state guide to economic nexus and state-by-state guide to marketplace facilitator laws

 

This post was updated; it originally published on July 16, 2021.

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