Puerto Rico Sales and Use Tax: Rates and Rules

Sales and Use Tax Basics in Puerto Rico

All taxable goods imported by air or sea are subject to Puerto Rico’s Sales and Use Tax (SUT), including goods purchased electronically. For imports by sea or electronic means, the tax must be paid before the goods are released. These requirements apply to goods intended for personal use, resale, or inventory. Sellers are responsible for collecting the tax from customers and remitting it to the Department of the Treasury. Use tax applies to taxable goods brought into Puerto Rico for use or consumption. 

Puerto Rico Sales and Use Tax Rates

Puerto Rico applies a standard SUT rate of 11.5%, consisting of a 10.5% state-level tax and a 1% municipal tax. A reduced rate of 4% applies to certain B2B services and designated professional services. Prepared food sold in restaurants that meet specific requirements is subject to a reduced rate of 7%.

Tax-Exempt Transactions

Puerto Rico provides SUT exemptions for certain products, goods, and transactions, including manufacturing inputs, goods purchased for resale, subcontracted services, food intended for home consumption, and certain prescription drugs and healthcare items. Exemptions may also apply based on the entity involved, including transactions with the federal government, subject to the applicable legal requirements.

Nexus Rules in Puerto Rico

Puerto Rico enforces physical, economic, and marketplace nexus rules for its SUT.

Physical Nexus

Physical nexus may arise when a business maintains offices, warehouses, distribution facilities, or other business premises in Puerto Rico. Physical nexus can also arise when a business employs or uses employees, independent contractors, representatives, or agents there to solicit or conduct business on its behalf, or when it owns tangible personal property or real estate in Puerto Rico. These rules can apply even when business activities are conducted through subsidiaries, affiliates, or other representatives.

Economic Nexus

Since January 2021, Puerto Rico has required businesses with annual sales exceeding USD 100,000 or at least 200 transactions to register with the Puerto Rico Department of the Treasury and collect and remit SUT. Economic nexus rules also apply to businesses without a physical presence in Puerto Rico if they meet either threshold during the relevant accounting year.

Marketplace Nexus

Marketplace facilitators have been subject to collection and remittance obligations since January 1, 2020, when the applicable thresholds are met. Once a seller establishes economic nexus, it must register in Puerto Rico’s Merchant’s Registry and comply with the applicable sales tax requirements.

Affiliate and Marketing Nexus

A business may establish nexus through relationships with local affiliates or through its marketing and sales activities, even if it does not have its own physical presence there. Affiliate nexus may arise when a related or affiliated merchant in Puerto Rico helps promote or facilitate sales, maintains facilities for storing or delivering goods, provides installation or maintenance services, shares similar trade names or trademarks, handles returned merchandise, or conducts other activities that help the business establish and maintain a local market.

Marketing and sales activities can also create nexus when conducted continuously, recurrently, and as part of the ordinary course of business. Relevant thresholds include gross sales exceeding USD 10,000 in Puerto Rico in cases involving the award of sales contracts, and annual gross sales exceeding USD 100,000 or at least 200 transactions for remote sellers without a physical location in Puerto Rico. 

Direct marketing through e-commerce, websites, social media, television, mail, and other advertising channels may also establish a nexus when the activities meet the applicable legal criteria.

Taxable Goods and Services in Puerto Rico

Puerto Rico’s SUT generally applies to tangible personal property, prepared food and certain beverages, admissions to events and entertainment venues, and a wide range of services. Taxable goods include items such as electronics, clothing, and furniture, while taxable services may include repairs and maintenance, security, cleaning and janitorial services, telecommunications, and digital services. 

Bundled Transactions and the True Object Test

A bundled transaction occurs when two or more distinct and identifiable tangible goods or services are sold together for a single price without separately itemizing their prices. Such transactions are generally treated as sales of taxable items. However, a transaction that does not meet the definition of a bundled transaction is not automatically tax-exempt.

A transaction is not considered bundled when the price of the goods or services varies according to the purchaser’s selection, allowing the price of each item to be identified separately. In such cases, each good or service is taxed according to its own tax status, whether taxable or exempt. In addition, a transaction may fall outside the definition of a bundled transaction when its primary purpose is to provide an exempt good or an excluded service.

E-Commerce Framework

Foreign or non-resident sellers that exceed a threshold of USD 100,000 in gross sales or have at least 200 transactions must register for SUT in Puerto Rico through the Puerto Rico Treasury Department Merchant’s Registry. The application can only be submitted electronically through the Sistema Unificado de Rentas Internas (Internal Revenue Unified System), known as SURI.

Marketplace Rules

A marketplace seller is a business or individual that sells goods or services at wholesale or retail through a physical or electronic marketplace owned, operated, or controlled by a marketplace facilitator. The facilitator may be responsible for collecting and remitting SUT on sales made through its platform, even when the seller would not otherwise have been required to collect the tax.

A non-resident seller that sells exclusively through a marketplace facilitator that collects and remits SUT generally does not need to register separately. However, a seller that also makes sales through its own website must assess its separate tax obligations. If its direct sales exceed USD 100,000 in annual gross sales or reach at least 200 transactions with Puerto Rico buyers during the accounting year, it establishes economic nexus. Consequently, it must register, collect, and remit SUT on its taxable direct sales.

Note that a marketplace seller registered for SUT purposes must apply for a waiver of its tax collection obligations on sales made through registered marketplace facilitators. To apply, the seller must obtain a copy of each marketplace facilitator’s Merchant Registration Certificate and include the relevant facilitator information in the waiver request.

Digital Goods and Services

Digital products generally include electronically transferred audiovisual works, audio works, and other digital products. This category also covers digital codes that give buyers access to digital content, including codes packaged with a physical product such as a DVD or Blu-ray. Digital audiovisual works include videos and other sequences of images with accompanying sounds, while digital audio works include audio files downloaded to electronic devices.

Other digital products may include electronic greeting cards, images, video games, digital entertainment, online memberships providing exclusive digital content, music and concert recordings, digital news and information, digital storage products, and computer software applications.

Digital Marketplace

A marketplace facilitator is generally a person or related entity that facilitates retail sales of tangible personal property, specific digital products, or taxable services through a physical or electronic marketplace. This may include businesses that advertise or list products, connect sellers with buyers, operate marketplace infrastructure, develop related software, provide storage or tax compliance services, set prices, offer customer support, or manage orders, returns, and exchanges.

A person may also qualify as a marketplace facilitator by performing financial or transactional functions, such as collecting and remitting sales tax, processing payments, charging listing or transaction fees, collecting payments from buyers and transferring them to sellers, or providing virtual currency for purchases. The definition covers a broad range of marketplace activities, regardless of whether the facilitator owns or controls the goods or services being sold. 

Filing and Payment Requirements in Puerto Rico

In Puerto Rico, taxable persons generally must file a monthly tax return and pay any tax due by the 20th of each month through the electronic SURI system. The return covers the previous month’s sales, including both taxable and exempt transactions, as well as use tax paid on goods acquired in Puerto Rico for business use or resale.

Penalties for Non-Compliance with Sales and Use Tax Requirements

In Puerto Rico, late payment of due taxes results in an annual interest of 10%, calculated from the date the tax return was due until the outstanding amount is paid. Additional surcharges apply when payment is delayed: 5% of the outstanding balance if the delay exceeds 30 days but does not exceed 60 days, and 10% if the delay exceeds 60 days.

Other non-compliance penalties include a USD 10,000 penalty for failure to register in the Merchant Registry, up to USD 1,000 for failure to display a merchant registration certificate, and USD 5,000 for displaying a fraudulent certificate. 

Failure to separately state sales and use tax on a sales receipt may result in a USD 100 penalty per violation. Failure to remit collected taxes can trigger a penalty of up to 50% of the tax deficiency, increasing to as much as 100% for repeated failures, while failure to file tax returns may result in a penalty equal to 10% of the tax liability.