06/11/2021 | News release | Distributed by Public on 06/11/2021 09:06
Marketplace facilitators have been responsible for collecting and remitting Puerto Rico sales and use tax on behalf of third-party sellers since January 1, 2020. Effective 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.
Puerto Rico added a 4.5% surtax to the 7% sales and use tax (SUT) rate on July 1, 2015, bringing the SUT rate to 11.5% for most goods and services (the base rate for goods not subject to municipal sales tax is 10.5%). A few years later, Puerto Rico exempted certain prepared foods from the 4.5% surtax.
Thus, as of October 1, 2019, qualifying sales of prepared foods by eligible restaurants are subject to a 7% reduced SUT rate. Prepared foods include candy, carbonated beverages, pastry products, and sweets but not alcoholic beverages.
For the purposes of the reduced SUT rate, 'restaurant' is defined as 'any commercial establishment, including food trucks, dedicated mainly to the sale of food and beverages to be consumed on the same premises or to be consumed outside the premises, as long as they are served hot or with eating utensils, including plates, knives, forks, spoons, glasses, cups, napkins or straws.'
A restaurant cannot collect the reduced rate without first obtaining 'the proper authorization and certification' from the Puerto Rico Department of Treasury. To obtain that, a business must:
Have a valid merchant's registration certificate with at least one of the following North American Industry Classification System (NAICS) codes:
Comply with all SUT and other tax obligations in Puerto Rico (businesses must have either no outstanding tax liability or an up-to-date payment plan with the department)
Maintain a fiscal terminal at each point of sale (Puerto Rico generally doesn't require merchants with aggregate annual sales volume of less than $125,000 to have a fiscal terminal in all commercial locations, but businesses wishing to collect the reduced rate must have one)
Businesses meeting all above qualifications will be granted a certificate of 'Authorized Business - Reduced Rate Prepared Foods.' This certificate must be displayed in each commercial location and renewed annually by September 30.
Many restaurants now sell through marketplace facilitators like DoorDash and Uber Eats, which began offering services in Puerto Rico in 2019 and 2018, respectively. But until now, marketplace sales of prepared foods have been taxed at the 11.5% rate because marketplace facilitators haven't been eligible for the reduced 7% rate. Now they are, provided they obtain the proper certification.
As of May 24, 2021, marketplaces that facilitate sales for third-party sellers 'who dedicate their operations to the sale of prepared foods' may apply to collect the reduced rate by completing the following steps:
1. Obtain a merchant's registration certificate
A marketplace facilitator must have a valid merchant's registration certificate indicating it's a 'Market Facilitator' ('Merchant Registry') - as well as one of the Market Sellers with SUT Collection Relief for whom it provides services - with at least one of the following NAICS codes: 72231, 72232, 72233, 72241, or 72251.
According to the Department of Treasury, authorization will be granted only to marketplace facilitators 'who provide a market to Market Sellers with Relay Collection whose Merchant Registry presents at least one of the NAICS codes listed above' (translated from Spanish). In other words, marketplaces that don't handle sales of prepared foods don't qualify for the reduced rate.
2. Get up to date with all SUT returns
Marketplace facilitators must also 'be up to date,' meaning they must have filed all applicable SUT forms, returns, and statements as required. The department urges marketplace facilitators 'to verify well in advance that they are in compliance with this requirement to avoid any delay in the process of obtaining authorization.'
3. Pay all outstanding tax debts
A marketplace with outstanding tax liability must either pay the tax owed in full or work with the department to create a payment plan. As above, the department urges marketplaces to be proactive and 'request a Debt Certification in time.'
4. Apply for a certificate
Once all above requirements have been met, a marketplace facilitator must complete an Application for the Certificate of 'Authorized Business - Reduced Rate Prepared Foods' through their Department of Treasury SURI account. Marketplaces must submit a separate application for each qualifying business location.
Marketplaces with a physical presence in Puerto Rico must post the certificate in a visible place near the entrance of each business location. Online marketplaces must place a digital version of the certificate on their website. It must be clear to customers that the marketplace is authorized to collect the reduced rate.
5. Renew certificates annually
Certificates expire annually and must be renewed by September 30 each year.
6. Collect and remit municipal sales and use tax as required
Marketplace facilitators are liable for applicable municipal sales and use tax (1%). Remittance requirements vary depending on whether the marketplace facilitator has a physical presence in Puerto Rico. Those that do must remit the municipal portion of the tax to appropriate municipal tax authority (based on the source of the sale). Marketplaces with no physical presence in the commonwealth should remit the municipal portion of the tax directly to the Puerto Rico Department of Treasury.
Additional details about the above requirements are available in Administrative Determination No. 21-06.
Unlike individual sellers of prepared foods (e.g., restaurants or food trucks), marketplace facilitators are not required to maintain a fiscal terminal.
The department explains that 'the requirement to maintain a fiscal terminal will not apply to merchants who exclusively carry out transactions for the sale of goods and services in which the acquirer is not present at any time at the point of sale, such as: (i) mail transactions; (ii) internet transactions, or (iii) phone transactions.'
Individual sellers must include a purchase receipt in sales transactions that are handled by a facilitator.
Additionally, businesses that sell prepared foods through a collecting marketplace must continue to register all marketplace sales of prepared foods through their fiscal terminal, even though the marketplace facilitator is liable for collecting and remitting the tax due.
Registration requirements for marketplace sellers vary by state, or in Puerto Rico's case, by territory. For state-specific details, check out our state-by-state registration requirements for marketplace sellers. State-specific information for marketplaces can be found in this state-by-state guide to marketplace facilitator laws.
Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.