Beginning 1 October 2019, the reduced sales and use tax (SUT) rate of 7% applies to the sale of prepared foods in Puerto Rico, instead of the general 11.5% rate. The Puerto Rico Treasury Department (PRTD) issued Administrative Determination (AD) 19-03 to provide guidance on the procedure for merchants to obtain authorization to collect the 7% reduced SUT rate.

Eligibility

To obtain authorization to collect the reduced SUT on sales of prepared food, the merchant must:

• Have a Merchant Register Certificate
• Have complied with its SUT return and declaration obligations
• Not have any outstanding tax debts
• Have a tax terminal installed at each point of sale

The terminals must comply with the specifications established in Regulation No. 8049 of 21 July 2011, as amended, and AD 15-20. Even though AD 15-20 provides an exception to the installation of tax terminals for merchants with a volume of business of less than US$125,000, the PRTD advises all merchants, regardless of their sales’ volume, to have a tax terminal at each point of sale. Merchants that do not have a terminal at each point of sale should contact a certified processor to have the terminals installed. AD 19-03 contains a list of certified processors.

Procedure for obtaining authorization to collect the reduced SUT rate

Merchants that meet the eligibility requirements will receive a certificate through SURI (i.e., the PRTD’s integrated tax system) that will authorize them to collect the reduced SUT rate on the sale of prepared food beginning 1 October 2019. The certificates will expire on 30 September 2020, regardless of when they are issued. Merchants that continue to qualify for the reduced SUT rate will automatically receive a new certificate through SURI.

If a merchant does not receive a certificate, the merchant will receive a notice through SURI with the reason the merchant did not qualify. Once the merchant satisfies the requirements, the merchant may submit a request for a certificate through SURI. The PRTD started receiving certificate requests on 24 September 2019.

If a merchant receives a certificate, but no longer meets the eligibility requirements, the merchant should request that the certificate be cancelled and should collect the 11.5% SUT on the prepared food.

Implications

The PRTD has already issued over 5,000 certificates to eligible merchants. The Secretary of the PRTD has also reported that consumers who want to know which merchants have been certified by the PRTD to collect the reduced 7% can access SURI and go to the link “Negocios autorizados a cobrar 7% en alimentos preparados.” The merchants are grouped by municipality location.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Puerto Rico LLC, State and Local Taxation Group, San Juan

• Rosa M. Rodríguez | rosa.rodriguez@ey.com
• Pablo Hymovitz Cardona | pablo.hymovitz@ey.com
• Noeliz Suarez Archilla | noeliz.suarezarchilla@ey.com
• Luz Grycell Rivera | luzgrycell.rivera@ey.com
• David Montanez-Miranda | david.montanez-miranda@ey.com
• James McCandless | james.e.mccandless@ey.com

Ernst & Young LLP (United States), State and Local Taxation Group, Miami

• Marcel Ramos | marcel.ramos1@ey.com

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