Tuesday, March 28, 2023

Amazon Marketplace purchases not taxed, despite agreement

By on October 28, 2019

Puerto Rico Treasury Department. (Juan J. Rodríguez / CB)

Editor’s note: This report first appeared in the Oct. 24 issue of Caribbean Business.

Unlike purchases made by Puerto Rican consumers directly through Amazon, which have been subject to the island’s 11.5 percent sales & use tax (IVU by its Spanish acronym) since the beginning of 2018, the retail giant’s third-party vendors do not withhold the tax.

Caribbean Business was able to confirm this information after examining a series of bills provided by local consumers, and approached the Puerto Rico Treasury secretary, Francisco Parés Alicea, with the issue.

“Without going into the details about a merchant in particular, the agreements with merchants can only be between the sales that the merchants make and the state. If there is a third party that uses, in a way, a website, but is a vendor, as the law stands today, it makes us go into an agreement with that third party directly. Obviously, it goes without saying that this is a very difficult task,” Parés Alicea said regarding what he referred to as “cyber flea markets.”

Back in July 2018, Caribbean Business first reported that the Treasury Department was going to present legislation to adapt the sales & use tax regime to the new findings and developments that have occurred as a result of the U.S. Supreme Court ruling in the South Dakota v. Wayfair case, which changed the rule of law in force since 1992 to allow state treasury departments to charge taxes on online purchases from retailers that have no physical presence in U.S. states and territories but still sell their goods and services to a state’s consumer.

Back then, Parés Alicea, as the deputy secretary of internal revenue at the Puerto Rico Treasury Department, assured his technical team was “cautiously and responsibly” evaluating the change, which was put in place by the Fiscal Plan to raise $44 million in new revenue.

Now, after overcoming the chaos generated by the changes from having three different governors and two Treasury secretaries in less than a year, the top person at Treasury and his advisers work with an administration project that seeks to strengthen Act 25 of 2017, moving away from voluntary agreements and covering the spectrum of opportunities to raise funds in cybertransactions that have arisen as a result of this era’s technological changes.

Francisco Parés Alicea, Puerto Rico Treasury Department Secretary . (Juan J. Rodríguez / CB)

Act 25-2017 requires businesses with an online presence to voluntarily send a report to Treasury with the names and addresses of their customers, so the department may oversee and collect the IVU from Puerto Rico businesses and residents that acquire merchandise without having them self-impose the tax. The idea behind this legislation was that if a local business did not want to submit the information, it had the option to become a withholding agent and remit the tax. With the 2018 U.S. Supreme Court ruling, this became an obligation with the existence of approved legislation to that effect.

“That is why it is very important that in this legislation, in this second turn at bat, that these cyber flea markets are addressed to place more responsibility on these merchants that are putting at the disposition of others merchants the use of their digital platforms for the sale of products,” the Treasury secretary said. The next steps to confront the challenge of online sales, he added, “will be to address the marketplaces and other sites that are being used as flea markets or platforms for third parties to buy and force people who sell, rent or give access to digital products to become retaining agents,” to achieve similar results to those reached through confidential voluntary agreements under Law 25. He said the agreements under the law have reached $20 million in new income for the agency’s coffers.

The Treasury secretary was confident there is consensus between his agency and the Legislature to make changes to this legislation, which could be presented starting in the next regular session. The amendments would benefit the small and midsize local retail merchant, who could compete under equal conditions given that the factor of paying taxes is the determinant when deciding whether to buy in a physical or virtual establishment.

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