Puerto Rico Sales and Use Tax

The Puerto Rico Sales and Use Tax (SUT) —Spanish: Impuesto a las Ventas y Uso (IVU)— is the combined sales and use tax applied to most sales in Puerto Rico. The tax is composed of two portions: 1.5% that belongs to the municipality where the sale was executed and 5.5% that belongs to the state government. Furthermore, half of the portion that belongs to the state government is destined to the Urgent Interest Fund Corporation (COFINA) to pay the public debt of Puerto Rico; thereby making it a three-tier tax.

Components of the Puerto Rico Sales and Use Tax, showing which portion belongs to the municipality where the sale was executed, which portion belongs to the state government, and which portion belongs to COFINA.

History

On July 4, 2006, the government approved Law Number 117, The 2006 Contributive Justice Law, establishing a tax with a 5.5% rate at state level and an optional 1.5% rate at municipal level. The tax went into effect on November 15, 2006. The tax is better known as the Sales and Use Tax' (Impuesto sobre Ventas y Uso), often referred to by its Spanish acronym "IVU". The law amended Article B of the Code and created sub-article BB. On July 29, 2007, the government approved Law Number 80, making the tax mandatory for all municipalities of the island. Also the tax rates changed to 6% at the state level and 1% at the municipal level.

The tax originated in some municipalities (Caguas, Yauco and Villalba) in 2005. Seeing the economic success of these municipalities, many other municipalities enacted sales tax ordinances, usually by copying the ordinance of Caguas. By the middle of 2006, more than 30 municipalities had enacted sales and uses taxes on the island.

During the second and third quarters of 2006, the Commonwealth of Puerto Rico suffered several political struggles in its Legislative Assembly. These were largely caused of the budget deficit of the government and the refusal of the Legislative Assembly to approve the taxes proposed by the Governor of the Island. Government offices were shut down until the Assembly approved the law 117 which included the first sales tax of that possession of the United States.

On July 1, 2006, the first Commonwealth-wide sales tax was approved with a 5.5% rate at state level and an optional 1.5% rate at municipal level. The adoption of the municipal tax was mixed. The tax went into effect on November 15, 2006.

Since the tax reform of July 2007, the tax is applied in all 78 municipalities of the island and at Commonwealth level. The tax rates are 6% at the state level and 1% at the municipal level.

On February 6, 2008 the governor of the island proposed to remove the state part of the IVU.

See also