On October 14, Puerto Rico enacted legislation, Act 117, which provides technical amendments to the major tax legislation, Act 40, enacted earlier this year.1 Act 40, also known as the Law for the Redistribution and Adjustment of the Tax Responsibility, made numerous changes including the imposition of an additional tax on gross income ("Patente Nacional"), a moratorium on certain tax credits, imposition of sales tax on services and the elimination of the reseller exemption certificate.2
Act 40 made major changes to income tax laws, including: (i) the imposition of an additional tax on the gross income ("Patente Nacional") of corporations and pass-through entities on income of at least $1 million at graduated rates ranging from 0.2 percent to 0.85 percent for taxable years beginning after December 31, 2012 (which is part of the computation of the alternative minimum tax of corporations and individuals); (ii) a moratorium on certain tax credits; (iii) changes to the computation of the alternative minimum tax; (iv) limitations on the deduction for net operating losses (NOLs); and (v) changes to the computation of estimated tax payments. Act 40 also imposes sales tax on certain services. In addition, Act 40 eliminated the exemption certificate for resellers for purchases of tangible personal property for resale. Purchases by resellers are subject to sales tax that must be collected by the merchant selling to the reseller. The resellers may claim a credit against the sales and use tax owed on taxable sales.
Act 117 Technical Amendments
As discussed below, Act 117 makes numerous technical amendments to provisions concerning the new gross receipts tax ("Patente Nacional"), nondeductible expenses, estimated tax rules and requirements, individual income tax, sales and use tax, and special contribution on government contracts.
Gross Receipts Tax ("Patente Nacional")
Act 117 reduces the minimum Patente Nacional tax rate that the Secretary may grant by waiver from 0.2 percent to 0.05 percent. In order to grant a waiver, the Secretary will be allowed to analyze the circumstances of the entire industry. Also, there will be no filing fee for merchants requesting a Patente Nacional waiver if their gross volume is less than $3 million. For those submitting a waiver request for the 2013 tax year, the request must be submitted on or before November 30, 2013. The Secretary has until February 28, 2014 to evaluate the application. For any future...