How to use a Puerto Rico resale certificate

by TaxJar November 17, 2023

Please note: This blog was originally published in 2021. It’s since been updated for accuracy and comprehensiveness.

If you buy products at retail in Puerto Rico in order to resell them, you can often avoid paying sales tax when purchasing those products by using a Puerto Rico resale certificate, otherwise known as an exemption certificate.

When you possess a verified resale certificate, you don’t have to pay sales tax when buying goods for resale. Instead, the sales tax will be collected on the final transaction, when a customer buys the product.

For example, say you buy a pallet of toothbrushes from a supplier in Mayagüez to resell to your customers. If you present a valid Puerto Rico resale certificate to your vendor, you won’t be required to pay sales tax on that purchase, since you are purchasing for resale.

You can also use a resale certificate to avoid paying sales tax if you are buying equipment used in manufacturing or ingredients in an item for resale.

For example, say you craft handmade purses and backpacks. The cloth, buttons, thread, etc. that you use in your products are non-taxable as long as you can present a valid Puerto Rico resale certificate at the time of purchase.

Here’s what you need to know about using a Puerto Rico resale certificate. And, if you are a Puerto Rico based merchant, we’ll also go into what you need to know about accepting a Puerto Rico resale certificate.

How to use a Puerto Rico resale certificate

The resale certificate, or exemption certificate, is the seller’s evidence why they did not collect sales tax. In order to prove that you, the buyer, intend to resell the product, you must provide a valid resale certificate to the seller of the goods.

In Puerto Rico, resellers are required to be registered to collect sales tax with the Sistema Unificado de Rentas Internas (SURI) before they can buy items for resale without paying Puerto Rico’s 11.5% sales tax. SURI is Puerto’s answer to any other state’s department of revenue or state taxing authority.

Here’s how to register for a Puerto Rico sales tax permit.

When it comes time to make your purchase, present your vendor with Form AS 2916.1 – Certificate for Exempt Purchases. The form must be completely filled out and signed by someone with legal authority in your company.

Further, in Puerto Rico, intentionally committing fraud by using a Certificate of Exempt Purchases unlawfully falls on the buyer. Therefore, any seller caught falsifying a certificate or knowingly providing false information is responsible for paying the applicable sales and use tax plus any resulting penalties.

Once you are registered for a Puerto Rico sales tax permit and have presented your Certificate for Exempt Purchases then you should be all set to buy items for resale. Do keep in mind that merchants reserve the right to deny your resale certificate.

How to accept a Puerto Rico resale certificate

When a business is presented with a resale certificate, it is the business’s responsibility to verify the buyer is submitting the exemption certificate in “good faith.” When the seller accepts the certificate in good faith, the seller is not liable for collecting and remitting Puerto Rico sales tax.

Example:

Say a buyer comes to you wanting to purchase a hot tub without paying sales tax. They tell you this is for resale, but when they fill out the resale certificate, they indicate that they own a candy store. Since a hot tub is not generally sold in a candy store, you – as the merchant – might decide to reject this Certificate of Exempt Purchases since it could well be fraudulent.

However, the good news is that in Puerto Rico the liability is on your buyer to provide that their certificate is correct. Unlike in many other areas of the US, it’s the buyer – not the merchant – who is on the hook to pay the applicable sales tax and penalties if they are found to have used a falsified resale certificate.

Once you have determined that your seller’s Puerto Rico Certificate of Exempt Purchases is valid, you are all set to sell to them without charging sales tax.

Last but not least, keep a copy of every Certificate of Exempt Purchases that you accept for a period of 6 years. You’ll want to have this on hand in case of a sales tax audit.