There have been recent changes in the Puerto Rico tax law. The resent changes took effect on the 20th of June 2013 when the Governor signed into law a package of tax measures which created the changes. Before indulging on the changes, it if prudent enough to start by having an understanding on the meaning of taxation.
It is sensible enough to build some background on taxation in order to clearly demonstrate the modifications. Tax is a mandatory payments made by the citizens and the businesses from their earnings to the government, with an intention of raising revenue for the government. It is important that taxes are paid to the government in order to enable it to operate effectively and to dispense its functions with ease.
In regard to new gross income, the new change creates a tax on gross income as part of the alternative minimum tax. These new tax will only apply to the financial institutions, insurance company contractors and other big institutions and companies. The exception to this new tax is companies operating under tax insensitive legislation and also businesses operating on agricultural products. The tax payers are also exempted for the change as it is only meant to target companies and financial institutions.
Since law does not operate in a vacuum, there are exceptions to the new alterations. The new alteration in relation to tax on gross income includes the following. The first one is that it exempts organizations and companies operating under tax incentives legislation. The second exception is meant to carter for agricultural businesses. The other exemption also allows tax payer to apply to the secretary for exemption. However, the tax payer must show that the new tax burden will bring an undue economic burden or it will be injurious to the tax payer. However, this exemption does not apply to financial institutions. This is a good move which focus in promoting young businesses which are growing and are prone to making losses. The move also encourages agriculture as it is the back bone of the economy.
Thirdly, is on AMT. Under the new regime, there is introduction of several similar computations which is used in identifying the validity of AMT. There are also other situations which warrant an exclusion to the AMT as provided in the new regime. For instance, a tax payer has a right to apply for the exclusion through the secretary. However the tax payer or the business which is seeking for the said exclusion must prove to the secretary that they stand to suffer incur losses if they are not exempted. This therefore is a good provision which ensures that businesses which incur losses are protected and prevented from incurring further loses by paying tax to the government.
In regard to sales and use tax, the changes are placed on business to business services as well as reseller exemption. The following are taxable business to business service. The first one is storage of tangible personal property. The second one is on motor vehicle leasing. The third one is installation and repairs of personal property. The fourth one is on bank charges. The fifth one is on collection services. The sixth one is collection services. The seventh one is on security. The eighth one is on cleaning and laundry services while the last one is on telecommunication services.On reseller, the exemptions have been changed all together. All resellers now are subjected to the payment of sales and use tax on their purchases.
In regard to other sales and use tax provision, the new law makes change to the sales and use tax treatment which includes the following exemptions. On matter of education, only school uniforms, text books and other leaning related materials. Initially, all the institutions of higher learning were exempted. The second one is that all equipment acquired by the health organization is now subjected to taxation. Initially health organizations and hospitals were exempted from taxation. The new law makes provision for the reduction of sales and use tax rate from seven percent to 6.5%.
It is worth noting that the modification in the Puerto Rico tax law changes the previous taxation regime as a whole.
It is sensible enough to build some background on taxation in order to clearly demonstrate the modifications. Tax is a mandatory payments made by the citizens and the businesses from their earnings to the government, with an intention of raising revenue for the government. It is important that taxes are paid to the government in order to enable it to operate effectively and to dispense its functions with ease.
In regard to new gross income, the new change creates a tax on gross income as part of the alternative minimum tax. These new tax will only apply to the financial institutions, insurance company contractors and other big institutions and companies. The exception to this new tax is companies operating under tax insensitive legislation and also businesses operating on agricultural products. The tax payers are also exempted for the change as it is only meant to target companies and financial institutions.
Since law does not operate in a vacuum, there are exceptions to the new alterations. The new alteration in relation to tax on gross income includes the following. The first one is that it exempts organizations and companies operating under tax incentives legislation. The second exception is meant to carter for agricultural businesses. The other exemption also allows tax payer to apply to the secretary for exemption. However, the tax payer must show that the new tax burden will bring an undue economic burden or it will be injurious to the tax payer. However, this exemption does not apply to financial institutions. This is a good move which focus in promoting young businesses which are growing and are prone to making losses. The move also encourages agriculture as it is the back bone of the economy.
Thirdly, is on AMT. Under the new regime, there is introduction of several similar computations which is used in identifying the validity of AMT. There are also other situations which warrant an exclusion to the AMT as provided in the new regime. For instance, a tax payer has a right to apply for the exclusion through the secretary. However the tax payer or the business which is seeking for the said exclusion must prove to the secretary that they stand to suffer incur losses if they are not exempted. This therefore is a good provision which ensures that businesses which incur losses are protected and prevented from incurring further loses by paying tax to the government.
In regard to sales and use tax, the changes are placed on business to business services as well as reseller exemption. The following are taxable business to business service. The first one is storage of tangible personal property. The second one is on motor vehicle leasing. The third one is installation and repairs of personal property. The fourth one is on bank charges. The fifth one is on collection services. The sixth one is collection services. The seventh one is on security. The eighth one is on cleaning and laundry services while the last one is on telecommunication services.On reseller, the exemptions have been changed all together. All resellers now are subjected to the payment of sales and use tax on their purchases.
In regard to other sales and use tax provision, the new law makes change to the sales and use tax treatment which includes the following exemptions. On matter of education, only school uniforms, text books and other leaning related materials. Initially, all the institutions of higher learning were exempted. The second one is that all equipment acquired by the health organization is now subjected to taxation. Initially health organizations and hospitals were exempted from taxation. The new law makes provision for the reduction of sales and use tax rate from seven percent to 6.5%.
It is worth noting that the modification in the Puerto Rico tax law changes the previous taxation regime as a whole.
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