Puerto Rico's Treasury Department (PRTD) has announced (Administrative Determination (AD) 17-19) that donations of tangible personal property and services to help with the aftermath of Hurricane Maria are not subject to sales and use tax (SUT).

Specifically, donations of tangible personal property and services by foreign persons to: (1) hospitals; (2) nonprofit entities; (3) public and municipal instrumentalities of the Government of Puerto Rico and the United States, including the legislative and judicial branches; and (4) individuals, are not subject to SUT.

Additionally, tangible personal property imported by a merchant for donation purposes that is not considered a part of the merchant's inventory is not subject to SUT, provided the merchant can prove that the tangible personal property will not be included in the merchant's inventory for resale and was imported solely for donation purposes. Tangible personal property imported by a merchant and removed from the merchant's inventory for donation purposes, however, will be subject to SUT.

Under AD 17-19, the PRTD defines a donation as a non-commercial transaction that involves individuals and entities giving away tangible personal property and services to donees without consideration.

Implications

AD 17-19 does not indicate which procedure a foreign person or a donee would need to complete for imports of tangible personal property to be exempt from the payment of SUT. As a result, foreign persons should consider keeping proper documentation of the nature of donation transactions until further guidance is issued, if any.

Registered merchants completing donation transactions should also keep track of any tangible personal property imported for donation purposes and be cognizant of the fact that items retired from inventory will not be considered as donations that are exempt from SUT. AD 17-19 indicates that merchants must be able to prove to the PRTD that donated items do not constitute inventory.

The bill of lading should specifically describe that the articles imported are for donation purposes and identify the donees.

As provided in AD 17-19, transactions between employers and employees should be eligible for the SUT exemption, but it is very important that the transactions constitute donations.

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