Puerto Rico Treasury Department establishes Procedure to Request Sales and Use Tax Exemption on Solar Electric Equipment
By: Felipe Mariani Franco
On October 4, 2023, the Puerto Rico Treasury Department (“PRTD”) issued the Internal Revenue Circular Letter 23-13 (“CL 23-13”) to inform of the procedures that must be followed to request the sales and use tax exemption on solar electric equipment.
Section 4030.17 of the Puerto Rico Internal Revenue Code of 2011, as amended (the “Code”), provides a sales and use tax exemption to solar electric equipment used for the production and/or storage of electric power, including its accessories and parts, if they are necessary for the equipment to fulfill its purpose. Leases of solar electric equipment and of its accessories and parts will also be exempt from sales and use tax. However, to qualify for the exemption, the distributor or the manufacturer should present to the PRTD a certificate stating that the solar electric equipment or its accessories and parts, meet the standards and specifications established by the Energy Affairs Administration, as well as a certificate declaring that the solar electric equipment has a warranty for at least five years.
Article 4030.17-1 of the Regulations under the Code generally establishes the procedure to obtain such an exemption. It provides that the PRTD shall receive the documents and, if warranted, issue an administrative determination exempting the solar electric equipment for which the exemption is requested. Once the administrative determination is issued, the distributor or manufacturer shall not collect sales and use tax on the solar electric equipment for which the administrative determination was issued for.
Purpose of CL 23-13
The PRTD issues CL 23-13 to establish the procedure to request a sales and use tax exemption on solar electric equipment.
Procedure to Obtain the Sales and Use Tax Exemption
CL 23-13 establishes that the importer, distributor, or manufacturer of the solar electric equipment must request a ruling from the PRTD for the solar electric equipment to qualify for the sales and use tax exemption. The importer, distributor, or manufacturer should include with the ruling request the certificate of renewable energy equipment issued by the Oficina de Gerencia de Permisos (“OGPe” for its Spanish acronym) detailing the brand, model, and certifications and specifications of the equipment. Also, it should include a certificate from the distributor or manufacturer stating that the solar electric equipment has a warranty of at least five years.
The ruling is requested by following the procedure established in Circular Letter for Tax Policy No. 16-09 (“CLTP 16-09”) by submitting a letter to the Assistant Secretary for the Tax Policy Area together with supporting documentation. The letter should include the information of the taxpayer, the facts related to the transaction, the ruling or rulings requested, the statement of law which supports the ruling request, and an analysis of the statement of law. Also, included in the letter are required representations about the taxpayer and the transaction. Furthermore, besides the certificate issued by OGPE and the warranty certificate, a draft of the response and a checklist to ascertain completeness of the ruling request should be included with the ruling request. A filing fee determined under Regulation 9115 will be imposed.
Once the ruling is issued providing the sales and use tax exemption, the same will be valid for all future imports or sales for the solar electric equipment included in the ruling. The ruling issued should be included with the Declaration of Import, Model SC 2970, when importing solar electric equipment that is part of the ruling. Furthermore, the distributor and the manufacturer should not collect sales tax in the sale of solar electric equipment that are included in a ruling that has been issued.
All importers, distributors and manufacturers of solar electric equipment should act fast. Not obtaining the ruling required by CL 23-13 may result in a use tax being imposed on the solar electric equipment they import and requiring them to collect sales tax on the solar electric equipment they sell. Since this is relatively new, there is uncertainty on how long the PRTD will take in reviewing a request for ruling and issuing an opinion.
We recommend that you review all the solar electric equipment that you import, manufacture and/or sell to make sure that you have a certificate issued by OGPE for each solar electric equipment and a warranty issued by the distributor or manufacturer for at least five years. If you do not have one of those documents or the documents do not clearly indicate the brand and model, then the documents should be obtained before requesting the ruling. Our tax consultants are available to help you with the ruling request and to answer any questions related to CL 23-13.
About The Author
Felipe is a Member at Alvarado Tax & Business Advisors LLC. Prior to that, he was Partner at Zaragoza & Alvarado LLP.
His Curriculum Vitae also includes previous experience in the corporate and individual tax advisory area with an international and a local firm.