The SUT Exemption and Goverment Contractors
Updated: Mar 31, 2020
Vol. 19 - December 2019 | ©2019 by Vidal, Nieves & Bauzá, LLC. All rights reserved.
On November 26, 2019, the Puerto Rico Treasury (“Treasury”) issued Circular Letter of the Internal Revenue Area No. 19-13 (“Circular Letter 19-13”). Circular Letter 19-13, in summary: 1) establishes additional guidelines related to the SUT exemption applicable to persons whooperate or act on behalf of theGovernment of Puerto Rico (i.e. Government Agent), pursuant to Section 4030.08 of the Puerto Rico Internal Revenue Code of 2011, as amended (“Code”) and Article 4030.08-1 of the Regulations; 2) expands the requirements for Government Agents; and 3) establishes the procedure for obtaining an exemption certificate from the Puerto Rico Treasury, among others. According to the Treasury’s new guidelines, a Government Agent must meet this requirements to be exempted from SUT: 1) Must be registered in the Treasury’s Merchant’s Registry and SURI platform. 2) Be up to date in all filing and payment requirements of the Code. 3) The entity was created with the exclusive purpose of acting on behalf of the Government. Circular Letter 19-13 illustrates this requirement with the following examples: Example #4: Entity “C” is a private entity created for the sole and exclusive purpose of providing health services to a particular group of people who would otherwise receive their health services directly from governmental agency "D." "C" requests from the Department to be certified as a Government agent. To the extent that "C" was created exclusively to act on behalf of "D," "C" may claim the exemption granted to the Government. Example #1: Company “A” has a contract with the Department of Transportation and Public Works to resurface the roads in Puerto Rico. At the same time, Company “A” has other agreements with other government entities and with private entities in Puerto Rico. In this example, Company A does not meet the requirement of having been created exclusively to act in an official capacity as an agent of the Department of Transportation and Public Works, and therefore cannot be considered a Government Agent for purposes of the SUT under Section 4030.08 of the Code. (Translation ours) 4) Obtain a certification issued by a Government entity stating that in effect, the entity works as its agent. This certification must also include a description of the services, a list of the articles and transactions that will be subject to the exemption, and the terms of the agency appointment. 5) Have an agreement with a government entity, which establishes the agency relationship. 6) Obtain an exemption certificate from the Puerto Rico Treasury. It appears that the Puerto Rico Treasury will not only require that an entity be created exclusively with the purpose being an agent of the Government for the SUT exemption, but will also require that the entity does not have agreements with more than one governmental agency. In light of the above, we urge government contractors that operate, or could operate, as a government agent to review the applicability of the Circular Letter 19-13 requirements, and make those adjustments as per the letter. Circular Letter 19-13 became effective on November 26, 2019. Should you or your company have any questions with respect to the Circular Letter 19-13 and/or with the procedure for obtaining an exemption certificate, you may contact the attorneys at Vidal, Nieves & Bauzá, LLC. Vidal, Nieves & Bauzá, LLC is a corporate law firm with a special emphasis in energy and environmental matters, corporate, tax, transactional, real estate, and insurance practices.