In a letter sent Wednesday to Puerto Rico lawmakers, Virginia-based trade group Retail Industry Leaders Association members warned that a proposed gross receipts tax amendment would have “devastating effects” for retailers doing business on the island.
House Bill 1073 would impose a new tax on gross receipts, referred to as a “Super Patente” to businesses in an effort to fix Puerto Rico’s debt crisis.
“The gross receipts tax would have a dramatic and disproportionate effect on low-margin businesses, such as retailers,” the group said.
RILA is urging the legislature to oppose such drastic measures that would unfairly penalize retailers, forcing them to be faced with tough decisions on future employment opportunities and expansion of operations on the island.
“This bill appears to be an effort to fix Puerto Rico’s debt crisis by punishing companies with costly and punitive tax increases. When companies are saddled with significant financial burdens in order to maintain operations in specific jurisdictions, it not only stifles growth within the region but punishes the consumer with higher prices,” said Joe Rinzel, vice president of state government affairs for RILA. “A gross receipts tax is not sound public policy as it taxes a business regardless of profitability.”
The House and Senate is considering the proposed legislation. However, Rinzel said nobody has “discussed final details about this tax plan [with] retail companies and that is simply unacceptable.”
“We ask that you carefully consider this proposed amendment to offset the burden that Puerto Rico is considering levying upon U.S. businesses with operations on the island,” he said.
The group said that if the legislature is determined to pass this detrimental tax, at the very least U.S. retailers should be able to take a U.S. foreign tax credit for the gross receipts taxes paid in Puerto Rico.
“Federal tax credit exists to offset the burden of double taxation in both jurisdictions,” Rinzel said.
A business coalition that has been working with the Puerto Rican government throughout the process to address RILA’s concerns has proposed a clarifying amendment that would ensure that companies could take the U.S. foreign tax credit for paying such a tax, Rinzel said.
“The amendment would place the gross receipts tax in the Alternative Minimum Tax portion of the code which would ensure that such taxes would be eligible for the foreign tax credit,” he said.
RILA is the trade association of the world’s largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad.