According to the annual mid-year tax rate study issued by Vertex Inc., the leading supplier of corporate tax solutions, in the first six months of 2016 there were 303 sales tax rate changes, a slight decrease to the 340 changes that occurred in the first six months of 2015.
There were three state sales tax changes during the first half of 2016:
Effective January 1, 2016, California decreased their rate from 6.500% to 6.250%. This was a shift in tax rate, so the taxpayer saw no change in their total combined rate. The 0.250% that was expired for the state, was subsequently added to all Counties in California.
Effective April 1, 2016, Louisiana increased their rate from 4.000% to 5.000%.
Effective June 1, 2016, South Dakota increased their rate from 4.000% to 4.500%.
“The most significant development in the past six months occurred when Puerto Rico was scheduled to switch from sales tax to VAT on June 1, 2016 until its legislature unanimously passed a bill repealing the Value Added Tax (VAT),” said John Minassian, Vice President of Tax Content Development at Vertex.
There are a number factors to consider when looking at what might be in store for the future of Puerto Rico’s tax landscape:
Puerto Rico will elect a new governor this November as current governor, Alejandro Garcia Padilla, is standing down and not running for re-election. Padilla suggested the commonwealth’s central government may not be able to borrow from the $3.7 trillion municipal bond market anytime soon because of the uncertainty of restructuring the island’s $70 billion debt.
Puerto Rico’s economy has contracted every year except one since 2006, according to Puerto Rico’s Fiscal Agency and Financial Advisory Authority. Puerto Rico’s population shrank about 7% to less than 3.5 million in 2015 from 2010 according to the Census Bureau.
On June 13, 2016, the Supreme Court struck down Puerto Rico’s request to restructure its public utility debts, increasing pressure on Congress to finish work on pending legislation to help the U.S. territory address its growing debt crisis.
On June 30, 2016, President Obama signed into law a Bill designed to rescue Puerto Rico’s economy and restructure its staggering debt burden. Puerto Rico still defaulted on roughly $1 billion of debt payments that came due on July 1st in one of the largest ever municipal bond defaults in history. The Senate later approved legislation to set up a federally appointed oversight board designed to bring balance to Puerto Rico’s budget.
Since the VAT was repealed, Puerto Rico's Sales and Use Tax (SUT) remains in effect at a rate of 10.5% with an additional municipal rate of 1%. The 4% Special-SUT will remain in effect for services performed for other merchants and for qualified professional services.
Additional noteworthy statistics from the Vertex 2016 Mid-Year Sales Tax Rate Report include:
Puerto Rico currently has the highest state sales tax rate at 10.500%. Indiana, Mississippi, New Jersey, Rhode Island and Tennessee have the second highest state sales tax rates at 7.000%.
Kodiak, Alaska, Wrangell, Alaska and Winter Park, Colorado have the highest city sales tax rate at 7.000%. Hoonah, AK and Selawik, AK have the second highest rate of 6.500%.
Tuba City (including the surrounding areas that are in the To’Nanees’Dizi Local Government), Coconino County, AZ has the highest combined sales tax rate of 12.900%.
Since 1978, Vertex, Inc., has been a leading provider of tax technology and services, enabling companies of all sizes to realize the full strategic potential of the tax function by automating and integrating tax processes, while leveraging advanced and predictive analytics of tax data. Vertex provides cloud-based and on-premise solutions that can be tailored to specific industries for every major line of tax, including income, sales and consumer use, value added and payroll. Headquartered in Pennsylvania, and with offices worldwide, Vertex is a privately held company that employs over 900 professionals and serves companies across the globe.