Puerto Rico deal with Amazon means increased revenues

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A deal between Amazon and Puerto Rico’s government for the online retailer to collect sales taxes will bring increased revenues to the government and potentially to bondholders.

In the deal announced Friday, Puerto Rico Secretary of the Treasury Raúl Maldonado Gautier said that Amazon would begin to collect and remit the island’s sales tax on April 1.

“It’s not a game changer but it’s certainly a positive development for tax collections and the retail sector,” said Advantage Business Consulting President Vicente Feliciano. Advantage Business Consulting is a Puerto Rico business and economic consulting firm.

Amazon’s collection of the tax will put “local retailers on equal footing,” he said.

Because they have a physical presence in Puerto Rico, Walmart, Kmart, and Nordstrom have to collect revenues on their online sales to island residents, Feliciano said. With Amazon joining them, a substantial portion of online retailers must now collect the sales tax if they sell to island residents.

As of 2017 Amazon had 4% of all retail sales in the United States, according to One Click Retail, an e-commerce analytics provider.

Because a smaller proportion of people have online access, online sales are not as significant in Puerto Rico as in the 50 states, Feliciano said.

Neither the Puerto Rico Treasury nor Amazon responded to an inquiry as to how much money they expected the deal to bring to Puerto Rico. However, Maldonado Gautier said, “This agreement is an important achievement for the administration of Gov. Ricardo Rosselló.”

In June 30, 2017 the Puerto Rico Oversight Board approved a fiscal year 2017-2018 budget that projected $1.7 billion of sales and use tax revenue for the General Fund. This would be 18% of all revenue for the year.

Since Hurricane Maria, the board and Puerto Rico’s government have said that revenues will be below budget.

In the early parts of the fiscal year the sales and use tax revenues go to the Puerto Rico Sales Tax Finance Corp. (COFINA), which normally pay off the so-called COFINA bonds.

In the midst of disputes associated with Puerto Rico’s Title III bond bankruptcy, sales tax revenue money is going into COFINA but isn’t being distributed to bondholders.

Historically, the sales and use tax revenues could also be used for bonds being supported by the General Fund, including the general obligation bonds. Puerto Rico isn’t paying those bonds currently.
The board is planning to release a fiscal plan by March 30 that is intended to guide Puerto Rico’s debt payments through fiscal year 2023.

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PROMESA Commonwealth of Puerto Rico Puerto Rico Infrastructure Financial Authority Puerto Rico Industrial Development Co University of Puerto Rico Puerto Rico Sales Tax Financing Corp (COFINA) Puerto Rico