tax

Too many cooks in the kitchen spoil the broth—and boy are there a ton of cooks in our kitchens. The cooks in suits in our legislature all seem to walk into the kitchen at the same time with different ingredients and some of them don’t just taste bad, they’re outright poison.

Recently, our legislature decided they were literally going to walk into the island’s kitchens. The idea, which seemed to be a noble one, was to provide relief to taxpayers who consume prepared foods outside their homes. The dual benefit of the reduction was aimed at reducing costs for consumers but also providing some relief and economic development to an already ailing industry: restaurants. The restaurant industry is a very challenging one; from low margins to high costs of operations, restaurants provide a service that we all use and never stop to truly appreciate. Restaurant owners are champions who create jobs, raise the value of the neighborhoods where they establish their businesses and, as we saw in Maria, are the first to put their resources forward to assist our communities.

All of these virtues of the restaurant industry were ignored by former Secretary Juan Zaragoza, who said the industry was invaluable, but also decided to go out and target restaurant owners who had debts with the Treasury Department. The result was counterintuitive; businesses were closed, jobs eliminated and tax debts were not paid; with negligible collection results.

Currently however, and after much debate, the legislature created a sales tax reduction, formulated to give restaurants an incentive to attract more customers and pay their tax debt. Consumers were also prized with a reduced restaurant bill and tax relief due to the sales tax reduction. A great idea.

As part of the Puerto Rico tax reform of 2018, a reduction in the sales tax of 4.5 percent on the sales made by restaurants in Puerto Rico that are duly qualified to apply the reduced sales tax on its sales. Therefore, effective Oct. 1, 2019, diners will see a 4.5 percent reduction in their sales tax from 11.5 percent to 7 percent sales tax, as long as you sponsor a qualifying restaurant.

The tax reduction will only apply on the sales considered prepared food and non alcoholic beverages in restaurants, which are strictly defined as commercial establishments that sell prepared food made to be consumed in the establishment or carried out as long as its served with utensils.

In order for a restaurant to be eligible for the lower rate, it must be registered in the merchant registry of the Puerto Rico Treasury Department with the appropriate NAIC code for the restaurant industry. The key requirement is that the restaurant must have all of their sales tax filings up to date, absolutely no tax debts, or a valid payment plan for any debt at all. In addition, the merchant must have sophisticated point of sales systems that meet government requirements regardless of the fact that restaurants with sales under $125,000 used to be able to work without these point of sale systems, which are now a requirement. In addition, these point of sale terminals must be connected and transmitting data to the P.R. Treasury Department.

This means that the little guy now has to invest in sophisticated equipment to tell Hacienda all they sell. Not much economic stimulus for this group.

Restaurants who automatically comply with these requirements will be able to download a certificate from SURI that will allow them to charge 7 percent rather than 11.5 percent. This certificate must be placed in a visible area within the establishment. The certificate will only be valid through Sept. 2020 and every year it will be renewed automatically.

So, starting in October we must choose what restaurants we will go to, and some will choose based on a 4.5 percent sales tax cut. I, for one, can say that I care more for the quality of what I’m eating than the tax rate I’m paying at a restaurant. I will eat whatever I want, wherever I want and will support local merchants. The burden should be on the government to enforce the law, not the other way around.

Maybe this is the root of Puerto Rico’s problem. The government looks to make its role easier, but it only keeps adding layers of bureaucracy at the expense of the working class.

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