Florida Lawmaker Pushes Puerto Rico Exemption to Import Tax

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By Laura Davison

A House Republican is pushing the Ways and Means Committee to classify Puerto Rican products as domestic goods in a tax overhaul bill so they wouldn’t be subject to the House leadership’s proposed 20 percent import tax.

The committee addressed the treatment of Puerto Rico tax issues at a two-day retreat earlier this week, Rep. Carlos Curbelo (R-Fla.) said May 4. Puerto Rico, a pharmaceuticals manufacturing hub, would benefit from the border adjustment tax if it is treated as a domestic state. The border adjustment proposal would place taxes on imports and exempt exports.

But if Puerto Rican-made drugs, including those produced by Johnson & Johnson and Merck & Co., were subject to a tax, it could raise medication prices in the U.S. It also could push manufacturers out of Puerto Rico, said Ramon Camacho, a principal at RSM US LLP. Manufacturing has languished on the island since a tax incentive in tax code Section 936 expired in 2005.

A 4 percent excise tax imposed starting in 2010 also aided the sector’s decline, said Rosana M. Gutierrez, special counsel at Foley & Lardner LLP. There are production facilities on the island certified by the Food and Drug Administration that sit empty because of consolidation, and companies shutting down production, she said.

“The committee now understands that tax reform is a great vehicle to help Puerto Rico, to treat Puerto Rico fairly,” Curbelo said at a Congressional Hispanic Leadership Institute briefing.

His comments come a day after the U.S. island territory declared a form of bankruptcy on about $70 billion in debt. Tax reform would alleviate some of these financial struggles through new jobs and economic growth, Resident Commissioner Jenniffer Gonzalez-Colon, Puerto Rico’s representative in the House, said.

Special Treatment

The tax code treats U.S. subsidiaries in the territory differently from those in the rest of the country, leading to concerns that Puerto Rican products could be considered foreign goods in a rewrite of the tax code. Manufacturing accounted for about 50 percent of the island’s gross domestic product in 2015, according to data from the Puerto Rico Fiscal Agency and Financial Advisory Authority.

This could be the time to “onshore” Puerto Rico, Camacho said. Tax overhaul is the time to reconsider Puerto Rico’s tax treatment, so this could be the time to make it a state for tax purposes, he said.

“We are part of the United States, so that should not apply to the island and to the products made in the island, so we should not be considered as a foreign jurisdiction of production,” Gonzalez-Colon said.

“I expressed to my colleagues the urgency of the situation,” Curbelo told Bloomberg BNA. “Chairman Brady knows this is a major priority for me and he has committed to me he will work with me.”

To contact the reporter on this story: Laura Davison in Washington at lDavison@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

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