Fall 2006-08 Corporate directors should register as "merchants"
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Fall 2006-08 Corporate directors should register as “merchants”

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Number 65
Fall 2006

Corporate directors should register as “merchants”

Although there is diversity of opinion as to how to interpret the Puerto Rico Treasury Department’s regulation, the safe way to go for a member of a board of directors is to register as a “merchant” rendering services to the corporation.


Internal Revenue Code


Section 2801 of the Puerto Rico Internal Revenue Code provides that any person engaged in business on the island “as a merchant” must register with Treasury for purposes of implementation of the new sale and use tax. Implementing Regulation 7230’s § 2801(a)-1(a) ups the ante by referring to persons who engage for gain in any type of business. “Merchant” is any person who sells taxable items or services.




Members of a corporate board of directors normally receive some sort of taxable compensation for their services. If this is viewed as “selling taxable services,” then they may be considered to fall within the code’s definition of “merchant,” and their actions as board members as a “business.” Although the code and the regulation exempt occasional and sporadic sales from coverage, the fact that board meetings usually occur at regular intervals seems to prevent access to this exception.




The fact that a director registers does not entail that he or she must also collect a sales and use tax from the corporation, however. This is so if the corporation is deemed to be a “merchant” too. Services rendered by one merchant to another are exempt from said tax. Regulation 7230 requires, though, that the corporation issue to its directors a so-called “Exempt Sales Certificate.”


Failure to register


Failure to register carries a fine of $10,000. Moreover, an unregistered director would have to collect the tax from the corporation and remit it to Treasury. Failure to do so would make the director personally liable for its payment.

Registration via Internet:


© 2006 Goldman Antonetti & Cordóva, LLC