(No. 108) (Approved April 11, 2003) AN ACT

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(H. B. 3495) (No. 108) (Approved April 11, 2003) AN ACT To add paragraph (45) to subsection (b) of Section 1022; amend paragraph (4) of subsection (a) of Section 1053; to amend subsection (c) of Section 1056; and amend Section 6043 of Act No. 120 of October 31, 1994 as amended, known as the Internal Revenue Code of Puerto Rico, with the purpose of exempting the compensation received for active military service rendered by military personnel in a combat zone from the payment of income tax, grant a six (6) month extension for the payment of the corresponding tax, and exempt the revenue declared on the income tax return, which payment has been extended, from the of payment interest. STATEMENT OF MOTIVES We are living in times of great uncertainty. Because of this and for other reasons, Puerto Rican soldiers, members of the United States Armed Forces, and of the National Guard of Puerto Rico, have been and are being called to active military service. The Federal Internal Revenue Code contains special provisions that grant certain tax benefits to military personnel stationed in combat zones. However, the Internal Revenue Code of Puerto Rico of 1994, as amended ( Code ) has no tax benefits that apply to Puerto Rican personnel who serve in the Armed Forces of the United States or in the National Guard of Puerto Rico, with the exception of an extension of the term for the filing of tax returns. This extension is for six (6) months as of the date their active military service ceases.

2 One of the benefits that is granted in the federal jurisdiction is that the compensation received for the active military service of said personnel while they are in a combat zone shall be excluded from their gross income. Puerto Rico does not provide a similar benefit, therefore, said compensation is deemed taxable income for the purposes of the provisions of the Code. On the other hand, although the Code grants an extension to file the income tax return, it does not provide an extension for the payment of the tax estimated in said return, nor does it grant the benefit of exempting them from the payment of the interest on said tax, once it is extended. The purpose of this measure is to grant Puerto Rican military personnel assigned to combat zones, an exemption from the payment of income taxes regarding compensation received for active military service while they are in said zone. In addition, any person in active military service in an armed conflict who is transferred outside of Puerto Rico, shall be granted an extension to meet his tax obligation, and shall also be exempted from paying the corresponding interest and surcharges. In this way we recognize and support the service rendered by our military, personnel who risk their life and health in armed conflicts. BE IT ENACTED BY THE LEGISLATURE OF PUERTO RICO: Section 1.- Paragraph (45) is hereby added to subsection (b) of Section 1022 of Act No. 120 of October 31, 1994, as amended, to read as follows: Section 1022.- Gross income (a) (b) Exclusions from gross income. The following items shall not be included in gross income, and shall be exempted from taxation

3 under this Subtitle: (1) (45) Compensation received for active military service rendered by military personnel in a combat zone. This exclusion does not apply to military personnel mobilized outside of Puerto Rico to relieve military personnel sent to the combat zone. (A) Enlisted personnel.- The exclusion applies to the maximum basic pay received by enlisted military personnel, for active military service while in the combat zone. (B) Commissioned officers.- In the case of commissioned officers, the exclusion provided in subparagraph (A) is limited to the maximum basic pay received by enlisted military personnel. (C) Definitions.- For the purposes of this paragraph - (i) The term commissioned officer does not include technical administrative officers; (warrant officers); (ii) the term military personnel includes the members of the United States Armed Forces as well as the members of the National Guard of Puerto Rico who are activated during the time of conflict and serve in the combat zone; (iii) the term combat zone means the area designated by an Executive Order of the President of the United States as the area where the United States Armed Forces shall combat during the period of conflict. Section 2.- Paragraph (4) of subsection (a) of Section 1053 of Act No. 120 of October 31, 1994, as amended, is hereby amended to read as follows:

4 Section 1053.- Date and Place to File Returns (a) Date to file. (1) (4) An extension of six (6) months for filing returns shall be granted to every taxpayer who, during any armed conflict, is activated and transferred to render military service outside of Puerto Rico. Said extension shall be granted as of the date on which the taxpayer ceases to be on active duty. The Secretary shall establish the conditions under which the extension will be granted through regulations to such effect. (b) Section 3.- Subsection (c) of Section 1056 of Act No. 120 of October 31, 1994, as amended, is hereby amended to read as follows: Section 1056.- Payment of tax (a) (c) Extension of time for payment. -- At the request of the taxpayer, the Secretary may extend the term for the payment of the taxable amount determined by the taxpayer, or any installment thereof, for a period that shall not exceed six (6) months from the date prescribed for the payment of the tax or any installment thereof. In such case the amount with regard to which the extension is granted shall be paid on or before the expiration date of the extension period. An extension of six (6) months shall be granted to every taxpayer to pay the tax, who is activated and transferred to render military service outside of Puerto Rico during any armed conflict. Said extension shall be granted as of the date that the taxpayer ceases his/her active military service. (d)

5 Section 4.- Section 6043 of Act No. 120 of October 31, 1994, as amended, is hereby amended to read as follows: Section 6043.- Extension of time for the Payment of Stated Tax. If the term for the payment of the amount determined as the tax by the taxpayer, or of any installment thereof, is extended under the authority of Sections 1056(c), 3313, 3314 or Section 2083 of this Code, interest shall be collected as a part of such amount, at a rate of ten (10) percent per annum, from the date that the payment should have been made if the extension had not been granted, until the expiration of the term of the extension. Provided, that the payment of interest shall not be applicable in the cases of extensions granted under Section 1056 (c) to taxpayers who during any armed conflict are activated and transferred to render military service outside of Puerto Rico, and who meet the terms established in said extension. Section 5.- Effectiveness - This Act shall take effect immediately after its approval.

6 CERTIFICATION I hereby certify to the Secretary of State that the following Act No. 108 (H.B. 3495) of the 5 th Session of the 14 th Legislature of Puerto Rico: AN ACT to add paragraph (45) to subsection (b) of Section 1022; amend paragraph (4) of subsection (a) of Section 1053; to amend subsection (c) of Section 1056; and amend Section 6043 of Act No. 120 of October 31, 1994 as amended, known as the Internal Revenue Code of Puerto Rico, with the purpose of exempting the compensation received for active military service rendered by military personnel in a combat zone from the payment of income tax, grant a six (6) month extension for the payment of the corresponding tax, and exempt the revenue declared on the income tax return, which payment has been extended, from the of payment interest, has been translated from Spanish to English and that the English version is correct. In San Juan, Puerto Rico, today 30 th of April of 2004. Elba Rosa Rodríguez-Fuentes Director

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