Understanding Rhode Island Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Rhode Island
Rhode Island imposes a 7 percent tax on sales or rentals of tangible personal property, other than sales for resale. There is an additional 5 percent on transient room rentals. Also subject to tax are the following categories of services:
- producing, fabricating, processing, printing or imprinting tangible personal property for consumers who furnish the materials used
- furnishing tangible personal property for a consideration by social or athletic clubs
- preparing or serving meals, food and drinks (including related cover, minimum, or entertainment charges)
- transfers of possession of tangible personal property where the seller retains title as security for payment
- the rental of living quarters in a hotel, rooming house, or tourist camp
Leases. In Rhode Island, receipts from the rental or lease of tangible personal property are subject to sales and use taxes. Lease and rental refer to tangible personal property transfers without a transfer of title to the property. The tax is computed on the gross rental or lease payment, without any allowance for service, maintenance, etc., regardless of whether such items are paid by the lessor or lessee. Each period for which a rental or lease charge is made is considered a complete sale for purposes of the sales and use tax.
Retailers Are Liable for Payment of Sales Tax
In Rhode Island the sales tax is imposed on sales at retail, and the retailer is liable to the state for payment of tax. The retailer, however, is required to add the tax to the sales price or charge, at which time the tax becomes a debt from the consumer or user to the retailer.
Absorbing the tax is not permitted. In Rhode Island it is against the law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.
Tax Permits Are Required in Rhode Island
In Rhode Island every person engaging in the business of making sales at retail or engaging in the business of renting living quarters must obtain a permit for each place of business. The annual permit that is obtained from the Tax Administrator requires a $10 fee and must be renewed each year by February 1, along with another $10 fee.
Many Items Are Tax Exempt
Rhode Island has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from Rhode Island sales tax. You'll want to check and see if you are exempt from the sales tax. An exemption certificate may be issued by a purchaser of a nontaxable item. The exemption certificate may be based on the type of transaction (such as a resale exemption) or on the item itself.
Purchases for Resale Are Not Subject to Tax
In Rhode Island sales for resale are not subject to sales and use tax. The burden of proving that a sale of tangible personal property is not a sale at retail is on the seller unless the seller, in good faith, takes an exemption certificate from a purchaser.
Resale exemption certificate requirements. A resale exemption certificate must include the following information:
- the purchaser's name and address;
- the purchaser's signature;
- the general character of the property sold by the purchaser in the regular course of business and
- the purchaser's retail sale permit number.
Blanket Retail Certificates Are Permitted
A blanket resale certificate must include the information noted above for the resale exemption, plus the certificate should be marked "Blanket Certificate." A blanket certificate describing the property is good until revoked in writing. However, the seller should periodically verify that you continue to hold a valid permit to make sales at retail. The seller may rely on a resale certificate over three years old, but at the risk of it being disallowed if the purchaser no longer holds a permit to make sales at retail.
Physical Presence Triggers Tax Liability
Rhode Island has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if you have physical presence within Rhode Island. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse, or any office space in Rhode Island? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Rhode Island for purposes of taking and transmitting orders from Rhode Island? If your employee or independent contractor goes into Rhode Island to take or transmit orders, your business may have physical presence in Rhode Island. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Rhode Island for purposes of delivering property? Frequent deliveries in Rhode Island by your trucks will give you physical presence in Rhode Island.
Rhode Island Allows Use of a Tax Bracket System
The bracket system may be followed by sellers in computing the sales tax. When the amount of the sale is more than $1.07, the amount of the tax is collected at the rate of 7 percent. The tax is computed according to the following table:
|Amount of Sale ||Amount of Tax |
|$0.00 to $0.07 inclusive ||No tax |
|0.08 to 0.21 inclusive ||$0.01 |
|0.22 to 0.35 inclusive ||0.02 |
|0.36 to 0.49 inclusive ||0.03 |
|0.50 to 0.64 inclusive ||0.04 |
|0.65 to 0.78 inclusive ||0.05 |
|0.79 to 0.92 inclusive ||0.06 |
|0.93 to 1.07 inclusive ||0.07 |
How to Recoup Excess Tax Payments
You may apply for a refund of any overpayment of tax to the Tax Administrator. Claims for refund must be made within three years from the 15th day of the month for which overpayment was made. If your customer returns merchandise to you within 120 days from the date of purchase and you refund the purchase price, you may take a deduction on your next sales tax return for the returned merchandise.
Rhode Island Imposes Use Tax on Out-of-State Sales
A compensating use tax is imposed upon the storage, use or other consumption in Rhode Island of tangible personal property purchased from a retailer. A use tax exemption is provided for the storage, use, or other consumption in Rhode Island of property upon which the sales tax was paid. Retailers have an obligation to collect use tax from persons storing, using, or otherwise consuming tangible personal property in the state. A use tax exemption is provided in Rhode Island of property upon which the sales tax was paid. In Rhode Island property brought into the state on which a sales or use tax has been paid in another state equal to or in excess of the Rhode Island tax is not subject to tax in Rhode Island.