The Rhode Island Department of Revenue (DOR) released a ruling in response to a company's request to clarify whether the reports it sells are subject to Rhode Island sales and use tax. More specifically, the ruling request focuses on the state's sales and use tax rules and how they apply to the reports designed to help neurodivergent individuals and their families communicate information about needs, strengths, sensitivities, and appropriate support to schools, clinicians, and relatives.
Key Questions and the DOR's Decision
The ruling request focuses on the tax treatment of the reports themselves and, if taxable, the specific category under which they should be classified. The company also asked whether the reports should be treated as taxable vendor-hosted prewritten computer software, specified digital products, or another type of taxable product.
Finally, the company sought clarification on whether the method of delivery affects the tax treatment. In particular, it asked whether allowing customers to download a PDF report from an online dashboard produces a different sales tax result from sending the same PDF directly to the customer by email.
The DOR noted that Rhode Island imposes a 7% sales tax on retail sales and a corresponding 7% use tax on taxable property and certain digital products and services. The sales and use tax system covers tangible personal property, electronically delivered or vendor-hosted prewritten computer software, specified digital products, and certain services.
Based on the facts, the DOR determined that the company’s product is taxable as vendor-hosted prewritten computer software. Although the company ultimately provides customers with a personalized report containing information about a family member, customers must use its online dashboard to complete the questionnaire, submit information, and access the resulting report.
The dashboard is software because it is a set of coded instructions that enables a computer to perform tasks. It is also considered prewritten computer software because it was not developed to the specifications of an individual customer. The fact that each report contains unique information about a particular family member does not change the nature of the underlying software.
The DOR specifically declined to answer the third question concerning whether the method of delivering the report, such as downloading it from the dashboard rather than receiving it by email, would affect the tax treatment. Under Rhode Island’s rules on declaratory orders, the DOR does not issue rulings concerning hypothetical situations.
Takeaways for Businesses
This ruling underscores Rhode Island's broad approach to taxing digital services, establishing that platform access and interactive software functionality take precedence over the delivered end product when determining sales tax obligations. Businesses offering similar reporting tools should carefully evaluate their platform models to ensure compliance with evolving state tax classifications. That said, businesses should keep in mind that the ruling applies only to the specific facts described in the request.
