Rhode Island Sales and Use Tax Guide: Rates, Nexus & Rules

Sales and Use Tax Basics in Rhode Island

Sales Tax

In Rhode Island, sales tax applies to retail sales, rentals, or leases of many goods and services, including tangible personal property, prewritten software, vendor-hosted software, or specified digital products, specifically when the goods or services are for use rather than for resale. Retailers are responsible for collecting these taxes from their customers and remitting them directly to the Rhode Island Division of Taxation.

Use Tax

The use tax applies at the same rate as sales tax on the storage, use, or consumption of tangible personal property within Rhode Island, and any consumer or retailer must report it unless the tax has already been paid to an authorized retailer. In Rhode Island, the use tax also applies to casual sales of motor vehicles or trailers by individuals who are not licensed dealers, including auction sales.

Rhode Island Sales and Use Tax Rates

The statewide sales and use tax rate in Rhode Island is set at 7%. Notably, there are no local sales and use tax rates. However, in addition to statewide taxes, a 6% hotel tax applies to room rentals in hotels, motels, or similar lodging establishments.

Tax-Exempt Transactions

Sales and use tax does not apply to sales that the state legally cannot tax, newspapers, school meals, and specific containers, as well as exempt purchases by non-profit, charitable, educational, and religious organizations. Furthermore, the state legislation provides exemptions for certan food and food ingredients, prescription medicines, durable medical and mobility‑enhancing equipment, and coffins or burial items, as well as motor vehicles sold to non-residents under certain conditions.

Additionally, sales and use tax exemptions cover special categories like commercial and fishing vessels, manufacturing machinery and equipment used in production, compressed air and water for residential use, clothing and footwear within limits, textbooks for education, and other items used in farming, research and development, or pollution control.

Nexus Rules in Rhode Island

Establishing nexus means that an individual or business has a sufficient level of connection or presence in Rhode Island to give the state the legal authority to impose tax obligations. Sufficient presence is established when taxable persons are physically present within the state or by economic presence. This economic presence is also relevant for marketplace facilitators.

Physical Nexus

Physical nexus exists when a taxable person has a connection to Rhode Island through its sales, delivery, or related commercial activities. Additionally, a physical nexus is created when a taxable person maintains or uses any physical location in the state, such as an office, warehouse, distribution center, or storage facility. 

Also, this type of nexus exists when a taxable person operates in Rhode Island through subsidiaries, agents, representatives, salespeople, or solicitors, whether permanently or temporarily. If any of these individuals or businesses act in Rhode Island to sell, deliver, or take orders, the remote seller is treated as having a physical presence in Rhode Island and must comply with state sales tax rules.

Economic Nexus

Following the Supreme Court's 2018 South Dakota v. Wayfair ruling, Rhode Island introduced economic nexus rules that extend sales and use tax obligations to specific remote or out-of-state sellers. Therefore, as of July 2019, remote sellers with no physical presence in the state are required to register with the Rhode Island Division of Taxation and collect and remit the state’s 7% sales and use tax, once they generate at least USD 100,000 in gross revenue from in-state sales or complete 200 or more separate transactions into the state.

Marketplace Nexus

Simultaneously with the introduction of the economic nexus for remote sellers, state officials also imposed the same USD 100,000 or 200 transactions threshold on marketplace facilitators without physical presence in Rhode Island. Unlike remote sellers, who are only liable for their own sales, marketplace facilitators must include both their own sales and those facilitated on behalf of marketplace sellers when calculating the threshold.

Taxable Goods and Services in Rhode Island

Individuals or businesses selling tangible personal property, meaning physical items intended for use rather than resale, as well as certain specifically identified services, make taxable sales of goods and services. Notable examples of taxable transactions include household goods such as appliances, furnishings, antiques, jewelry, electronics, computers, and software. Regarding services, the supply of telecommunications and cable television services is also subject to tax.

Bundled Transactions and the True Object Test

The sales and use tax regulation defines a bundled transaction as one in which two or more distinct and identifiable products are sold together for a single price, provided the price does not vary with the customer’s selection. Notably, incidental packaging, free promotional items, or charges already included in the statutory definition of sales price are not treated as separate products for this purpose.

A sale that might otherwise qualify as a bundled transaction is excluded from this classification when the true object of the transaction is a service rather than the tangible property involved. This applies when tangible property is essential to and exclusively used with a service, or when one service is merely incidental and necessary to another primary service. In such cases, taxability follows the nature of the primary service rather than treating the sale as a taxable bundle.

Bundled transactions that include both taxable and non-taxable items may also be excluded when the taxable portion is minimal. If the taxable products account for up to 10% of the total price, they are considered de minimis and do not make the entire bundle taxable. Special rules also apply to bundles containing exempt items, such as food, drugs, or medical equipment, in which the bundle remains exempt if the taxable portion does not exceed 50% of the total price.

E-Commerce Framework

As previously mentioned, remote sellers making sales through their own websites or online stores to consumers located in Rhode Island become liable for sales tax purposes once they exceed USD 100,000 in gross revenue or 200 or more separate transactions in the state.

Marketplace Rules

Sales tax rules for marketplace sellers are shaped mainly by the role of the marketplace facilitator, which is legally responsible for collecting and remitting sales and use tax on sales made through the platform. Moreover, marketplaces facilitators must formally certify sellers that they will handle tax collection and remittance on taxable marketplace sales. Based on that certificate, the marketplace sellers may exclude those marketplace sales from their own sales and use tax returns, as the tax responsibility shifts to the facilitator.

In practice, marketplace sellers are relieved of the obligation to collect, report, and remit sales tax on sales made through the marketplace, unless the facilitator is relieved of liability due to incorrect information provided by the seller. As a result, the liability shifts back to the marketplace sellers. Marketplace sellers are protected from audits of those sales when the facilitator is audited, and disputes over tax overcollection are handled through standard tax refund procedures rather than legal actions.

Digital Goods and Services

Since October 2019, a 7% sales and use tax rate applies to specified digital products, including digital movies, television shows, music, books, and similar content that is streamed or downloaded to computers, smartphones, or other electronic devices, as well as subscriptions to streaming audio and visual services.

In more technical terms, the term specified digital products refers to electronically transferred digital audiovisual works, digital audio works, and digital books. As noted by the Rhode Island Department of Revenue, this covers motion pictures and shows with sound, recorded music and spoken audio, including ringtones, and digital versions of books that are commonly recognized as such.

Digital Marketplace

To qualify as a marketplace facilitator, individuals or businesses must agree with a marketplace seller to assist in selling the seller’s products through a marketplace, in exchange for compensation, whether or not that compensation is separately stated or deducted from the transaction. 

Additionally, facilitators operate or control the marketplace infrastructure or technology that connects buyers and sellers, may transmit offers and acceptances, provide virtual currency, or conduct software and technology development directly related to operating the marketplace. 

As a final requirement, facilitators must perform one or more key activities related to the sale of the seller’s products, such as processing payments, storing or fulfilling orders, listing products, setting prices, branding sales as its own, taking orders, advertising or promoting products, and providing customer service or handling returns and exchanges.

Digital Platform Operator

Individuals or businesses that meet the criteria to be considered as marketplace facilitators and exceed the defined threshold must register for, collect, and remit sales tax directly to the Division of Taxation. Moreover, they are liable for sales tax regardless of whether the marketpalce seller is registered for sales tax or would otherwise have had a collection obligation. One of the key responsibilities of the facilitators is to certify to marketplace sellers that they are responsible for tax collection. 

Filing and Payment Requirements in Rhode Island

Generally, taxable persons in Rhode Island must file sales and use tax returns and pay any due taxes monthly. Even if no sales are made during the reporting period, a zero or nil tax return must be submitted. However, in cases where taxable persons consistently have low tax liability, they may apply for quarterly filing. 

To become eligible for quarterly reporting and payment, the tax due must not exceed USD 200 per month for six consecutive months. Also, individuals who owe use tax on non-business purchases may report and pay this tax annually by including it on their Rhode Island personal income tax return.

Penalties for Non-Compliance with Sales and Use Tax Requirements

In Rhode Island, taxable persons may face a 10% penalty for late payment of any due sales or use tax. Additionally, an interest is charged on the underpaid tax at the current rate, which cannot be less than 12%. Notably, the non-compliance with Rhode Island’s sales and use tax requirements can constitute a felony. 

Thus, if taxable persons willfully fail to file required returns, reports, certificates, or registrations, provide false information, fail to display or obtain permits, do not properly charge, collect, or remit tax, or fail to maintain required records, they are subject to criminal penalties. The penalty for such a felony is a fine of up to USD 25,000, imprisonment for up to five years, or both, in addition to any other penalties.