What to Know About Rhode Island Sales and Use Tax

Rhode Island’s tax system includes both a sales tax on goods and services sold within the state and a use tax on items purchased elsewhere but consumed or used in Rhode Island. These are transaction-based taxes, meaning they are applied at the point of a sale. Businesses operating in the state are responsible for collecting these taxes from customers and remitting them to the state government.

Determining Taxability in Rhode Island

The statewide sales tax rate in Rhode Island is 7%. This rate is uniform across the entire state, as there are no additional local sales taxes imposed by cities or counties, which simplifies calculations for businesses.

Sales tax is applied to the retail sale of taxable goods and services within Rhode Island. For instance, when a customer buys a home appliance from a store in Providence, the 7% sales tax is added to the purchase price. Use tax, also at a 7% rate, applies when a taxable item is purchased from an out-of-state seller who does not collect the state’s sales tax, and the item is then brought into the state for use. A business buying office furniture from an online retailer that doesn’t charge Rhode Island tax is responsible for remitting the use tax directly to the state.

The sale, rental, or lease of tangible personal property is subject to sales tax unless a specific exemption applies. This includes items such as furniture, computers and software, jewelry, and craft items. Certain services are also taxable, including telecommunications, cable television services, lodging rentals, and services that involve the creation or fabrication of a product.

Several major exemptions exist. Most food items for human consumption, often called groceries, are exempt from sales tax. Prescription drugs and most medical equipment are also not taxed. An exemption exists for most clothing and footwear, though this does not extend to accessories or specialized protective gear. For businesses, equipment used directly in manufacturing is exempt, as are items purchased for resale.

Registration for a Sales Tax Permit

A business must register to collect sales tax in Rhode Island once it establishes nexus, either through a physical presence or by meeting economic thresholds. Physical nexus is established if a business has a location like an office or warehouse in the state. It also applies if a company has employees, agents, or salespersons operating within Rhode Island, or delivers merchandise using its own vehicles.

Economic nexus is triggered for remote sellers if, in the previous calendar year, the business had gross revenue of more than $100,000 from sales in the state or conducted 200 or more separate sales transactions into Rhode Island. These thresholds apply to direct sales and sales made through a marketplace.

Before registering, a business owner should gather several pieces of information, including:

• The Federal Employer Identification Number (FEIN) or a Social Security Number (SSN) for a sole proprietor
• The legal business name and any “Doing Business As” (DBA) name
• The business’s physical and mailing address
• Detailed information about all owners or corporate officers
• A description of the business’s activities and the types of products or services it will sell

The official registration document is the Business Application and Registration (BAR) form. This application is used to register a business for various state obligations, including sales and use tax and employer withholding tax, simplifying the process for new businesses. The BAR form can be completed online through the Rhode Island Division of Taxation’s Taxpayer Portal or mailed as a paper form. The application requires a $10 fee, and the permit must be renewed annually for a $10 fee.

Filing and Paying Sales and Use Tax

After registering, businesses are assigned a monthly, quarterly, or annual filing frequency by the Rhode Island Division of Taxation based on the amount of tax they are expected to collect. For monthly and quarterly filers, returns and payments are due by the 20th day of the month following the reporting period. All businesses must also file an annual reconciliation return each January.

The primary method for submitting sales tax returns is through the state’s online Taxpayer Portal. A return must be filed for every period, even if the business had no sales and no tax was collected; this is known as a “zero return.”

Payment of collected sales tax is due when the return is filed. The most common payment method is electronic funds transfer (EFT), which can be initiated through the Taxpayer Portal. Businesses can also use ACH credit, but credit card payments are not an option for sales tax.

Upon successful submission, the online portal provides a confirmation number that serves as a receipt. Businesses should retain this confirmation and a copy of the filed return for their records.

Recordkeeping Requirements

Businesses are required to maintain complete records to support their sales tax filings for a minimum of three years. This retention period is mandated by the Rhode Island Division of Taxation to allow for audits. Failure to maintain these records can be considered evidence of negligence and may lead to penalties.

The records must cover all sales and purchasing activities. This includes detailed records of total gross receipts from all sales, distinguishing between taxable and nontaxable transactions. Supporting documentation such as sales invoices and cash register tapes must be preserved. For any sales claimed as exempt, businesses must maintain the corresponding exemption or resale certificates. Businesses must also keep purchase invoices for items bought for resale and records related to any use tax owed.