Rhode Island imposes new sales tax collection requirement on out-of-state sellers and marketplace facilitators
Updated 5.1.2019: The effective date of Rhode Island's new economic nexus and marketplace law is July 1, 2019.
Rhode Island has enacted a new remote seller sales tax law that puts it more in line with what many states have done since June 21, 2018, when the Supreme Court of the United States overruled a physical presence rule, thus granting states the authority to tax remote sales.
Prior to the high court’s decision in South Dakota v. Wayfair, Inc., states could only impose a sales tax collection obligation on businesses with a physical presence in the state. While physical presence still establishes a sales tax collection obligation, since the Wayfair decision, states are free to impose a collection duty on businesses based solely on their economic activity in the state (economic nexus).
More than 35 states have adopted economic nexus as a result of the Supreme Court ruling. All follow South Dakota’s lead and grant an exception for small sellers. In South Dakota and many other states, the sales tax collection requirement kicks in only after a remote seller has more than $100,000 in sales or at least 200 transactions in the state in the current or previous calendar year.
Rhode Island first imposed a sales tax collection obligation on remote sellers in 2017, prior to the Wayfair ruling and before it had the authority to enforce economic nexus. It came up with a creative work-around for the physical presence restriction in effect at the time, giving out-of-state sellers with economic nexus in the state a choice: Collect and remit sales tax or comply with non-collecting seller use tax notice and reporting requirements. Read more about Rhode Island’s 2017 Non-Collecting Retailers, Referrers, and Retail Sale Facilitators Act here.
Now, like more than 35 other states, Rhode Island has adopted South Dakota–style economic nexus. Remote sellers, referrers, and marketplace facilitators must obtain a Rhode Island sales tax permit and collect and remit Rhode Island sales tax if, in the current or previous calendar year, they have:
- More than $100,000 in gross revenue from the sale of tangible personal property, prewritten computer software delivered electronically or by load and leave, vendor-hosted prewritten computer software, and/or taxable services; or
- At least 200 separate sales into the state of tangible personal property, prewritten computer software delivered electronically or by load and leave, vendor-hosted prewritten computer software, and/or taxable services.
Additionally, marketplace facilitators that meet the economic nexus threshold are required to collect and remit sales tax on behalf of all sellers making sales in Rhode Island through the marketplace (third-party or marketplace sellers), even those whose sales into the state are below the economic nexus threshold. When a facilitator collects and remits tax on behalf of a seller, those sales may be excluded from the seller’s Rhode Island sales tax returns.
However, Rhode Island isn’t repealing — nor does it appear to be eliminating — its use tax notification and reporting requirements for non-collecting sellers.
Notice and reporting requirements for non-collecting sellers
Under Rhode Island’s 2019 Remote Sellers, Referrers, and Marketplace Facilitators Act, the option to comply with non-collecting seller use tax notice and reporting requirements is eliminated for any remote seller, marketplace seller, marketplace facilitator, and/or referrer that meets the economic nexus threshold ($100,000 sales/200 transactions) in the immediately preceding calendar year.
Yet it appears that remote sellers, referrers, marketplace sellers, and marketplace facilitators that don’t meet the economic nexus threshold still must either register to collect Rhode Island sales tax or comply with notice and reporting requirements for non-collecting sellers.
The new law takes effect July 1, 2019.
Our nexus tool can help you determine where you have sales tax nexus.
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