Rhode Island to tax digital goods and exempt tampons

Product taxability laws are flip-flopping in Rhode Island. Specified digital products, which are currently exempt, will be subject to Rhode Island sales and use tax starting October 1, 2019. That same day, feminine hygiene products will become sales and use tax exempt.

These changes are due to the enactment of House Bill 5151, which was signed into law on July 5, 2019.

Taxing digital goods

The measure imposes sales and use tax on “specified digital products,” defined as electronically transferred digital audiovisual works (e.g., movies, shows), digital audio works (e.g., music, spoken word, and ringtones), and digital books (i.e., ebooks).

Prewritten computer software delivered electronically or by load and leave is already subject to tax in Rhode Island, as is vendor-hosted prewritten computer software.

Exempting tampons

HB 5151 also exempts the following feminine hygiene products from Rhode Island sales and use tax: menstrual cups, panty liners, sanitary napkins, tampons, “and other similar products the principal use of which is feminine hygiene in connection with the menstrual cycle.”

A growing number of states and even local taxing jurisdictions are opting to remove the tax on feminine hygiene products. Exemptions are in effect in Connecticut, Florida, Illinois, Maryland, Massachusetts, Minnesota, New Jersey, New York, Nevada, and Pennsylvania, and under consideration in several other states. As of July 1, 2019, these products are also exempt from city sales tax in Denver, Colorado.

Impact on remote sellers

Rhode Island currently requires a remote seller to obtain a sales tax permit then collect and remit sales tax if, in the immediately preceding calendar year, it has at least $100,000 in sales or 200 separate transactions of tangible personal property, prewritten computer software delivered electronically or by load and leave, vendor-hosted prewritten computer software, and/or taxable services for delivery into Rhode Island.

Effective October 1, 2019, sales of specified digital products should be included when calculating this threshold. Sales of tampons and other feminine hygiene products, on the other hand, should be excluded.

Non-collecting remote retailers must either opt to collect Rhode Island sales tax or comply with non-collecting seller use tax notice and reporting requirements

Casual seller vs. retailer

Under Rhode Island law, a retailer is a person who makes more than five retail sales of tangible personal property, prewritten computer software, specified digital products, or services during any 12-month period. Anyone making five or fewer sales during that time frame is considered a casual seller and isn’t required to hold a seller’s permit. Additional information.

It’s increasingly challenging to keep up with changing sales tax requirements in all states. Avalara’s new seller’s guide to remote sales tax requirements can help. 

Avalara Free Tax Guides

Rhode Island Sales Tax Reference Sheet

A handy reference for businesses filing Rhode Island sales tax returns.

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