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Rhode Island Residents Sue Dell Over Sales Tax


As we’ve shown before, each state has a different idea of what should be taxed and what should not. On top of that—what is taxed may be determined by how it is presented. In Rhode Island, an optional service contract is not taxed. However, that is only true if the charge is stated separately on the invoice or order.

Dell is a computer hardware and software company. They sell optional service contracts through third party vendors. One such vendor had nexus in the state of Rhode Island, so Dell charged sales tax on the optional service contract purchased recently by Nicholas Long and Julianne Ricci, both residents of Rhode Island, receiving the contract and the product in their state.

Apparently, “Dell thought it had to [charge sales tax on the service contract], because the third party provider had Rhode Island nexus.” However, “Dell, since it did not have Rhode Island nexus itself, did not charge sales tax on the computer.”

When all the lawyer-ing was done, Dell won the case “…on a pretty commonsense argument. Dell has a duty to the State to collect sales tax. It does not have a duty to its customers to collect the least sales tax conceivable.” Even though Long and Ricci were correct that the sales tax need not have been charged, they could have filed with the state or the business to request a refund of the sales tax paid. Dell argued that the refund of $16.31 paid in sales tax might not balance out the $95.00 of use tax they owe (and haven’t paid) on the computer they purchased.

In the end, the court decided it would be bad karma to give a corporation grief for doing their fiscal duty to the state and collecting sales tax. To encourage sellers to not collect when in doubt by providing a judgment for the Plaintiffs Long and Ricci would be counterproductive.

It was their opinion that “…the vendor’s incentives should, if anything, be the opposite—to err on the side of collecting and remitting taxes to the State, rather than not.”

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Susan McLain
Avalara Author Susan McLain
Susan McLain began her career as a technical writer in technology industries such as satellite networking and medical devices. Her skills encompass technical and marketing writing, usability engineering, verification and validation testing and protocol writing, requirements development, business analysis, technical illustration/graphic design and marketing. She has owned her own business providing service to small to medium sized business and in other positions, she has been in project management, documentation and marketing. She is currently the content specialist for Avalara helping to “make sales tax less taxing.”