Sales tax 101
Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. Rhode Island first adopted a general state sales tax in 1947, and since that time, the rate has risen to 7%. In many states, localities are able to impose local sales taxes on top of the state sales tax. However, as of January 2020, there are no local sales taxes in Rhode Island.
As a business owner selling taxable goods or services, you act as an agent of the state of Rhode Island by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Rhode Island is administered by the Rhode Island Division of Taxation.
Any sales tax collected from customers belongs to the state of Rhode Island, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.
When you need to collect Rhode Island sales tax
In Rhode Island, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.
To help you determine whether you need to collect sales tax in Rhode Island, start by answering these three questions:
- Do you have nexus in Rhode Island?
- Are you selling taxable goods or services to Rhode Island residents?
- Are your buyers required to pay sales tax?
If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.
Failure to collect Rhode Island sales tax
If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.
It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.
Learn about sales tax automation
Introducing our Sales Tax Automation 101 series. The first installment covers the basics of sales tax automation: what it is and how it can help your business.
Sales tax nexus
The need to collect sales tax in Rhode Island is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.
Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.
In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.
While physical presence still triggers a sales tax collection obligation in Rhode Island, it’s now possible for out-of-state sellers to have sales tax nexus with Rhode Island.
Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:
Affiliate nexus: Having ties to businesses or affiliates in Rhode Island. This includes, but isn’t limited to, the design and development of tangible personal property (goods) sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer.
Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, provided such referrals exceed $5,000 during the preceding four quarterly periods.
Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after July 1, 2019, a remote seller must register with the state then collect and remit Rhode Island sales tax if the remote seller meets either of the following criteria (the economic thresholds) for sales in the state during the previous calendar year:
- Gross revenue from sales of more than $100,000
- 200 or more separate transactions
Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in Rhode Island in a warehouse owned or operated by Amazon.
Marketplace sales: Making sales through a marketplace. Effective July 1, 2019, marketplace facilitators that meet the economic nexus threshold of more than $100,000 in gross revenue or 200 or more transactions 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.
Trade shows: Attending conventions or trade shows in Rhode Island. You may be liable for collecting and remitting Rhode Island use tax on orders taken or sales made during Rhode Island conventions or trade shows.
If you have sales tax nexus in Rhode Island, you’re required to register with the Rhode Island Division of Taxation and to charge, collect, and remit the appropriate tax to the state.
Non-collecting seller use tax reporting
The Rhode Island Division of Taxation requires certain non-collecting sellers to notify customers about their potential use tax liability, provide customers with an annual purchase summary, and provide the state with a customer information report. For more information about these requirements, see Non-Collecting Retailers Notice.
Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of January 2020, Rhode Island does not have an explicitly defined trailing nexus policy.
Fulfillment by Amazon (FBA)
If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. Avalara TrustFile includes an FBA inventory report to help demystify FBA shipping and storage patterns. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in Rhode Island.
If you sell taxable goods to Rhode Island residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.
Sourcing sales tax in Rhode Island: which rate to collect
In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).
Rhode Island is a destination-based state. This means you’re responsible for applying the sales tax rate determined by the ship-to address on all taxable sales.
After determining you have sales tax nexus in Rhode Island, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your Rhode Island business license and sales tax registration.
How to register for a Rhode Island seller's permit
You can register for a Rhode Island seller’s permit online through the Rhode Island Division of Taxation. To apply, you’ll need to provide the Rhode Island Division of Taxation with certain information about your business, including but not limited to:
- Business name, address, and contact information
- Federal EIN number
- Date business activities began or will begin
- Projected monthly sales
- Projected monthly taxable sales
- Products to be sold
Cost of registering for a Rhode Island seller's permit
The cost to register for a retail sales tax license in Rhode Island is $10, and must be renewed each year.
Acquiring a registered business
You must register with the Rhode Island Division of Taxation if you acquire an existing business in Rhode Island. The state requires all registered businesses to have the current business owner’s name and contact information on file.
Streamlined Sales Tax (SST)
The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).
Rhode Island became a full member of the SST on January 1, 2007.
Collecting sales tax
Once you've successfully registered to collect Rhode Island sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the Rhode Island Division of Taxation, and keep excellent records. Here’s what you need to know to keep everything organized and in check.
How you collect Rhode Island sales tax is influenced by how you sell your goods:
Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.
Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where Rhode Island sales tax collection can be managed.
Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.
Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.
Rhode Island sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.
Some goods are exempt from sales tax under Rhode Island law. Examples include most non-prepared food items, prescription medications, and some clothing.
We recommend businesses review the laws and rules put forth by the Rhode Island Division of Taxation to stay up to date on which goods are taxable and which are exempt, and under what conditions.
Some customers are exempt from paying sales tax under Rhode Island law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.
Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.
Misplacing a sales tax exemption/resale certificate
Rhode Island sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the Rhode Island Division of Taxation may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.
Sales tax holidays
Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year.
As of January 2020, however, there are no sales tax holidays in Rhode Island.
Filing and remittance
You're registered with the Rhode Island Division of Taxation and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of Rhode Island, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.
How to file
Once you’ve collected sales tax, you’re required to remit it to the Rhode Island Division of Taxation by a certain date. The Rhode Island Division of Taxation will then distribute it appropriately.
Filing a Rhode Island sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the Rhode Island Division of Taxation. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.
Online filing is generally recommended, but paper returns are acceptable.
The Rhode Island Division of Taxation will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.
Rhode Island sales tax returns and payments must be remitted at the same time; both have the same due date.
You may file directly with the Rhode Island Division of Taxation by visiting their site and entering your transaction data manually. This is a free service, but preparing Rhode Island sales tax returns can be time-consuming — especially for larger sellers.
Using a third party to file returns
To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Rhode Island sales tax code.
Avalara TrustFile provides a quick and easy way to prepare and efile sales tax returns. Users can sign up and use the service to prepare returns for free for a limited time.
Filing when there are no sales
Once you have a Rhode Island seller's permit, you’re required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a "zero return.”
Failure to submit a zero return can result in penalties and interest charges.
Closing a business
The Rhode Island Division of Taxation requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.
Timely filing discount
Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount.
As of January 2020, the Rhode Island Division of Taxation does not offer sales tax filers a discount.
Filing due dates
It's important to know the due dates associated with the filing frequency assigned to your business by the Rhode Island Division of Taxation. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.
The Rhode Island Division of Taxation requires all sales tax filing to be completed by the 20th day of the month following the tax period. Below, we've grouped Rhode Island sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.
|Reporting period||Filing deadline|
|January||February 20, 2020
|February||March 20, 2020
|March||April 20, 2020
|April||May 20, 2020
|May||June 22, 2020
|June||July 20, 2020
|July||August 20, 2020
|August||September 21, 2020
|September||October 20, 2020
|October||November 20, 2020
|November||December 21, 2020
|December||January 20, 2021
|Reporting period||Filing deadline|
|Q1 (January 1–March 31)||April 20, 2020
|Q2 (April 1–June 30)||July 20, 2020
|Q3 (July 1–September 30)||October 20, 2020
|Q4 (October 1–December 31)||January 20, 2021
Filing a Rhode Island sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.
In the event a Rhode Island sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the Rhode Island Division of Taxation may grant you an extension. However, you may be asked to provide evidence supporting your claim.
Penalties and interest
Hopefully you don't need to worry about this section because you're filing and remitting Rhode Island sales tax on time and without incident. However, in the real world, mistakes happen.
If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.
A 10% penalty will be assessed if a return is not received by the due date. Interest will also be charged on any underpaid or unpaid taxes, at a rate of at least 12%.
If you’re in the process of acquiring a business, it’s strongly recommended that you contact the Rhode Island Division of Taxation and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding Rhode Island sales and use tax liability.
Shipping and handling
If you’re collecting sales tax from Rhode Island residents, you’ll need to consider how to handle taxes on shipping and handling charges.
Taxable and exempt shipping charges
Charges for shipping, handling, delivery, freight, and postage on taxable goods are generally taxable in Rhode Island. If the sale is tax exempt, the shipping charges are generally exempt as well. When a shipment includes both taxable and exempt products, tax applies to the percentage of the delivery charge allocated to the taxable property.
There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Rhode Island and sales tax should be taken directly to a tax professional familiar with Rhode Island tax laws.
For additional information, see Delivery Charges Regulations.