QUESTIONS & ANSWERS ON SALES/USE TAXES
Q. What is the sales tax?
A. The sales tax is a levy imposed on the retail sale, rental or lease of many goods and services at a rate of 7%. Any sale is a retail sale if the property or service sold will be used and not resold in the regular course of business. The tax is collected by the vendor and remitted directly to the state. In addition to the sales tax, there is also a 6% hotel tax on the rental of rooms in hotels, motels or lodging houses.
Q. What kinds of businesses must collect the sales tax?
A. A business that is selling, renting or leasing tangible personal property at retail, which includes, but is not limited to the following: home appliances, craft items, household furnishings, antiques, VCR's & tapes, jewelry, stereo & TV equipment, computers and computer software must collect the sales tax.
Some services are also taxable. Taxable services include, but are not limited to the furnishing of telecommunications service and cable television services.
Also, if you operate an eating and/or drinking establishment you must also collect and remit the 1% local meals and beverage tax.
Q. How do I register my business?
A. You can register either by mail or in person at the Division of Taxation, One Capitol Hill, Providence, RI 02908 by filing an Business Application and Registration Form along with the $10 fee. A $10 renewable fee is required each year.
Q. Do I need to register my business for sales tax if I am a wholesaler only?
A. No. Sales tax registration is required only when all or a portion of your sales are at retail.
Q. What other state taxes is a business liable for?
A. A business may be liable for:
Litter Control Participation Permit - If you are a retailer making taxable sales of food and/or beverages, you must apply and pay for a litter permit fee each year.
State Income Tax Withholding - If you are an employer who maintains an office in this state or transacts business in the state and makes payment of wages subject to Rhode Island personal income tax, you must withhold and remit Rhode Island income tax. There is no registration fee.
Unemployment Compensation Tax - You must also contact the Rhode Island Department of Employment and Training at (401) 222-3696 if you have employees.
Business Corporation Tax - If your business is incorporated, you may be liable for business corporation tax.
Use Tax - If you purchase taxable goods and services for use by your business without paying Rhode Island tax, you must pay use tax to the State by filing a Consumer's Use Tax Return. It should also be noted that individuals who purchase taxable goods & services for their personal use without paying Rhode Island tax should also pay use tax to the State by filing a Consumer's Use Tax Return.
NOTE: The Internal Revenue Service (IRS) should also be contacted to determine your federal tax requirements. The Internal Revenue Service's toll-free telephone number is 1-800-829-1040.
Q. Once I have a sales and use tax permit will I ever need to get another one?
A. Sales and use tax permits must be renewed annually and each new business location must have its own seller's permit.
If your business expands and you open a second location, you must obtain a new permit for the new location.
Also, if the ownership or structure of the business changes (for example, if a sole proprietorship becomes a partnership or corporation), a new permit is required.
Q. What if my business is located out-of-state but I intend to come into Rhode Island and sell (for example at a craft show)?
A. You must complete an application for permit. You will be issued a sales tax permit to collect Rhode Island sales tax.
Q. How do I obtain a new copy of my sales and use tax permit if I change my address or lose the permit?
A. Notify the Tax Division in writing at the following address:
Rhode Island Division of Taxation
One Capitol Hill
Providence, RI 02908-5800
There is no fee for this service.
Q. Must I make a minimum amount of sales before I am required to register for collection of sales tax?
A. No. You are required to register before you start your business.
Q. How often are sales and use tax returns filed?
A. Generally, sales and use tax returns must be filed on a monthly basis on or before the twentieth day of the month next succeeding the month for which the return is required to be made.
However, if your sales and use tax liability for six (6) consecutive months has averaged less than two hundred dollars ($200) per month, a quarterly return may be made when specially authorized, in writing, by the Tax Administrator.
Q. Should I file a return if I have made no sales?
A. Yes. The return must be completed by showing "zero sales" and "zero taxes."
Q. On what price do I compute sales tax?
A. The tax is computed on the selling price (not your cost) of the taxable goods, rental, lease or service.
Q. When do I report sales that I make?
A. In general, sellers of taxable goods and services must report sales on the accrual basis. This means that all sales you make must be reported during the filing period in which the sale is made, not when the customer renders payment.
Q. How do I purchase my inventory of goods for resale without paying sales tax?
A. Complete a Rhode Island sales and use tax resale certificate bearing your sales tax permit number, and give it to the vendor from whom you make a purchase of goods or services which you intend to resell. If you are not required to hold a permit because you are not making sales subject to tax in this state (e.g. no sales made in this state, wholesale sales, etc.) then an appropriate notation to that effect should be made on the certificate in lieu of a retail permit number.
A certificate may not be used to purchase items for your own use, such as office supplies, furniture and fixtures.
Q. What must your customers provide to you to demonstrate that they are exempt from paying sales tax?
A. The customer must give you a completed Rhode Island sales and use tax resale certificate or one of several types of exemption certificates. Some of the most common are:
If the customer is a charitable or religious organization, the customer must present a Rhode Island Exempt Organization Exemption Certificate. (Rhode Island retailers should not accept Exemption Certificates from other states.)
If the customer is a manufacturer, the customer must present a Manufacturers Exemption Certificate.
If the customer is a farmer, the customer must present a copy of the Farmer Tax Exemption Certificate.
If the customer is the State of Rhode Island, a RI municipality, or the Federal Government, the sale is exempt and no certificate is required. Purchases made by state or municipal governments from other states are subject to Rhode Island sales tax.
Q. If I make a sale and deliver the goods outside Rhode Island, do I collect Rhode Island sales tax?
A. No. However, depending upon your activities in the other state, you may be required to register and collect sales tax for that state.
However, a resident of another state making a purchase and taking possession of the item in Rhode Island must pay Rhode Island sales tax.
Q. What are the penalties and interest if I file a sales and use tax return late?
A. There is a penalty of 10% of the tax due for the late payment of the tax. Interest at the current rate is also calculated on the underpayment of tax, but not less than 12%.
Q. What records must I keep to verify the figures on my sales and use tax return?
A. The following records must be kept at least three years:
Sales receipts State and Federal Tax Returns
Purchase invoices Documents that show price change
Cash register tapes Exemption certificates
Under certain circumstances, you may be required to produce records for more than three years.
Q. I am closing my business. What should I do?
A. You must cancel your sales and use tax permit by doing the following:
File your monthly or quarterly return and check the "Yes" box following the question, "Are you out of business now?"
Enter the last business date in the block provided.
Also, write the word FINAL prominently across the top of the return.
Enclose your permit card with the return.