Sales and Use Taxes in Rhode Island

April 13, 2006

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Rhode Island imposes a tax on sales or rentals of tangible personal property, other than sales for resale. Also subject to tax are the following categories of services:

producing, fabricating, processing, printing or imprinting tangible personal property for consumers who furnish the materials used
furnishing tangible personal property for a consideration by social or athletic clubs
preparing or serving meals, food and drinks (including related cover, minimum, or entertainment charges)
transfers of possession of tangible personal property where the seller retains title as security for payment
the rental of living quarters in a hotel, rooming house, or tourist camp

Sales and use tax rate. The Rhode Island sales and use tax rates are 7 percent plus an additional 5 percent on transient room rentals.

Tax-exempt items. Rhode Island has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from Rhode Island sales tax. You'll want to check and see if you are exempt from the sales tax.

Responsibility for paying sales tax. In Rhode Island the sales tax is imposed on sales at retail, and the retailer is liable to the state for payment of tax. The retailer, however, is required to add the tax to the sales price or charge, at which time the tax becomes a debt from the consumer or user to the retailer.

Use tax. A compensating use tax is imposed upon the storage, use or other consumption in Rhode Island of tangible personal property purchased from a retailer. A use tax exemption is provided for the storage, use, or other consumption in Rhode Island of property upon which the sales tax was paid.

Responsibility for collecting use tax. Retailers have an obligation to collect use tax from persons storing, using, or otherwise consuming tangible personal property in the state. A use tax exemption is provided in Rhode Island of property upon which the sales tax was paid.

Obtaining tax permits in Rhode Island. In Rhode Island every person engaging in the business of making sales at retail or engaging in the business of renting living quarters must obtain a permit for each place of business. The annual permit that is obtained from the Tax Administrator requires a $10 fee and must be renewed each year by February 1, along with another $10 fee.

Leases. In Rhode Island receipts from the rental or lease of tangible personal property are subject to sales and use taxes. Lease and rental refer to tangible personal property transfers without a transfer of title to the property. The tax is computed on the gross rental or lease payment, without any allowance for service, maintenance, etc., regardless of whether such items are paid by the lessor or lessee. Each period for which a rental or lease charge is made is considered a complete sale for purposes of the sales and use tax.

The following discussions address additional sales and use tax issues that many small business owners face: