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Administrative Hearing was recently held to allow a plumbing contractor to present evidence and arguments against an assessment for nonpayment of use tax on purchases of trucks and tools used to perform business activities. The plumbing contractor did not appear at the hearing to defend his position so the Hearing Officer followed the assessment of the Division of Taxation, along with state law and regulations, which state that all purchases for construction contracts are subject to tax and all vehicles purchased by a Rhode Island resident, for use by a business in Rhode Island, are subject to the use tax. (Administrative Hearing Decision No. 2003-12, Rhode Island Division of Taxation, December 12, 2003)


In Rhode Island customer support for software was found to be taxable when purchased at the same time as canned software even though the purchase of customer support was separately stated and optional. The court found that the real object of the entire transaction was the purchase of the software and that the customer support service was part of the purchase. The statutes in Rhode Island clearly state that the sales price of a transaction includes the cost of services related to the sale. (Administrative Hearing Decision No. 2003-09, September 10, 2003.)


The taxability of photographer fees depends on the "real-object test." This test determines the true object of a transaction. In the case of Bristol Workshops in Photography vs. Clark, it was found by the court that photographer's fees were subject to sales and use tax as they were an important part of the production of the final product, photographs. Even though the photo fees were separately stated, they were a part of a taxable service. (Bristol Workshops in Photography, Ltd. v. Clark, Rhode Island District Court, Sixth Division, No. A.A. 00-126, May 15, 2003)


Materials and equipment used to brew beer in a Rhode Island bar/restaurant were not exempt from sales and use tax as manufacturing equipment. It was decided that the brewpub, which sold beer only to its patrons, was one economic unit with the primary purpose of selling food and beverages, as 60% of its sales were from food. Though the brewpub is registered as a manufacturer by the Rhode Island Department of Business Regulations and the United States Bureau of Alcohol, Tobacco, and Firearms, the court found that the brewpub was not the type of business intended by legislation to be exempt from sales and use tax. (Trinity Beerworks, Inc. v. R. Gary Clark, Tax Administrator, Rhode Island District Court, Sixth Division, No. A.A. 98-58, February 3, 2003)


Overhead expenses and indirect costs associated with property purchased for a U.S. government work contract were considered taxable because the manufacturer was the purchaser. It was argued that because the title of the indirect materials transferred directly to the government upon shipment by the vendor, the exemption should apply. However, the passing of the title had no bearing on the taxability under the Rhode Island sales and use tax act. In addition, the State’s view was that only two parties were involved, the vendors and the manufacturers. Therefore, the federal government was not involved in the transaction and consequently the exemption could not be passed through. (Administrative Hearing Decision No. 202-16, Rhode Island Division of Taxation, October 11, 2002)



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