Rhode Island Enacts Economic Nexus and Reporting Requirements Provisions
On August 3, 2017, Rhode Island enacted affiliate and economic nexus with an alternative reporting requirement structure for those remote sellers that do not collect Rhode Island tax. Per the enacted legislation, the existence and/or presence of a non-collecting retailer’s, referrer’s, or retail sale facilitator’s in-state software on the devices of in-state customers constitutes physical presence in Rhode Island under Quill. Other activities that will constitute nexus in the state include:
- use in-state software to make sales at retail of taxable goods/services;
- sell, lease, deliver, or participate in any activity relating to the sale, lease, or delivery of taxable goods/services, including: use of a referrer, retail sale facilitator, or other third party for direct response marketing or referral;
- use of a sales process including listing, branding, selling, soliciting, processing, fulfilling, or exchanging;
- offer taxable goods/services for sale through retail sale facilitators; or
- are related to a person with physical presence in Rhode Island.
A remote seller who satisfies the economic activity threshold has the option to collect tax or comply with the reporting requirement. The economic threshold activities are defined as:
- Has gross revenue from the sale of tangible personal property, prewritten computer software delivered electronically or by load and leave, and/or has taxable services delivered into Rhode Island equal to or exceeding $100,000; or
- Has sold tangible personal property, prewritten computer software delivered electronically or by load and leave, and/or taxable services for delivery into Rhode Island in 200 or more separate transactions.
“In-state software” is defined as “software used by in-state customers on their computers, smartphones, and other electronic and/or communication devices, including information or software such as cached files, cached software, or ‘cookies’, or other data tracking tools, that are stored on property in this state or distributed within this state, for the purpose of purchasing tangible personal property, prewritten computer software delivered electronically or by load and leave, and/or taxable services.”
Beginning on August 17, 2017, and for each tax year thereafter, a non-collecting retailer shall either register to make sales at retail and collect and remit sales and use tax on all taxable sales into the state or:
- Post a conspicuous notice on its website that informs in-state customers that sales or use tax is due on certain purchases made from the non-collecting retailer and that Rhode Island requires the in-state customer to file a sales or use tax return;
- At the time of purchase, notify in-state customers that sales or use tax is due on taxable purchases made from the non-collecting retailer and that Rhode Island requires the in-state customer to file a sales or use tax return;
- Within 48 hours of the time of purchase, notify in-state customers in writing that sales or use tax is due on taxable purchases made from the non-collecting retailer and that Rhode Island requires the in-state customer to file a sales or use tax return reflecting said purchase;
- On or before January 31 of each year, including January 31, 2018, for purchases made in calendar year 2017, send a written notice to all in-state customers who have cumulative annual taxable purchases from the non-collecting retailer totaling $100 or more for the prior calendar year. The notification shall show the name of the non-collecting retailer, the total amount paid by the in-state customer to the non-collecting retailer in the previous calendar year, and, if available, the dates of purchases, the dollar amount of each purchase, and the category or type of the purchase, including, whether the purchase is exempt or not exempt from taxation in Rhode Island; and
- Beginning on February 15, 2018, and not later than each February 15 thereafter, a non-collecting retailer that has not registered in Rhode Island for a permit to make sales at retail and collect and remit sales and use tax on all taxable sales into the state for any portion of the prior calendar year, shall file with the division on such form and/or in such format as the division prescribes an attestation that the non-collecting retailer has complied with the above requirements
At such time during any calendar year, or any portion thereof, that a referrer receives more than $10,000 from fees, commissions, and/or other compensation paid to it by retailers with whom it has a contract or agreement to list and/or advertise for sale tangible personal property, prewritten computer software delivered electronically or by load and leave, and/or taxable services, the referrer shall within 30 days provide written notice to all such retailers that the retailers’ sales may be subject to this state’s sales and use tax.
Beginning January 15, 2018, and each year thereafter, a retail sale facilitator shall provide the division of taxation with:
- A list of names and addresses of the retailers for whom during the prior calendar year the retail sale facilitator collected Rhode Island sales and use tax; and
- A list of names and addresses of the retailers who during the prior calendar year used the retail sale facilitator to serve in-state customers but for whom the retail sale facilitator did not collect Rhode Island sales and use tax.
There are exemptions for referrers and retail sale facilitators that have been provided within 90 days of the date of sale either a copy of the retailer’s Rhode Island sales tax permit or its resale certificate, or evidence of a fully completed Rhode Island or Streamlined agreement sales and use tax exemption certificate.
Any non-collecting retailer, referrer, or retail sale facilitator that fails to comply with any of the above requirements shall be subject to a penalty of $10 for each such failure, but not less than a total penalty of $10,000 per calendar year. Each instance of failing to comply with the requirements shall constitute a separate violation for purposes of calculating the penalty. (Ch. 302 (H.B. 5175), Laws 2017)
UPDATE: The Rhode Island Division of Taxation has issued helpful information regarding the notice and reporting requirements obligations for remote sellers created under this legislation. For more information, visit the Rhode Island Division of Taxation webpage.