Non-collecting retailers help Rhode Island taxpayers understand use tax obligation

Thanks to a new policy, non-collecting retailers that make sales in Rhode lsland are required to help Rhode Island customers understand their potential use tax obligation. By now, Rhode Islanders that shop online should have received a notice from one or more non-collecting online retailers — they were to be in the mail on or before January 31, 2018.

As explained by the Rhode Island Department of Revenue, “Each non-collecting retailer must send such a notice to each of its Rhode Island customers who had $100 or more in cumulative taxable purchases for the 2017 calendar year. The notice is intended to help taxpayers determine their use tax obligation.”

The Department has published a Consumer Guide to Notices from Non-Collecting Retailers to help taxpayers understand what they’ve received in the mail and why they received it. It highlights the main point of the notice: “It will help you in computing your Rhode Island sales and use tax obligation.”

Use tax explained

Rhode Islanders (both individuals and businesses) who purchased taxable goods online and did not pay sales tax at the point of sale are required to remit the corresponding use tax on the transaction. The rate for both sales and use tax in Rhode Island is 7 percent. Taxable goods include antiques, appliances, auto parts, books, computers, diapers, furniture, home goods, jewelry, over-the-counter medicine, and non-prescription drugs.

Clothing and footwear with a sales price of more than $250 are also taxable, although tax only applies to the portion of the sales tax that exceeds $250. For example, if a coat costs $275, tax is due on $25, not the full $275. These products are exempt if priced at $250 or less. A list of other exempt items is available here.

Taxpayers that receive a notice from a non-collecting retailer have a choice: They may file a use tax return (Form T-205) with the state, or include the information with their personal income tax return (Schedule U). The Schedule U offers two options: List the actual amount of use tax due, or estimate the amount due using the Rhode Island Use Tax Lookup Table. The Consumer Guide provides additional helpful filing tips.

This shouldn’t be a surprise

The Department of Revenue says this shouldn’t come as a surprise to taxpayers because “it’s just one of several notifications that non-collecting retailers have provided their customers already.”

As of August 2017, Rhode Island requires non-collecting retailers to:

• Post a conspicuous notice on its website informing Rhode Island customers that sales or use tax is due on certain purchases, and Rhode Island law requires taxpayers to file a sales or use tax return
• Notify customers, at the time of purchase, that sales or use tax is due on taxable purchases and that Rhode Island law requires the filing of a sales/use tax return
• Notify customers, within 48 hours of the time of purchase, that sales or use tax is due on taxable purchases and that Rhode Island law requires customers to file a sales/use tax return.

Non-collecting seller use tax notice and reporting requirements are new: Rhode Island is one of the first states to adopt it. Other states that have adopted such policies include Colorado, Louisiana, and Washington, and the list is likely to grow.

For consumers, this means the end of tax-free online shopping. For non-collecting retailers, it means that not collecting sales tax is more complicated than it once was.

Want to learn more about notice and reporting requirements for non-collecting sellers? Read the guide.