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August 8, 2017

Rhode Island enacts expansive sales and use tax nexus provisions, includes marketplace, economic, notification, other provisions

On August 3, 2017, Rhode Island Governor Gina Raimondo (D) signed the state's FY18 appropriations bill, HB 5175, which contains a number of provisions aimed at compelling remote sellers to collect and remit sales and use taxes on transactions with in-state customers. These provisions are set to take effect on August 17, 2017.

The bill creates a new chapter under Title 44 of the General Laws of Rhode Island that begins by noting that while "the Commerce Clause of the United States Constitution prohibits states from imposing an undue burden on interstate commerce … it is no longer an undue burden for non-collecting retailers to accurately compute, collect and remit and/or report with respect to their sales and use tax obligations to Rhode Island." The bill also notes that the existence and/or presence of a non-collecting retailer's or its facilitator's "in-state software on the devices of in-state consumers constitutes physical presence," as required under Quill Corp. v. North Dakota.1 "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." Emphasis added.

Under the newly enacted provisions, any non-collecting retailer that had in-state sales of $100,000 or more or engaged in 200 or more transactions with in-state customers in the preceding calendar year must register for a sales tax permit and begin collecting and remitting sales tax on all taxable sales in the state or comply with detailed notice and reporting requirements, similar to those that took effect in Colorado and other states on July 1, 2017.2 The bill defines a "non-collecting retailer"3 as any person(s) meeting at least one of the following:

— Uses in-state software to make sales of tangible personal property or taxable goods or services4

— Sells, leases, or delivers in the state, or participates in any activity in the state in connection with the selling, leasing, or delivering in this state, of tangible personal property or taxable services for use, storage, distribution, or consumption within this state (including using a referrer, retail sale facilitator, or other third party, direct response marketing5 targeted at in-state customers)6

— Enters into one or more agreements under which a person or persons who has physical presence in the state refers, either directly or indirectly, potential in-state customers of tangible personal property or taxable services to the non-collecting retailer for a fee, commission, or other consideration7

— Uses a retail sale facilitator to sell, lease, or deliver in the state, or participate in any activity in the state in connection with the selling, leasing, or delivering in the state, of tangible personal property or taxable services for use, storage, or consumption in the state8

— Uses a sales process that includes listing, branding, or selling tangible personal property or taxable services for sale, soliciting, processing orders, fulfilling orders, providing customer service or accepting or assisting with returns or exchanges occurring in the state, regardless of whether that part of the process has been subcontracted to an affiliate or third party9

— Offers its tangible personal property or taxable services for sale through one or more retail sale facilitators that has physical presence in Rhode Island10

A non-collecting retailer also includes any person related to a person that has physical presence in Rhode Island, and such related person with a physical presence in Rhode Island:

— Sells tangible personal property or taxable services that are the same or substantially similar to that sold by a non-collecting retailer under a business name that is the same or substantially similar to that of the non-collecting retailer11

— Maintains an office, distribution facility, salesroom, warehouse, storage place, or other similar place of business in Rhode Island to facilitate the delivery of tangible personal property or taxable services sold by the non-collecting retailer12

— Uses, with consent or knowledge of the non-collecting retailer, trademarks, service marks, or trade names in Rhode Island that are the same or substantially similar to those used by the non-collecting retailer13

— Delivers or has delivered (except for delivery by common carrier or United States mail for which the in-state customer is charged not more than the basic charge for shipping and handling), installs, or assembles tangible personal property in Rhode Island, or performs maintenance or repair services on tangible personal property in Rhode Island, which tangible personal property is sold to in-state customers by the non-collecting retailer14

— Facilitates the delivery of tangible personal property purchased from a non-collecting retailer but delivered in Rhode Island by allowing an in-state customer to pick up the tangible personal property at an office distribution facility, salesroom, warehouse, storage place, or other similar place of business maintained in the state15 or

— Shares management, business systems, business practices, computer resources, communication systems, payroll, personnel, or other such business resources and activities with the non-collecting retailer, or engages in intercompany transactions with the non-collecting retailer, either or both of which relate to the activities that establish or maintain the non-collecting retailer's market in the state16

In-state referrers must provide written notice within 30 days to retailers that their sales may be subject to Rhode Island sales and use tax. The bill defines in-state referrer as any person that contracts or agrees with a retailer to list or advertise for sale in the state tangible personal property or taxable services sold by the non-collecting retailer, that receive more than $10,000 in commissions in any calendar year.

Beginning January 15, 2018, retail facilitators must provide the Rhode Island Division of Taxation with a list of the retailers for whom the facilitator provided services (regardless of whether the facilitator collected sales or use taxes on their behalf). The bill defines retail facilitators generally as persons that facilitate a sale by a retailer by using in-state software, listing or advertising goods for sale, or directly or indirectly collecting payments from in-state customers and transmitting those payments to the retailer.

The new law includes limited exceptions for referrers and facilitators that can provide a Rhode Island sales tax permit or a Rhode Island or Streamlined Sales Tax exemption certificate. Non-compliance with any of the new provisions, whether by a non-collecting retailer, referrer, or facilitator, is subject to a $10 per incident penalty, with a minimum annual penalty of $10,000, in addition to any other penalties that may be imposed under the state's tax laws.

Rhode Island Department of Revenue guidance

On August 4, 2017, the Rhode Island Department of Revenue issued eight notices regarding the new sales and use tax nexus provisions established under the new law. The notices address the following topics: Notice 2017-03 "Retail sale facilitator"; Notice 2017-04 "Referrer notice"; Notice 2017-05 "Non-collecting retailer website notice"; Notice 2017-06 "Non-collecting retailer January 31 notice"; Notice 2017-07 "Non-collecting retailer checkout notice"; Notice 2017-08 "Non-collecting retailer attestation"; Notice 2017-09 "Non-collecting retailer general notice"; Notice 2017-10 "Non-collecting retailer 48-hour notice."


Rhode Island's new laws are the most expansive provisions aimed at remote sellers enacted by any state to date, as they effectively cobble together economic, affiliate, click-through,17 warehouse, and marketplace provider nexus measures that currently are in place in other states. These new requirements may present a number of compliance challenges and burdens. While a legal challenge is expected, remote sellers that lack any physical presence in Rhode Island should carefully review the new law to determine whether they will have any new obligations in the state. In light of the rapid implementation date, and the extremely high minimum penalties for non-compliance, sellers should consider their options, including whether it would be more cost effective to voluntarily register and collect tax than risk being assessed penalties for non-filing.


Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation Group
Michael Woznyk(212) 773-3008;
Karl Nicolas(202) 327-6585;


1 504 U.S. 298 (1992).

2 See EY Tax Alert 2017-1104.

3 R.I. Gen. Laws Section 44-18.2-2(4).

4 R.I. Gen. Laws Section 44-18.2-2(4)(A).

5 R.I. Gen. Laws Section 44-18.2-2(4)(B)(i), as enacted by HB 5175, provides an expansive description of what constitutes "direct response marketing," including "sending, transmitting, or broadcasting via flyers, newsletters, telephone calls, targeted electronic mail, text messages, social media messages, targeted mailings; collecting, analyzing and utilizing individual data on in-state customers; using information or software, including cached files, cached software, or 'cookies', or other data tracking tools, that are stored on property in or distributed within this state … "

6 R.I. Gen. Laws Section 44-18.2-2(4)(B).

7 R.I. Gen. Laws Section 44-18.2-2(4)(B)(ii).

8 R.I. Gen. Laws Section 44-18.2-2(4)(B)(iii).

9 R.I. Gen. Laws Section 44-18.2-2(4)(C).

10 R.I. Gen. Laws Section 44-18.2-2(4)(D).

11 R.I. Gen. Laws Section 44-18.2-2(4)(E)(i).

12 R.I. Gen. Laws Section 44-18.2-2(4)(E)(ii).

13 R.I. Gen. Laws Section 44-18.2-2(4)(E)(iii).

14 R.I. Gen. Laws Section 44-18.2-2(4)(E)(iv).

15 R.I. Gen. Laws Section 44-18.2-2(4)(E)(v).

16 R.I. Gen. Laws Section 44-18.2-2(4)(E)(vi).

17 Note that Rhode Island was the second state to enact a click-through nexus provision in 2009.




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