Bill
HB 7058
Rhode Island updates sales tax rules to align with streamlined framework, clarifying definitions, exemptions, and use of certified systems for calculating and remitting taxes.
Act Relating to Taxation — Sales and Use Taxes — Liability and Computation
Overview
- Purpose: Update and refine Rhode Island’s sales and use tax framework, including definitions, administration (CAS/CSP), and exemptions/clarifications related to the streamlined sales and use tax framework. The bill modifies numerous definitions and preserves/adjusts tax exemptions to align with broader tax administration goals.
Key Provisions and Changes
1) Expanded and clarified definitions (Section 44-18-7.1)
- Agreement, CAS (Certified Automated System), and CSP (Certified Service Provider) are defined to reflect the streamlined framework.
- Detailed terminology for products and transactions:
- Bundled transaction: Sets criteria for when multiple products are sold for one non-itemized price, with specific exclusions (e.g., packaging, free items, items within defined de minimis rules).
- Distinct and identifiable products: Narrowly defined exclusions (e.g., incidental packaging, free-with-purchase items, or items within the sales price definitions from Appendix C of the agreement).
- De minimis rule: If the taxable product’s purchase price or sales price is 10% or less of the total bundle, it may be treated as non-taxable under certain conditions; full contract terms govern the application and measurement (e.g., full service contract duration used to measure de minimis).
- Specific carve-outs for bundled transactions where the true object is the service, or the price structure is such that taxation should apply only to the service or to a subset of items.
- Expanded definitions for:
- Clothing, protective equipment, sport/recreational equipment.
- Computer and related items, including definitions of “delivered electronically,” “prewritten software,” and “vendor-hosted prewritten software.”
- Drugs, including prescribed vs. over-the-counter distinctions, and grooming/hygiene products.
- Food-related terms (e.g., prepared food, candy, soft drinks, dietary supplements) with nuanced exemptions and conditions.
- Durable medical equipment, mobility enhancing equipment, prosthetic devices, and other medical-related items.
- Leases/rentals: Prospective, with explicit exclusions and five listed subpoints detailing when a lease is considered a sale for tax purposes. Prospective application only.
- Specified digital products: Digital audio-visual works, digital audio works, and digital books; delivery “transferred electronically” and end users defined.
- Telecommunications terms and modifiers: Broad framework for categorizing and taxing telecommunications and ancillary services, with numerous subcategories (e.g., conference bridging, voice mail, data services, 800/900 services, mobile vs. fixed wireless, etc.), and a mechanism to apply modifiers like interstate/intrastate/international, residential service, and other qualifiers.
2) Expanded and updated gross receipts exemptions (Section 44-18-30)
- The bill reiterates and expands a comprehensive list of exemptions to gross receipts from sales/use tax, many of which are existing provisions but are reaffirmed or clarified within the new framework.
- Notable areas covered:
- Constitutional exemptions (unlimited defense against taxation).
- Newspapers, school meals, and specific containers; charitable, educational, and religious organizations’ exemptions (with contractors allowed to purchase exempt materials when working on federal contracts, subject to certification and record-keeping).
- Gasoline and fuels for aviation.
- Manufacturing purchases (software, tangible property, utilities) used in the manufacturing process for resale and as part of the process; includes a broad discussion of “consumed” in manufacturing and what counts as manufacturing.
- Public entities, educational institutions, and certain housing/living quarters exemptions.
- Vehicle-related exemptions (e.g., motor vehicles for nonresidents; non-motorized recreational vehicles; boats; specially adapted motor vehicles for disabled individuals; veterans’ automobile exemptions with appropriate physician affidavits).
- Food-related exemptions (with clear delineations for food and food ingredients versus prepared foods and candy/soft drinks/dietary supplements; bakery items may have different treatment under specific conditions).
- Agricultural/farm exemptions (farm equipment; farm structure construction materials; farm-related expenses; agricultural processing equipment).
- Hazardous waste recycling and related equipment exemptions (with Environmental Management certification).
- Renewable energy products exemptions (solar panels, geothermal heat pumps, wind turbines, associated mounting hardware, inverters, and related equipment; excludes pumps, fans, and certain fixtures not integral to the specified systems).
3) Practical/administrative implications
- Model distinctions (Model 1, 2, 3 Sellers) and the use of CAS or CSP:
- Model 1 Seller: Uses CSP as the agent for all tax-related functions except remittance on its own purchases.
- Model 2 Seller: Uses CAS for some tax functions; retains remittance responsibility.
- Model 3 Seller: High-revenue, multi-state seller with a proprietary tax calculation system and performance standards; represents affiliates using the same system.
- The bill sets up a framework for the use of certified systems and service providers to standardize tax calculation, recordkeeping, and remittance, potentially reducing compliance costs for sellers and improving accuracy for the Tax Administrator.
- Prospective application: The new lease/rental definition and certain other provisions are to be applied prospectively from the effective date of adoption.
Effective Date and Process
- The bill is introduced January 9, 2026, and referred to the House Finance Committee. It includes clarifications and expansions to definitions and exemptions that would require administrative rulemaking and potential regulatory updates to implement.
Impact
- Businesses: Likely changes in how bundled transactions are taxed and how to determine de minimis thresholds; new compliance requirements for CSP/CAS arrangements and for large sellers under Model 3.
- Consumers: Tax treatment may shift for certain bundled goods and services; exemptions may affect the tax on medical equipment, renewable energy equipment, farm equipment, and various educational/charitable transactions.
- State: Aims to align Rhode Island with streamlined sales tax protocols, improve tax collection efficiency, and clarify exemptions to avoid disputes over taxability.
Notes
- Many exemptions remain complex and context-specific (e.g., bakery items, prepared foods, and various farm-related exemptions); careful review of the final enacted text would be needed to determine exact applicability in particular transactions.
Compiled from official sources — confirm details with the bill’s official record.
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