Rhode Island sales tax: common and unusual exemptions

Despite being the smallest state in the US, Rhode Island is a big tourist destination, known for its quintessential New England beaches, quaint towns, and opulent Newport mansions. The Ocean State is not known, however, for its business-friendly tax policies.

In fact, The Tax Foundation ranked Rhode Island as one of the worst states to do business in. However, Rhode Island is working to clean up its act, including phasing out antiquated capital stocks taxes and lowering corporate tax rates. In addition, state lawmakers are debating whether to change certain sales tax exemptions, including those for feminine hygiene products. Businesses with nexus in Rhode Island should monitor proposed changes in order to stay current on their sales tax liability.

Rhode Island imposes a 7 percent sales tax on the sale of most tangible items. However, the state offers exemptions on a range of goods and services, as well as for certain organizations and types of sales. Common exempt goods include clothing and footwear, food, and medical items. Goods for resale are also exempt from sales tax. Certain groups, such as farmers, manufacturers, charitable or religious organizations, government agencies, and school districts, also benefit from sales tax exemptions when purchasing or selling certain items.

Rhode Island is a member of the Streamlined Sales Tax Agreement and also considers click-through sales to trigger nexus. As such, if you’re an out-of-state ecommerce seller, it’s important to understand Rhode Island sales tax nexus laws in order to avoid hassles come tax time. If you do have nexus in the Ocean State, you are required to register your business and collect sales tax on taxable items.

There are several odd sales tax exemptions in Rhode Island. For example, while soft drinks (drinks containing sugar or sweeteners) such as lemonade and sweetened iced tea are taxable, sweetened beverage powders are exempt. Check out the following list to see if your business can take advantage of some odd -- but legitimate -- exemptions.

1. Candy containing flour: While most candy items are considered non-food items and are taxable, any candy that contains flour, such as Twix, Nestle Crunch, and Milky Way, is considered a food and therefore exempt from sales tax.
2. Prosthetic devices: Any prosthetic device worn on the body to artificially replace a missing portion of the body or to support a weakened portion of the body is exempt from sales tax.
3. Newspapers: While magazines and other periodicals, whether sold over-the-counter or by subscription, is subject to sales tax, the sale of newspapers is exempt from tax.
4. Sales by writers, composers, and artists: The sale of an original piece of work by a resident artist, including a book, play, musical composition, painting, sculpture, or film is not subject to sales tax in Rhode Island.
5. Fishing “twine items”: Certain tangible goods used in commercial fishing are exempt from sales tax. These goods, known as “twine items,” include netting, ropes, trawls, traps, and anchors. Other items purchased for use in commercial fishing that are exempt from sales tax include boat engine parts, fuel, ice, and tools.

Do you have other questions regarding Rhode Island sales tax exemptions? Check out our Guide to Rhode Island Sales Tax.