Sales tax on invoices in Rhode Island

In Rhode Island, a contractor is the consumer of its materials and pays sales tax to its suppliers. You become a retailer, and add tax to your invoice, when you sell materials at an agreed price with your service priced separately, are in the business of selling those materials at retail, or sell complete units of standard equipment the way other retailers do and install them.

Construction contracts: you’re the consumer

Rhode Island’s contractor regulation reaches contractors and subcontractors of every kind, electrical, plumbing, heating, air conditioning, roofing and landscape among them. On a contract to repair, alter, improve, remodel or construct real property, you pay the tax as a consumer on all the materials, supplies, tools and equipment you use, rentals and replacement parts included. That holds on a lump-sum contract, a cost-plus contract, a time-and-material contract with an upset or guaranteed price that can’t be exceeded, or any other construction contract.

• Landscapers: the Division of Taxation’s contractor guide treats landscapers as contractors. Landscaping materials are taxable whoever buys them, and since landscapers don’t normally sell materials without installing them, they can’t buy on a resale certificate.
• Exempt customers: building for the federal government, any state, a city, town or other political subdivision, a nonprofit hospital or educational institution, a church, an orphanage or another organization operated exclusively for religious or charitable purposes, you can buy the materials and supplies essential to the project, and used in its construction, tax-free on a Contractor’s Exempt Purchase Certificate, with records showing their use. A nonprofit customer must hold a Rhode Island Certificate of Exemption from the Division of Taxation, which you include with your certificate. Tools and equipment stay taxable.

When you’re a retailer instead

You’re a retailer when your contract sells materials or supplies at an agreed price and your service for an additional agreed price or by the time it takes, or when you’re in the business of selling those materials at retail. You then need the tax administrator’s free permit to make sales at retail for each place of business, renewed for July 1 to June 30. Give your supplier a resale certificate bearing your permit number, collect the tax from your customer, and pay it to the tax administrator.

When you sell a complete unit of standard equipment the way other retailers do and install it, with no further fabrication, only installing, assembling, applying or connecting, the job isn’t improving real property either; the regulation’s examples are an awning or blind its retailer sells and hangs, and electrical fixtures an electrical shop sells and installs. Rhode Island taxes only the retail price of that property, so state it apart from your installation charge. Without that split, the Division’s guide says, the entire charge is taxable.

If you fabricate items and install them for another contractor, the regulation and the Division’s guide examples differ; check with the Division.

Repairs and services

A repairer of goods, such as machinery, refrigerators or furniture, is a retailer of the parts and materials it furnishes when their value is substantial next to the total charge. Separate their fair retail price from your labor on your invoices and records: separately stated labor isn’t taxed, but without the split the whole charge is presumed to be the price of the property. You must separate them when a customer asks. When parts are small in value next to the labor and you don’t charge for them separately, you’re their consumer.

Rhode Island’s taxable “services” are a short list in R.I. Gen. Laws § 44-18-7.3, such as taxicabs, pet care other than veterinary care, guard services and short-term parking. Construction, repair, cleaning and lawn care aren’t on it.

Your invoice: add the tax, and never promise to absorb it

When you sell as a retailer, Rhode Island law makes you add the tax to the sale price; once added, it’s part of the price and a debt your customer owes you. R.I. Gen. Laws § 44-19-9 makes it unlawful to advertise or tell the public or a customer, directly or indirectly, that you’ll assume or absorb the tax or won’t add it to the price. In an advisory on short-term parking, the Division of Taxation adds that, as with all sales at retail, receipts should list sales tax as a separate line item.

In the Division’s contractor guide, a contractor acting as a retailer bills a deck as $12,000 of materials and $15,000 of labor, and the tax is on the $12,000 only. Where you’re the consumer, the tax is the one you paid your suppliers: the regulation has you collect tax from your customer only when you act as a retailer, so leave the tax line off.

Two watch-outs

Two rules catch contractors:

• Materials bought out of state: you owe Rhode Island use tax on their cost, or, if another state’s tax was properly charged at a lower rate, the difference.
• Nonresident contractors: if you have no regular place of business in Rhode Island (a temporary job-site office doesn’t count), whoever awards you a construction contract there must withhold 3% of the contract price to secure any sales and use tax or income tax withheld that may be due.