by Christian Jenner | Rhode Island shoppers may be in for a surprising decrease in the Rhode Island sales tax from 7% to 6.5% by virtue of a pending U.S. Supreme Court case. In South Dakota v. Wayfair, Inc., South Dakota is challenging the current rule that prohibits state and local governments from requiring retailers to collect sales taxes on online transactions unless the retailer has a “physical presence” in the jurisdiction. This rule has been in place for many years, and was most recently affirmed in 1992 before, as South Dakota’s lawyers noted in their petition to the Court, “Amazon was even selling books out of Jeff Bezos’s garage.”
If South Dakota prevails in its quest to overturn this rule, which would pave the way for unfettered state taxation of online sales, then states will likely require online retailers to collect the same taxes that their brick-and-mortar counterparts must. In fact, Rhode Island’s tax law expressly requires “remote sellers” (essentially, online retailers) to begin collecting “[u]pon passage of any federal law authorizing states to require remote sellers to collect and remit sales and use taxes.” 
If that happens, Rhode Islanders who patronize brick-and-mortar retailers may be in for a pleasant surprise. That is because Rhode Island’s sales and use tax statutes have been amended (in 2011 and again in 2013) to reduce the tax rates from 7% to 6.5%, also “upon passage of any federal law that authorizes states to require remote sellers to collect and remit sales and use taxes.”  Those statutes provide that the reduced rate “shall take effect on the date that the state requires remote sellers to collect and remit sale and use taxes.”
Because the “passage of a federal law” is a trigger to both provisions, the State cannot plausibly argue that it can require remote sellers to collect sales taxes without also implementing the accompanying rate reduction. However, online retailers seeking to avoid having to collect taxes may argue that a decision handed down by the Supreme Court is not the same thing as “passage of a federal law” by Congress. If that happens, a court may need to decide whether a ruling in favor of South Dakota in the Wayfair case triggers the statutes quoted above.
Critical to this inquiry will be determining what the Rhode Island General Assembly intended when it enacted these statutes. Fortunately, the General Assembly was clear about that. The statutes themselves declare that the rate reduction is “in recognition of the work being performed by the streamlined sales and use tax governing board.” That board has publicly criticized online retailers’ ability to avoid collecting sales taxes, and filed a brief supporting South Dakota in the Wayfair case.
This language, therefore, strongly suggests that the General Assembly intended that online transactions be taxed and that the rate be reduced once federal law permits states to require retailers to collect taxes for online sales. Precisely how that change in the law occurs is irrelevant. If so, a judicial decision in the Wayfair case abrogating that current rule would lead to a lower tax bill for shoppers at Rhode Island brick-and-mortar retailers.
- R.I. Gen. Laws § 44-18-15.2(b).
- R.I. Gen. Laws § 44-18-18 (sales tax); R.I. Gen. Laws § 44-18-20 (use tax).
- R.I. Gen. Laws § 44-18-18; R.I. Gen. Laws § 44-18-20.