Rhode Island Assesses Sales Tax on Seller Who Failed to Comply with the Resale Certificate Process

March 1, 2023

By: Camille Gregory, SALT Senior Associate

At a glance

  • The main takeaway: Rhode Island upheld a decision that issued tax, penalties and interest against a seller for failure to follow the state’s specific process for collecting a resale certificate.
  • Assess the impact: Sellers must pay close attention to the rules surrounding the manner and timing of collecting documentation to support a claimed exemption by a purchaser.
  • Take the next step: Aprio’s State and Local Tax (SALT) team has experience with the resale certificate procedures and can help your business comply with the rules to avoid unexpected tax liabilities and penalties.

Schedule a free consultation today to learn more!

The full story: 

Under sales and use tax rules, sales tax is typically applied on the sale to the end consumer, which is often referred to as a “retail sale.” As a result, state definitions of “retail sales” typically exclude sales for resale. In order to provide support for the claim that a sale is for resale, states have specific processes in place for sellers to accept a resale certificate from the buyer, and those rules may include certain timing requirements. Failure to follow these procedures may result in the sale becoming taxable, as illustrated by a recent administrative decision from the Rhode Island Department of Revenue (Department). [1]

A closer look at the case

The taxpayer made a sale to a purchaser on August 31, 2016, but it did not collect a resale certificate from the purchaser until December 16 — over 100 days after the sale. 

Pursuant to Rhode Island’s sales and use tax rules, there is a presumption that all sales are to an end consumer (i.e., are “retail sales”), and the burden of proving otherwise falls on the parties of the transaction. However, a seller can typically relieve itself of such burden by obtaining a resale certificate from the purchaser in the form and manner as determined by the state. [2]

Rhode Island, and many other states, are part of the Streamlined Sales and Use Tax Agreement (Agreement), by which member states agree to adopt model sales and use tax provisions in an effort to provide more uniformity among states with regard to the taxability and administration of sales and use taxes. [3] One of the Agreement’s provisions sets forth specific procedures for the collection of resale and other exemption certificates, as follows:

  • First, as a general rule, a seller is required to obtain documentation from a purchaser for a claimed exemption at the time of the sale. [4]
  • Second, a seller may still be relieved of liability if it obtains a fully completed exemption certificate or captures the relevant data elements within 90 days following the date of the sale. [5]
  • Finally, if the seller has not obtained an exemption certificate or all relevant data elements, the seller may, within 120 days subsequent to a request for substantiation by the state, either prove that the transaction was not subject to tax by other means or obtain a fully completed exemption certificate from the purchaser, taken in good faith. [6]

The ruling explained

The parties did not dispute that the first and second timing rules were not satisfied since the seller clearly obtained the resale certificate after the 90-day period following the sale. However, in a somewhat unusual and perhaps harsh decision, the Department ruled that the third timing rule was inapplicable to the seller in this case because in order for that rule to apply, the seller must not have collected a resale certificate. Since the seller did obtain a resale certificate, albeit after 90 days, the seller was not eligible to rely on the third timing option. Therefore, the seller owed tax, penalty and interest on the sale.

Technically, this ruling encourages sellers who do not obtain an exemption certificate within 90 days to NOT obtain one until the state requests that the seller do so, at which time the seller will have 120 days to comply. In other words, if the seller in this case had waited to obtain the resale certificate from the purchaser until the state requested that it do so, then the transaction would not have been taxable (assuming that the certificate was obtained in good faith).

The bottom line

Perhaps the result of this decision will be overturned in subsequent guidance or legislative amendment.  In the meantime, however, sellers must pay close attention to the procedures surrounding the manner and timing of collecting documentation to support a claimed exemption by a purchaser.

Aprio’s SALT team has experience with these procedures, and we can assist your business to ensure that it complies with its sales and use tax obligations so that it does not incur unexpected tax liabilities and penalties. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.


[1] Rhode Island Department of Revenue Administrative Decision #2022-20, December 22, 2022.

[2] R.I. Gen. Laws § 44-18-25. This is a common provision among the states.

[3] For more information about the Streamlined Sales Tax project, see its website.

[4] R.I. Gen. Laws § 44-18.1-18(a)(1).

[5] R.I. Gen. Laws § 44-18.1-18(c).

[6] R.I. Gen. Laws § 44-18.1-18(c)(1). It is worth noting that one difference between obtaining a resale certificate at the time of sale or within 90 days versus obtaining it at the request of the state is that the latter requires that the certificate be taken in “good faith.” This would suggest a higher standard applies when taking a resale certificate in those cases.

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