How to Register for a Sales Tax Permit in Rhode Island

Achieving financial freedom and having flexible working hours is reason enough to consider starting a business of your own. Often you will find people reluctantly backing out of that decision as the benefits seem a bit far-fetched or hard to reach. Sometimes seeking approval of your family and friends can be the wrong decision as the answers might deter you from plunging into entrepreneurial waters.

The only one who can make that decision is you, and this is the only thing that matters. If you have any doubts concerning your skills and experience, make sure to address and eliminate them. The truth is that you will have to put in hours of hard work and effort to equip yourself with the necessary tools to run a business. In addition, think of all the hours you spent on tasks and projects for someone else. That experience counts and can be put to good use. But this hard work will yield results and bring you closer to those goals of financial freedom and the ability to work when you want, how long you want and with whom you want.

However, while running your own business can bring many benefits, it does not come easy and without hard work. A lot goes into the preparation and laying the groundwork, which can determine the development of your business. There is also the legal process of registering a company. If you live in Rhode Island, this article should interest you, since it is a guide through the preparation and the registration process.

However, while you will be given pointers on how to prepare, register a business, and apply for a sales tax permit, it has to be said that this is not an official document. For any potential issue, you should contact an attorney, a business advisor or the authorities to avoid any potential issues.

Preparing to Register a Business in Rhode Island

The preparation to run your own business starts with the decision to actually take that step forward and become your own boss. We mentioned above the experience gathered working as an employee. This is where that experience can come in handy. If you plan on staying in the same line of business as the company you left, you already have an idea about the market conditions, the suppliers, the demand and supply dynamic and much more. The only thing left to do is apply this to the preparatory work. In case you are moving away from the line of business you have been engaged in, it still is good to have the knowledge of the market, as this means that you will spend less time looking into it for potential openings and an area where your company could be placed and where it could thrive.

Finding that place for your company starts with thorough market research. This research has to look into every aspect of the market and the results of that research are to be used in developing your business plan. While you can develop a business plan yourself, consulting professionals in the field may help you develop a stronger business plan. This is very important, especially if you plan on seeking external funds from investors, banks or any other financial institution. Without a business plan, your chances of securing funding to get your business off the ground are slim to none.

So what does a business plan include? It includes everything from the description of your business, your company’s goals and aims, your projected revenue, and profit, your projected expenses and costs, your target product and market and every possible aspect of the market. It will place your company into several scenarios showing that your business model is sustainable in various market environments.

Starting in a target environment is what many desire, especially if they’ve worked in the market before and would just like to separate from their company and continue on their own with their fresh ideas. This can be good for someone who has already built business relationships within this industry or market and already knows where the demand is and what the clients are. While it might look easier with all that knowledge, it still might take a long time to build a name for the new business, and fend off an already established competition.

This is where another aspect of the research is highly valued. The research will show where the market is oversupplied and saturated with products and suppliers, but it will also show the opposite, the markets that lack supply but have plenty of demand. These might be small, niche markets, but it may be worthwhile to look for these markets as they bring several advantages for entrepreneurs just starting out on their own.

First, as we said, these markets have ample demand but not much supply sources to cater for this demand. This means your competition will not be as fierce and the profit margins in these markets are usually substantial. Second, with the lack of competition, you are given a chance to get the hang of running a business, building a name for your company and creating a customer base that would stay loyal to you and that would follow along to whichever market you plan on branching into next.

Every step you make in preparation will bear fruit once you open the doors to your business. This is why it pays to be thorough and to go into every detail.

Once you have completed your research, compiled the results and created a business plan it is time to turn to the next step, which entails registering your company with the authorities of the state of Rhode Island.

Registering a New Business in Rhode Island

The process of registering a business in the state of Rhode Island starts with the Secretary of State, within the Rhode Island Department of State. According to the Secretary of State’s website, the first step you need to take is to assess your readiness, which we have mentioned before. This means you have to make sure you have done your preparation and research, have gathered the skills and knowledge and decided this is something you want to do. It also means you have eliminated all the doubts you may have potentially had previously. If there are still questions you might have about how to prepare and whether you need to do more before actually registering a company and opening its doors to business, you might seek advice with the Rhode Island Small Business Development Center.

With all that completed, the next step is choosing the legal structure of your business. This is considered one of the most important decisions as it will further dictate your tax obligations and liabilities. The Rhode Island Division of Taxation puts focus on five legal structures which we will look into now.

The first is the Corporation, which is a separate business entity from its owners or shareholders. This legal entity provides limited liability to its shareholders for the debts of the company. However, corporations are subject to a double taxation as the entity itself pays taxes on income while shareholders pay taxes on dividends. To register a Corporation in the state of Rhode Island, you are required to file an initial application for Articles of Incorporation, together with a fee of $230, with the Department of State.

Next is the Limited Liability Company (LLC), which has a similar structure to the corporation as one or more members can join in the ownership of the company. It also shares the liability protection with the larger corporate structure. However, in terms of taxation, an LLC can choose to be taxed as a partnership or a sole proprietorship or as a corporation, meaning it has the option to avoid the double taxation, or stick to it. This means that members of the LLC can choose to pay individual tax returns or to be taxed as a corporation. To register a Limited Liability Company, you have to file the Articles of Organization with a $150 fee with the Department of State.

The next two legal entity types are similar in many ways and these are general partnerships and sole proprietorships. A general partnership is created when one or more partners join forces to conduct business activities. However, each member of a general partnership has unlimited liability for the debts of the business, including the actions of your partners. Profits are distributed in proportion to the investment in the company or according to a partnership agreement, however, the taxation is done individually on a personal tax return.

The sole proprietorship is the same in terms of taxation. The only difference is that a sole proprietorship is actually owned by one person and there is no legal distinction between the business and the owner, meaning the owner has unlimited personal liability for the debts of the business. One more thing the two have in common is the fact that no registration with the Department of State is necessary.

Last in focus is the Non-Profit organizations, which don’t have owners but are run by a board of directors. These entities are funded through grants, donations and fees for services and neither directors or employees are personally liable for the debts of the organization. Also, these organizations have a tax-exempt status after filing an application with the Internal Revenue Service. To register a Non-Profit, you have to complete an application for Articles of Incorporation with a $35 fee and file it with the Department of State.

The next step you have to take is to choose the business name. The Department of State notes the best way to select a unique name for your business is to use the Name Availability Guidelines and once you have set a few names, search the Corporate Database to make sure the name has not already been taken. However, you have to be aware that, if you plan on running your sole proprietorship under a name other than your own, you will not have the option of checking the name availability as sole proprietorships are not registered with the Department of State. The same goes for general partnerships.

What remains is to find the adequate forms for the registration of your business and file them with the Department of State. This process has been made easier by an interactive business assistant, which will guide you through the registration process and help you obtain any specific federal, state or county permits you might need for your business.

We have mentioned that each business structure dictates your tax obligations. But if you plan on engaging in retail, you might come across something called the sales tax. So let’s look into this in more detail and see what a sales tax permit is and who has to apply for it.

Rhode Island Sales Tax Permit

Now, for the purposes of this article, let’s assume that you intend on purchasing cheap wholesale merchandise to resell online. Would you be required to apply for a sales tax permit?

The process to determine whether you qualify for a sales tax permit starts with determining whether you have a sales tax nexus in the state of Rhode Island. A sales tax nexus means you have a presence in the state in the form of an office or a place of business, an employee or an agent, merchandise stored in a warehouse or you deliver merchandise to customers in the state with your vehicles. Advertising in the state is also considered as having a sales tax nexus as well as having a third-party affiliate.

For detailed information on the sales tax nexus, you can read through the State of Rhode Island – Division of Taxation’s sales and use tax guide.

If you have determined that you have a sales tax nexus, it is time to determine whether the merchandise you plan on dealing with is taxable. In general, services are not taxed, although there are exemptions such as providing cable television services or creating a product. Dealing with tangible property is taxable; however, there a few exceptions here and ways to buy merchandise without having to pay sales tax, which we will discuss in more detail later.

Now, your next step is to file for a sales tax permit if you tick all the above requirements. Since you will be engaging in retail, you will have to register with the Division of Taxation. This can be done online at the RI Division of Taxation Combined Online Registration Service or by filling out the Business Application and Registration and mailing it to the Division of Taxation to the address provided in the Contact Details section below.

In general, you will have to provide personal identification information as well as business identification info, which will have to include the Employer Identification Number granted by the Internal Revenue Service. You can apply for the EIN online.

To obtain your sales tax permit in Rhode Island you will also have to provide information about your business entity type, the date you started operation and a description of your business activity.

The fee for applying for a sales tax permit is $10. However, the Division of Taxation does not disclose how long it may take to approve your application. Once you do get your sales tax permit, make sure you renew it annually, which also requires paying a $10 fee.

Sales Tax Exemptions in Rhode Island

As noted above, there are some exemptions to dealing with tangible property, meaning you can make purchases without having to pay tax. Especially if you are in the business of purchasing merchandise for resale, you may use the state’s Resale Certificate. When using a resale certificate you have to include all the required information and provide the signed document to the seller.

In case you find yourself on the receiving end of a resale certificate, you are required make sure the document is filled out properly and signed by the buyer. If you would like to check the validity of the resale certificate, you can call the Division of Taxation at one of the numbers listed here.

It has to be added that in case you plan on selling merchandise at flea markets, you will not be issued a resale certificate but a Flea Market Vendor’s Permit, which is issued on an annual, quarterly or a 30-day basis.

Once more, this article serves as a guide to registering a business and a sales tax permit in the state of Rhode Island. However, it is not an official document and you should contact the relevant authorities for all issues you might encounter in your registration process.

Contact Details

State of Rhode Island Division of Taxation

One Capitol Hill STE 36
Providence, RI 02908-5829

Rhode Island Department of State

Secretary of State
Business Services
148 West River Street
Providence, RI 02904-2615

Phone: (401) 222-3040
Fax: (401) 222-1309
Email: [email protected]

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