Have you neglected to pay use taxes? The Rhode Island Division of Taxation just initiated a self-audit program that will allow RI taxpayers to redeem themselves for not filing and paying use taxes. Even though many online retailers do not charge sales tax, there is still a use tax due on the purchase, which must be reported and paid, an area where many taxpayers run into trouble.

How often do people forget about the use tax?

It is relatively easy for businesses to rack up use tax debts without realizing it.

Picture this: Even though that online deal you managed for a new television in your lobby was without sales tax, there is still a 7% use tax owed in RI, meaning that for a $700 TV, there is $49 use tax owed to the state. For as long as this debt goes unpaid, penalties and interest charges pile up. RI’s interest rate is currently 18% on unpaid amounts.

More about the program

In a self-audit, you perform a review of your records to see if you owe the 7% use tax. Relief from use tax is provided when RI sales tax was paid (or an equal amount was paid to another state) at the time of purchase.

The benefits of the self-audit program are:

• Relief from a 10% penalty if you complete the audit on time
• Waiving of up to two-thirds of the interest on any unpaid balance including on the 10% penalty.
• A 36 month look back period (normally 72 months for non-filers) (provided that your audit meets the program’s requirements, payment is submitted on time, and the RI Division of Taxation approves it)

Who is eligible for the program?

The self-audit program is open to businesses and individuals:

• Owing use tax—there is discussion that the program might be expanded to include sales tax, but as for now, it is only for the use tax.
• All around, it’s not just for RI residents—The Tax Division suggests that even though non-RI residents are permitted to apply for the program, they should evaluate the Voluntary Disclosure program first to see if that is a better fit for their needs.

Is anyone not eligible?

The following taxpayers are not eligible for the program:

• RI sales tax permit holders—Right now only non-retailers are eligible for the program.
• Any business/individual currently under audit by the tax division
• Any business/individual that has been audited within 5 years of application for the self-audit program
• Any business/individual that has filed federal bankruptcy
• Any business/individual that has an appeal pending regarding a matter with the Tax Division

What does the application process involve?

If you think you might have use tax debts and are interested in the self-audit program you must:

• Submit an application to the RI Division of Taxation
• Wait for approval/rejection from the Tax Division
• Submit the required documents if your application is approved (You will receive a letter assigning your case to a revenue agent)
• Complete the audit within the time frame given on the Tax Division’s letter
• Submit use tax payments owed

It is very easy for taxpayers to be unaware of their use tax obligations, but to avoid penalties and added interest, review your books to make sure you have paid the proper amounts.

Questions? Contact any member of our Tax Services Team. We will be glad to help you.