Was Rhode Island's water quality protection charge included in the taxable sales price of water?

Plain-English summary

The water quality protection charge was part of the taxable sales price of water. When a supplier added the charge to a customer's bill, the retailer had to include it in gross receipts and apply Rhode Island sales tax.

State law imposed the charge on each water supplier at two and fifty-nine hundredths cents ($0.0259) per 100 gallons sold. The funds supported Water Resources Board operations and the development and protection of Rhode Island water resources.

R.I. Gen. Laws § 46-15.3-5 required the supplier to add the charge to the sale price and said the added charge became part of the price and a debt owed by the purchaser. The sale-price definition in § 44-18-12 included the total charge for furnishing or distributing water.

Sections 44-18-18 and 44-18-19 imposed and required collection of sales tax on the retailer's gross receipts. Because the water-protection statute contained no exemption for the charge, the Division required the then-current seven-percent sales-tax rate to be applied to the water price including the charge.

What this means for you

Water suppliers

Under the 1993 order, the environmental charge was not separated from the taxable water price after it was added to the customer bill.

Billing and accounting teams

Include mandatory charges in the sales-tax base when the governing statute makes them part of the sale price. The label “charge” did not remove this amount from gross receipts.

Tax professionals

The analysis relied on the direct statutory link between the charge and sale price. Confirm current versions of both the water-protection and sales-tax provisions before applying the result today.

Common questions

What was the charge amount in the ruling? $0.0259 per 100 gallons sold.

Why was the charge taxable? The water-protection statute made it part of the sale price, and the sales-tax law taxed gross receipts from furnishing water.

Was there a statutory exemption for the charge? The Division found none in chapter 46-15.3.

Did suppliers impose the charge on sales to other drinking-water suppliers? The quoted statute said no water quality protection charge applied to those supplier-to-supplier sales.

What sales-tax rate did the order apply? Seven percent, the rate stated in the 1993 source.

Citations and references

• R.I. Gen. Laws § 46-15.3-5 — charge amount and rule making the charge part of sale price.
• R.I. Gen. Laws § 39-1.1-1 — provision referenced for public-utility suppliers.
• R.I. Gen. Laws § 44-18-12 — sale-price definition including charges for water.
• R.I. Gen. Laws § 44-18-18 — sales tax on retailer gross receipts.
• R.I. Gen. Laws § 44-18-19 — retailer collection of sales tax.

Source

• Landing page: Rhode Island Declaratory Rulings
• Declaratory order: Declaratory Order 1993-06

Original ruling text

Ruling Request No. 93-06

Declaratory Rulings

Ruling Request No. 93-06

Re: Request for Ruling Concerning Sales Tax Treatment of Water Quality Protection Charge

Request for Ruling

Taxpayer requests a ruling concerning the sales tax treatment of the water quality protection charge imposed on the suppliers of water pursuant to R.I.G.L. 46-15.3-5.

Facts

A water quality protection charge is imposed by law on each supplier of water at a rate of two and fifty-nine hundredths cents ($.0259) per one hundred (100) gallons sold. This charge is used to pay for the operations of the Water Resources Board, as well as for the development and protection of water resources within the State of Rhode Island.

Ruling Requested

That the water quality protection charge is not subject to the Rhode Island sales/use tax law.

Discussion

The pertinent provisions of Rhode Island law are as follows:

46-15.3-5. Water quality protection charge. --(a) There is hereby imposed on each supplier of water, for the purpose of protecting the quality and safety of the public supply of water, a charge to be known as a "water quality protection charge" based upon billings for sales of every supplier or public drinking water at the rate of two and fifty-nine hundredth cents ($.0259) per one hundred (100) gallons of each sale, whether the water be used for drinking or other purposes. No supplier shall impose a water quality protection charge upon sales to other suppliers of drinking water. Except as provided in subsections (c), (d) and (e) hereof, the supplier shall add any water quality protection charge imposed hereunder to the sale price, and, when added, the water quality protection charge shall constitute a part of the price and shall also be a debt from the purchaser to the supplier and be collectible in the same manner and have the benefit of any lien provided for the amounts due for water charges from the purchaser to the supplier. Subject to the provisions of Code Section 39-1.1-1 for those suppliers which are public utilities, all suppliers may terminate service for failure of purchasers to pay the water quality protection charge. (emphasis added)

44-18-12. "Sale price" defined. -- (1) "Sale price" means the total amount for which tangible personal property is sold or leased or rented, and the total amount charge for the furnishing or distributing of electricity, natural gas, artificial gas, steam, refrigeration, water , telecommunications, telegraph, cable, and radio message service, community antenna television, subscription television, and cable television service...(emphasis added)

44-18-18. Sales tax imposed. -- A tax is hereby imposed upon sales at retail in this state, ...at the rate of six percent (6%) of the gross receipts of the retailer from the sales or rental charges, ... provided further, however, for the period commencing July 1, 1990 the tax rate shall be seven percent (7%)...(emphasis added)

44-18-19. Collection of sales tax by retailer.--The retailer shall add the tax hereby imposed to the sale price or charge, and when added the tax shall constitute a part of the price or charge, shall be a debt from the consumer or user to the retailer, and shall be recoverable at law in the same manner as other debts;...(emphasis added)

It is clear that both under Chapter 46-15-3 ("Public Drinking Water Protection") and Chapter 44-18 ("Sale/Use Uses") the water quality protection charge is part of the selling price of the water. Pursuant to Code Sections 44-18-18 and 44-18-19, the retailer is required to impose a seven percent (7%) sales tax on the gross receipts from the sale of the water which includes the water quality protection charge. There is no provision in Chapter 46-15.3 which otherwise exempts the charge from the sales tax.

Ruling

The water quality protection charge imposed pursuant to R.I.G.L. 46-15.3-5 is subject to the sales tax.

This ruling shall be valid until the applicable statutory provisions are amended in a manner requiring a different result or until the underlying factual presentation changes.

**R. Gary Clark

Tax Administrator

November 1, 1993**