Rhode Island's Division of Taxation issued a final decision ruling that online legal database subscriptions qualify as vendor-hosted prewritten computer software subject to 7% sales tax. The case involved a legal research company that argued its product was a nontaxable information service. The Division disagreed, finding that the search, retrieval, and research functionality customers use to access the database content meets the statutory definition of taxable software.

The bottom line: Rhode Island treats online database subscriptions with search functionality as taxable software sales, not exempt information services. If your company sells subscription access to searchable databases in Rhode Island, you should review your tax treatment of these transactions.