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Summary of Changes to Rhode Island Corporate Income Taxes

July 11, 2014

June marked the start of changes for RI corporate income taxes.

As part of the 2015 budget bill, some significant RI state tax law changes were enacted on June 19, 2014. Along with other modifications, significant changes impacting corporate income taxes were put in place.

10 Changes Beginning on or after January 1, 2015

For tax years beginning on or after January 1, 2015, the following changes will take effect:

  1. The existing corporate income tax rate will drop 2 percentage points (from 9% to 7%).
  2. The franchise tax will be repealed under the new law.
  3. RI law states that a company both organized as a C corporation and part of a combined group involved in a single business enterprise will be required to file a combined report with the state. The new law requires a corporation to report its own income and the combined income of the other corporations under common ownership on the RI tax return.
  4. Payments of estimated tax must equal 100 percent of the tax due for the previous year plus any added tax that is due to the combined reporting provisions.
  5. Under the single sales factor apportionment, RI corporations (except for subchapter S corporations, partnerships, and LLCs) will use sales as a single factor for apportionment purposes instead of the three factor apportionment formula.
  6. Rhode Island will begin to use a market- based sourcing of revenues, which states that receipts from transactions other than sales of tangible personal property are sourced to the market state. This will apply to businesses organized as C corporations whether or not the corporation is part of a combined group.
  7. Jobs Development Act. Eligible corporations can avail themselves of the income tax rate reduction, but it will also now apply to each eligible corporation that files a RI income tax return as part of a combined group.
  8. Life sciences rate reduction. The new law states that the corporate tax rate reduction is now available to eligible life sciences companies that file RI income tax returns as part of a combined group, as opposed to previous law which only allowed the reduction to eligible life sciences companies.
  9. Subchapter S corporations. As a result of the franchise tax repeal, subchapter S corporations will be subject to the annual minimum tax under the corporate income tax statute, in the place of the franchise tax statute.
  10. In efforts to resolve disputes between the Tax Administrator and the taxpayer, the Division of Taxation has been mandated to institute an independent appeals process with respect to the method of apportionment applied regarding the corporate income tax.

Additional Changes

  • For the fiscal year 2015, The Division of Taxation is required to add the equivalent of seven full time employees to its staff.
  • Under the new law, the Tax Administrator must develop a report which analyzes the policy and fiscal implications of all the modifications to the business corporation tax statutes combined reporting, single sales factor apportionment and market-based sourcing). The report is due on or before March 12, 2018.

In addition to these major changes affecting many taxpayers, the new law also includes changes to estate taxes, the gasoline tax, real estate conveyance tax, earned income tax credit, along with several other provisions. Visit the RI Division of Taxation to see the full summary of legislative changes. Please contact any member of KLR’s State and Local Tax Services Group with additional questions.

Read more about the estate tax changes in our latest blog: Changes in RI Estate Tax Exemption.

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