On March 10, 2016, Rhode Island adopted Regulation CT-16-17, which provides guidance regarding the state’s water’s edge unitary combined reporting requirement for Business Corporation Tax purposes starting with taxable periods beginning after December 31, 2014. The regulation, which is divided into 23 rules, explains all aspects of Rhode Island combined reporting, including determination of the combined group, computation of taxable income and apportionment, tracing and utilization of net operating losses (“NOLs”) and credits, and various administrative requirements. See Regulation CT-16-17.
On June 19, 2014, Rhode Island Governor Lincoln Chafee signed into law H.B. 7133 (now codified under Title 44, chapter 11 of the General Laws of Rhode Island), which implemented the water’s edge unitary combined reporting requirement. The law also implemented single sales factor apportionment, market-based sourcing of receipts from sales of other than tangible personal property, a lower 7-percent tax rate, and the elimination of the requirement to addback related member intangible expenses and interest.
Composition of Combined Group
H.B. 7133 requires combined reporting with respect to two or more unitary corporations, wherever incorporated, that are more than 50 percent owned by a common owner, whether that owner is corporate or non-corporate, or whether or not that owner is a member of the combined group. While a corporation, wherever incorporated, may be included in a combined return, Rhode Island excludes a non-U.S. corporation from the combined group if more than 80 percent of its sales factor is outside the United States. Rhode Island also excludes the income (and attributed expenses and apportionment) of an included non-U.S. corporation, to the extent that such income is subject to the provisions of a comprehensive income tax treaty between the United States and a foreign jurisdiction. This exclusion does not apply (with some exceptions) if the foreign jurisdiction is a “tax haven” jurisdiction. The definition of “tax haven” in the regulation is the same as it is in H.B. 7133, and the regulation does not expand on or interpret it.
The regulation specifies that the following unitary entities that meet the 50-percent direct or indirect ownership requirement are included in a combined report:
The following entities are excluded from a combined report:
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This article originally appeared in BDO USA, LLP’s State and Local Tax Alert – April 2016. Copyright © 2016 BDO USA, LLP. All rights reserved. www.bdo.com.