Rhode Island has re-issued (updated) proposed combined reporting regulations. A public hearing to consider the proposed regulation will be held on February 22, 2016 at 10:30 a.m. Eastern Time at the Rhode Island Division of Taxation, One Capitol Hill, Providence, Rhode Island.
Written or oral comments concerning the proposed regulations may be submitted to Michael F. Canole, Rhode Island Division of Taxation, One Capitol Hill, Providence, R.I. 02908 or via his telephone number (401) 574-8729 or e-mail: michael.canole@tax.ri.gov. by February 22, 2016.
The following is a high-level summary (from the preamble of the proposed regulations).
Staying the Same
The Division of Taxation has carried forward a number of elements of Regulation CT 11-15 into the new proposed regulations:
For example:
- Definitions of certain key terms – including “combined group” and “common ownership” – remain the same or substantially the same as in the prior regulation.
- The basic approach to determining the composition of a combined group is largely the same.
- Water’s edge” treatment is mandatory.
- The basic approach to determining the unitary business remains the same – relying largely on tests set forth in certain U.S. Supreme Court cases.
- For Rhode Island combined reporting purposes, an affiliated group is still able to elect to use the same members that the affiliated group includes in filing its federal consolidated return.
- A tracing protocol applies to net operating losses (NOLs).
- A tracing protocol applies to tax credits.
- The combined group still must appoint a designated agent. The agent is required to act on behalf of the combined group in its own name in all matters related to the combined return.
- For a combined group filing on extension, the extended due date will be seven months after the normal filing deadline. Thus, for a combined group whose return is due March 15, the deadline will be October 15.
Differences
The proposed regulation differs from the pro forma regulation in a number of ways,
partly due to changes in statute.
For example:
- While “water’s edge” treatment continues to be mandatory, and the basic approach to determining the composition of a combined group is largely the same, the following regulation incorporates a definition of the term “tax haven” to reflect the definition in statute. As a result, certain corporations may or may not have to be included in the combined group.
- Under the regulation for pro forma combined reporting, corporations had to apportion income using two methods that are named for seminal California court cases: the Joyce and Finnigan methods. As the following regulation spells out, only the Finnigan method is now used for apportionment by entities that are treated as C corporations for federal income tax purposes.
- When the prior regulation was promulgated, three-factor apportionment applied, using sales (total receipts), property, and payroll. However, for tax years beginning on or after January 1, 2015, a single factor – sales (total receipts) – is used for apportionment purposes by entities that are treated as C corporations for federal income tax purposes, whether or not part of a combined group.
- When the prior regulation was promulgated, the sales factor forapportionment purposes was determined by C corporations using the cost-of-performance method. However, for tax years beginning on or after January 1, 2015, market-based sourcing is used by entities treated as C corporations for federal income tax purposes, whether or not part of a combined group, in place of the cost-of-performance method.
- For Rhode Island combined reporting purposes, an affiliated group of corporations uses the same members that the affiliated group includes in filing its federal consolidated return. However, effective for tax years beginning on or after January 1, 2015, once the election is made, it must continue for five years, including the year the election is made. (For purposes of pro forma combined reporting, the election was binding for two years.)
- The prior regulation asked affected taxpayers to calculate a deduction, related to their balance sheets, in accordance with Financial Accounting Standard 109 (FAS 109). However, the deduction is not prescribed by statute for purposes of Rhode Island mandatory unitary combined reporting.
- When the prior regulation was promulgated, a corporation’s Rhode Island tax was the greater of the franchise tax or the corporate income tax, and the corporate income tax rate was nine percent (9%). For tax years beginning on or after January 1, 2015, the franchise tax is repealed and the corporate income tax rate is seven percent (7%).
- The following regulation clarifies that, for purposes of combined reporting, gross receipts include, among other things, gross income from intangible personal property as well as from the performance of services.
- The following regulation makes clear that “captive insurance companies” taxed under RIGL Chapter 27-43 should not be included in a combined return.
To view more details and follow the status of the regulations, go to Rhode Island's combined reporting web page.