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State of Rhode Island and Providence Plantations Rhode Island Department of Revenue Division of Taxation State of Rhode Island and Providence Plantations Rhode Island Department of Revenue Division of Taxation Public Notice of Proposed Rule-Making Pursuant to the provisions of Rhode Island General Laws (RIGL) § 42-35-3, which sets forth procedures for the adoption of rules, and in accordance with the Rhode Island Administrative Procedures Act, codified at RIGL § 42-35-1 et seq., the Rhode Island Division of Taxation hereby gives notice of its intent to promulgate a regulation regarding mandatory unitary combined reporting for purposes of the business corporation tax. The purpose of this rule making is to implement RIGL § 44-11-4.1, which involves combined reporting. The proposed regulation and concise summary of non-technical requirements and proposed new rules are available for public inspection at www.tax.ri.gov. They are also available in person at the Rhode Island Division of Taxation, or may be requested from Michael F. Canole by email at: [email protected], or by phone at: (401) 574- 8729. In the development of the proposed regulation, consideration was given to: (1) alternative approaches; (2) overlap or duplication with other statutory and regulatory provisions; and (3) whether the regulation, in and of itself, would have significant economic impact on small business. No alternative approach, duplication, or overlap was identified based upon available information. All interested parties are invited to submit written or oral comments concerning the proposed regulation by December 14, 2015 to Michael F. Canole, Rhode Island Division of Taxation, One Capitol Hill, Providence, R.I. 02908 - telephone number (401) 574- 8729 or via e-mail: [email protected]. A public hearing to consider the proposed regulation will be held on December 14, 2015 at 10:30 a.m. Eastern Time at the Rhode Island Division of Taxation, One Capitol Hill, Providence, Rhode Island, at which time and place all persons interested therein shall be heard. The room is accessible to the disabled; interpreter services for the hearing impaired shall be provided if requested 48 hours prior to the hearing. Requests for this service can be made in writing to Michael F. Canole at the Rhode Island Division of Taxation, One Capitol Hill, Providence, R.I. 02908, or by calling (401) 574-8729. Filing Notice Date: November 13, 2015 Rhode Island Department of Revenue Division of Taxation Concise summary of all non-technical requirements pursuant to RIGL § 42-35-3(a)(1) for rules and regulation regarding mandatory unitary combined reporting applied to businesses treated as C corporations for federal income tax purposes. The purpose of this rule making is to implement RIGL § 44-11-4.1 and related provisions. This regulation provides guidance regarding the application of the mandatory unitary combined reporting regime under Rhode Island’s business corporation tax, codified at RIGL § 44-11-1 et seq. This regulation shall take effect _________,_____. 2 State of Rhode Island and Providence Plantations Rhode Island Division of Taxation (Department of Revenue) Corporate Income Tax: Combined Reporting Regulation CT 15-15 Preamble: Informal background and explanation of provisions…………………………………….………… 4 Table of Contents of Regulation Rule 1. Purpose .............................................................................................................. 20 Rule 2. Authority ........................................................................................................... 20 Rule 3. Application ........................................................................................................ 21 Rule 4. Severability ........................................................................................................ 21 Rule 5. Definitions ......................................................................................................... 21 Rule 6. Combined Reporting - Overview ...................................................................... 27 Rule 7. Combined Group - Composition; Water’s Edge; Tax Havens .......................... 29 Rule 8. Unitary Business - Further Defined................................................................... 37 Rule 9. Election to Use Federal Consolidated Group .................................................... 44 Rule 10. Apportionment; Single Sales Factor; Market-Based Sourcing ........................ 48 Rule 11. Combined Net Income of Group ....................................................................... 50 Rule 12. Corporate Minimum Tax ................................................................................... 53 Rule 13. Net Operating Losses ........................................................................................ 56 Rule 14. Add-Backs ........................................................................................................ 64 Rule 15. Tax Rate ............................................................................................................ 65 Rule 16. Tax Credits; Tracing; JDA; Life Sciences ....................................................... 66 Rule 17. Filing of Return ................................................................................................. 71 Rule 18. Estimated Tax .................................................................................................... 73 Rule 19. Designated Agent .............................................................................................. 74 Rule 20. Tax Administrator’s Authority .......................................................................... 76 Rule 21. Special Appeals ................................................................................................. 77 Rule 22. Tax Administrator’s Report............................................................................... 78 Rule 23. Effective Date .................................................................................................... 79 Appendix I - Combined Reporting Calculation ............................................................... 80 Appendix II - Further Examples ....................................................................................... 81 Appendix III - Comprehensive Example .......................................................................... 86 3 Preamble I. Background Legislation approved by the Rhode Island General Assembly and signed into law by then-Governor Lincoln D. Chafee on June 30, 2011, directed the Rhode Island Division of Taxation to gather certain corporate income tax returns for two successive years, analyze the data, and use it to help determine the policy and fiscal ramifications of changing the business corporation tax statute from separate entity reporting to a combined 1 method of reporting. This preamble is an informal, plain- language summary of recently enacted To assist the Division of Taxation in its study, legislation regarding combined C corporations that were part of a combined reporting. This preamble is provided in group and engaged in a unitary business were accordance with Rhode Island Division of Taxation Regulation TRR 98-1, required to file pro forma Rhode Island Rhode Island Governor Gina M. combined returns -- as if combined reporting Raimondo's Executive Order 15-07, were the law. Pro forma combined reporting and the Rhode Island Office of applied to tax years 2011 and 2012. Regulatory Reform, all of which prescribe that regulatory and other tax Data from the pro forma filings for tax years information be clearly written, in plain 2011 and 2012 was used by the Division of language. This preamble is for general information purposes only; it is not a Taxation to compile a detailed study of substitute for Rhode Island General combined reporting and related issues; the Laws or for Rhode Island Division of study was presented to the chairs of the House Taxation regulations -- including the and Senate Finance Committees by the regulation on combined reporting, statutory deadline of March 15, 2014. which follows this preamble. Nothing contained in this preamble in any way Subsequently, legislation was introduced in the alters or otherwise changes any provisions of Rhode Island statutes, General Assembly to make comprehensive regulations, or formal rulings. changes to Rhode Island’s corporate tax structure. The legislation -- contained in the budget bill for the 2015 fiscal year -- was approved by the General Assembly and signed into law by then-Governor Chafee on June 19, 2014.2 As a consequence, mandatory unitary combined reporting for Rhode Island corporate income tax purposes is effective for tax years beginning on or after January 1, 2015.3 1 Rhode Island Public Law 2011, ch. 151, art. 19, § 4. 2 Rhode Island Public Law 2014, ch. 145, art. 12, § 13 et seq. 3 See, among other things, RIGL § 44-11-4.1. 4 Key regulatory carryforwards To assist C corporations and their advisers in complying with the requirements of pro forma combined reporting, the Division of Taxation in 2011 issued Regulation CT 11-15, “Combined Reporting (pro forma).”4 The Division of Taxation has carried forward a number of elements of Regulation CT 11- 15 into the following regulation involving mandatory unitary combined reporting - in keeping with provisions of Rhode Island General Laws, for the convenience of corporations and their advisers, and to help foster compliance. For example: . Definitions of certain key terms - including “combined group” and “common ownership” - remain the same or substantially the same as in the prior
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