Division of Taxation: Several tax changes in effect for new year

SEVERAL TAX changes took effect on Jan. 1, according to R.I. Tax Administrator David M. Sullivan, who said the corporate income tax rate dropped to 7 percent from 9 percent.
SEVERAL TAX changes took effect on Jan. 1, according to R.I. Tax Administrator David M. Sullivan, who said the corporate income tax rate dropped to 7 percent from 9 percent.

PROVIDENCE – Rhode Island’s corporate income tax rate dropped to 7 percent from 9 percent, and the franchise tax was officially repealed, as part of several tax changes that took effect on Jan. 1, according to the R.I. Department of Revenue Division of Taxation.

These changes, along with mandatory combined reporting taking effect and businesses treated as C corporations seeing changes in their apportionment calculations, were the result of legislation approved by the General Assembly and signed into law by Gov. Lincoln D. Chafee on June 19.

“These are the most significant changes to Rhode Island’s corporate income tax regime since 1947,” R.I. Tax Administrator David M. Sullivan said in a statement. “The Division of Taxation has held numerous outreach sessions with taxpayers and tax practitioners throughout the state to spread the word and to help ensure that everyone is aware of these changes. … We want to take this opportunity to remind taxpayers and practitioners about the changes and their effective date.”

Also new for 2015 is a change in the Rhode Island estate tax, which means that fewer estates will end up being taxed, making more money available to heirs and other beneficiaries, Sullivan added.

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Rhode Island’s estate tax threshold, which was $921,655 for those dying in 2014, will be $1.5 million for those dying in 2015.

For tax year 2014, corporations subject to Rhode Island’s corporate income tax file separate returns, as separate entities. For tax years beginning on or after Jan. 1, 2015, Rhode Island has adopted combined reporting for corporate income tax purposes. As a result, a business treated as a C corporation – and which is part of a combined group engaged in a single business enterprise (a ‘unitary’ business) must file a combined report with Rhode Island.

Thus, a corporation will generally have to treat all of its affiliates as if they were a single company, and combine all of their taxable income in a single pool. A formula will be used to apportion combined income to Rhode Island for tax purposes.

For tax years beginning on or after Jan.1, 2015, business that are treated as C corporations and that are or will be taxed under Rhode Island General Laws Chapter 44-11 will use a single factor – sales (total receipts) – for apportionment purposes, instead of the three-factor apportionment formula, which include sales, payroll and property.

For tax years beginning on or after Jan. 1, 2015, the franchise tax is repealed. As a consequence, subchapter S corporations will be subject to the annual minimum tax under the corporate income tax statute instead of under the franchise tax statute. (As a practical matter, most S corporations will see no change: They will continue to pay the annual minimum tax of $500. Some S corporations under the old system ended up paying more than the minimum tax because of franchise tax provisions. For tax years beginning on or after Jan. 1, 2015, those S corporations will pay only the $500 minimum.)

View all tax changes HERE.

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