Rhode Island Code of Regulations
Title 280 - Department of Revenue
Chapter 20 - Division of Taxation
Subchapter 25 - Business Corporation Tax
Part 10 - Combined Reporting (280-RICR-20-25-10)
Section 280-RICR-20-25-10.11 - Combined Net Income of Group

Universal Citation: 280 RI Code of Rules 20 25 10.11

Current through September 18, 2024

A. In this Part, "group" refers to the collective members of a combined group, at least one of which is doing business in Rhode Island.

B. Determination of taxable income or loss of the group using a group report.

1. Except as otherwise provided in this regulation, the taxable income of the combined group shall be determined under the provisions of R.I. Gen. Laws Chapter 44-11. The use of a group return does not disregard the separate identities of the taxpayer members of the group; each taxpayer member is responsible for tax based on its taxable income or loss apportioned to Rhode Island.

C. Components of income subject to tax in this state.

1. Each taxpayer member is responsible for tax based on its taxable income or loss apportioned to this state, which shall include a pro-rata share of a pass-through entity's income.

D. Determination of taxpayer's share of the taxable income of a combined group apportionable to this state.

1. The taxpayer member's share of the taxable income apportionable to Rhode Island of each combined group of which it is a member shall be the product of:
a. the adjusted taxable income of the combined group, determined under this regulation, and

b. the taxpayer member's apportionment percentage, including in the numerator the taxpayer's total sales (receipts) associated with the combined group's business in Rhode Island, and including in the denominator the total sales (receipts) of all members of the combined group, including the taxpayer member, which total sales (receipts) are associated with the combined group's business wherever located.

2. The combined return uses the income, losses, and factors of all members included on the combined return to more accurately determine the taxable income of those entities actually doing business in Rhode Island.

E. Pass-through entities.

1. A combined group member's numerator and denominator for purposes of the sales factor includes the apportionment factors (gross receipts) of pass-through entities owned directly or indirectly by the member, in proportion to the combined group member's distributive share of the pass-through entity's net income or loss included in the combined group's income. However, a combined group member's sales factor shall not include apportionment factors of a real estate investment trust, regulated investment company, real estate mortgage investment conduit, or financial asset securitization investment trust.

F. FAS 109 Deduction

1. Under Financial Accounting Standard 109 ("FAS 109"), a corporation that is required to issue financial statements must create a liability or an asset for estimated taxes payable or refundable for the current year. For purposes of computing taxable income under Rhode Island's combined reporting statute, the taxpayer shall not claim a FAS 109 deduction.

G. Taxable year of the combined group

1. The group's taxable year is determined as follows:
a. if two or more members of a group file a federal consolidated return, the group's taxable year is the taxable year of the federal consolidated group;

b. in all other cases, the taxable year is the taxable year of the designated agent.

2. Taxpayers with a 52/53-week year-ending (for example, a year ending on the Saturday closest to December 31) shall be treated for purposes of this regulation as having a tax year beginning date of January 1. For example, suppose that a corporation is a 52/53-week corporation. Its 2015 tax year ends December 30, 2015. Its 2016 tax year begins December 31, 2015. However, for purposes of this regulation, its 2016 tax year will be deemed to begin January 1, 2016, and end December 31, 2016.

H. Members with different accounting periods

1. If the taxable year of a member differs from the taxable year of the group, the designated agent shall elect to determine the portion of that member's income to be included in one of the following ways:
a. a separate income statement prepared from the books and records for the months included in the group's taxable year; or

b. including all of the income for the year that ends during the group's taxable year.

2. The same method must be used for each member with a different accounting period. Once an election is made under this section, it is the only method that may be used with respect to members of the group except upon prior approval by the Tax Administrator.

I. Example: The following example illustrates certain principles outlined in this regulation, including the determination of a combined group, the determination of a unitary business, the calculation of a combined group's income, and apportionment. (The example assumes ownership of a fictitious entity, Al's Bakery, which is located in Providence, Rhode Island.)

1. Al's Bakery is owned and operated as a sole proprietorship.
a. A sole proprietorship is not subject to combined reporting.

2. Al's Bakery is treated as a pass-through entity for federal tax purposes - an S corporation, limited liability company (LLC), or partnership.
a. Pass-through entities are not, in and of themselves, subject to combined reporting - unless such an entity elects to be treated as a C corporation for federal income tax purposes.

3. Al's Bakery is a C Corporation, a stand-alone operation with no affiliates.
a. It is not subject to combined reporting. For combined reporting to apply, there must be two or more entities treated as C corporations under common ownership engaged in a unitary business. However, Al's Bakery must use single sales factor apportionment and market-based sourcing for tax years beginning on or after January 1, 2015.

4. Al's Bakery is a C corporation which makes baked goods and has nexus in Rhode Island but in no other state. Betty's Distribution, of New Haven, Connecticut, a C corporation, distributes baked goods in Rhode Island and Connecticut, and has no nexus in Rhode Island but does have nexus in Connecticut. Catrina LLC, of Providence, is a pass-through entity which owns the real estate on which Al's Bakery is located and passes through income to Al's Bakery. Al's Bakery and Betty's Distribution have common ownership and share management and other services.
a. For 2015 and later tax years, Al's Bakery and Betty's Distribution are subject to Rhode Island combined reporting. They comprise a combined group and are engaged in a single business enterprise, a unitary business. They must therefore combine their income for Rhode Island corporate income tax purposes. In the computation, Al's Bakery must include in its income the pass-through income that it receives from Catrina LLC. The pooled income of the combined group must be apportioned to Rhode Island using single sales factor apportionment and the market-based sourcing method. For apportionment purposes, the combined group uses in the numerator all sales in Rhode Island - including any sales in Rhode Island by Betty's Distribution, even though Betty's Distribution does not have nexus in Rhode Island. The denominator must include everywhere sales. Catrina LLC would still have a filing requirement for Rhode Island tax purposes and would still have to pay the annual filing charge under R.I. Gen. Laws § 7-16-67.

Disclaimer: These regulations may not be the most recent version. Rhode Island may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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