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-20-25-10.25 - Appendix III - Comprehensive Example

Universal Citation: 280 RI Code of Rules 20 25 10.25

Current through September 18, 2024

A. Victor Corp. is a Rhode Island business treated as a C corporation for federal income tax purposes. It is a manufacturer of jewelry, chiefly under the "Zulu" brand. It has nexus only in Rhode Island.

B. Whiskey Corp. is a Connecticut business treated as a C corporation for federal income tax purposes. It is a manufacturer of specialty packaging. Its packaging is used chiefly for "Zulu" brand jewelry. It has nexus only in Connecticut.

C. X-ray Corp. is a Nevada business treated as a C corporation for federal income tax purposes. It provides management, accounting, and related services to Victor Corp. and Whiskey Corp. X-ray Corp. has nexus only in Nevada.

D. Romeo is a limited liability company (LLC) based in Delaware that is treated as a pass-through entity for federal income tax purposes. It owns X-ray Corp.'s land and buildings. Romeo's income and expenses flow through to X-ray Corp. of Nevada.

E. Victor Corp., Whiskey Corp., and X-ray Corp. are under common ownership - more than fifty percent (50%) of the voting control of each member of the group is directly or indirectly owned by a common owner or owners.

F. The activities of the group are sufficiently interdependent, integrated or interrelated through their activities so as to provide mutual benefit and produce a significant sharing or exchange of value among them or a significant flow of value among the separate parts.

G. Thus, the combined group is deemed to be engaged in a common business enterprise, a unitary business, for purposes of Rhode Island's mandatory unitary combined reporting regime.

H. Tax Year 2014

1. For tax year 2014, when Rhode Island had separate entity reporting for corporate income tax purposes, only Victor Corp. was required to file a Rhode Island corporate income tax return, and only Victor Corp. had a Rhode Island corporate income tax liability.

2. Due chiefly to the expenses Victor Corp. incurred through payments it made to its Nevada affiliate for management, accounting, and related services, Victor Corp. suffered a $5,000 current-year net loss.

3. As a result, Victor Corp.'s Rhode Island corporate income tax liability for tax year 2014 was the minimum required, $500. (Please see table below.)

Tax Year 2014

Victor Corp

(Separate)

Whiskey Corp

(Separate)

X-Ray Corp

(Separate)

Combined Return

Federal taxable income

$100,000

$1,000,000

$180,000,000

n/a

- deductions

(110,000)

(750,000)

(90,000,000)

n/a

+ additions

5,000

50,000

10,000,000

n/a

Adjusted taxable income

(5,000)

300,000

100,000,000

n/a

Rhode Island tax

500

0

0

n/a

I. Tax Year 2015

1. For tax year 2015, Rhode Island combined reporting is in effect. As a result, the income of all of Victor Corp.'s affiliates must be combined for Rhode Island corporate income tax purposes into a single pool of income. (For convenience, the example assumes that income and expenses of all the affiliates are the same for tax year 2015 as they were for tax year 2014.)

2. The income of X-ray Corp. for tax years 2014 and 2015 reflects the income and expenses of Romeo LLC in Delaware. However, for tax year 2015, the income and expenses of Romeo LLC, which pass through to X-ray Corp., must be included as part of the overall combined group's income.

3. Under Rhode Island combined reporting rules, NOLs created before January 1, 2015, are allowed to offset the income only of the corporation that created the NOL; the NOL cannot be shared with other members of the combined group. Thus, in this example, the NOL created by Victor Corp. for tax year 2014 cannot be shared with the group for tax year 2015.

4. However, Victor Corp. created a current-year net loss for tax year 2015, which is allowed to be shared with other members of the combined group. (Please see table below.)

Tax Year 2015

Victor Corp

Whiskey Corp

X-Ray Corp

Combined Return

Federal taxable income

$100,000

$1,000,000

$180,000,000

$181,100,000

- deductions

(110,000)

(750,000)

(90,000,000)

(90,860,000)

+ additions

5,000

50,000

10,000,000

10,055,000

Adjusted taxable income

(5,000)

300,000

100,000,000

100,295,000

5. Although the income of all of the members of the combined group must be combined for Rhode Island corporate income tax purposes, not all of that income will be taxed by Rhode Island; only a portion will be.

6. Under Rhode Island combined reporting rules, a series of calculations must be performed to determine the amount of the combined group's pool of income to be apportioned to Rhode Island and subjected to Rhode Island tax. The calculation is based on a single factor - sales, also known as gross receipts or total receipts.

7. The apportionment formula includes a numerator and a denominator:
a. For purposes of the numerator, all Rhode Island receipts are counted - including receipts of corporations that do not have Rhode Island nexus. (Please see table below.)

b. For purposes of the denominator, all gross receipts - including, in this example, all overseas sales of all taxable members of the group - are included. (Please see table below.)

Apportionment:

Victor Corp.

Whiskey Corp.

X-ray Corp.

Combined

Rhode Island receipts

$5,000,000

$10,000,000

$0

$15,000,000

Everywhere receipts

10,000,000

100,000,000

200,000,000

310,000,000

Apportionment ratio

0.500000

0.100000

0.000000

0.04838710

c. As the table above shows, the combined Rhode Island receipts of the group are divided by the combined everywhere receipts of the group. The result is an apportionment factor of 0.0483871.

d. To determine the amount of the combined group's combined income that is apportioned to Rhode Island, the combined group's apportionment factor of 0.0483871 is applied to the combined group's Rhode Island adjusted taxable income of $100,295,000.

e. The result is the combined group's apportioned Rhode Island taxable income. The income (after any applicable adjustments) is then subject to Rhode Island's corporate income tax rate. (For tax year 2015, the Rhode Island corporate income tax rate is seven percent (7%), down from nine percent (9%) for tax year 2014.) In this example, the combined group's Rhode Island apportioned taxable income of $4,852,984 is multiplied by the tax rate of seven percent (7%) for tax year 2015 to arrive at the tentative Rhode Island corporate income tax of $339,709. (Please see table below.) Any allowable credits, subject to Rhode Island combined reporting rules, would then be applied to arrive at Rhode Island tax.

Tax computation for tax year 2015:

Combined group

Federal taxable income

$181,100,000

- deductions

(90,860,000)

+ additions

10,055,000

Adjusted taxable income

100,295,000

x apportionment factor

0.04838710

Apportioned taxable income

4,852,984

x tax rate

0.07

Tentative Rhode Island tax

339,709

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