Rhode Island Code of Regulations
Title 280 - Department of Revenue
Chapter 20 - Division of Taxation
Subchapter 25 - Business Corporation Tax
Part 9 - Apportionment of Net Income (280-RICR-20-25-9)
Section 280-RICR-20-25-9.10 - Special Apportionment Formulas - Pre-2015

Universal Citation: 280 RI Code of Rules 20 25 9.10

Current through September 18, 2024

A. Applicability of Special Apportionment Formulas - Pre-2015. For tax years beginning before January 1, 2015, special apportionment rules, as set forth in §§ 9.10(B) through (J) of this Part, shall apply to the categories of taxpayers listed below when such taxpayers derive their income from sources both within and outside of this state for the purpose of profit or gain:

1. Manufacturers;

2. Motor carriers;

3. Airlines;

4. Taxpayers with specialty receipts;

5. Taxpayers with qualified USFDA manufacturing facilities in Rhode Island;

6. Regulated investment companies and securities brokerage services;

7. Credit card banks;

8. Retirement and pension plans;

9. Sellers of international investment management services.

10. In all such cases, apportionment fractions shall be determined in the same manner that applied in Rhode Island prior to the introduction of mandatory unitary combined reporting. For tax years beginning on or after January 1, 2015, refer to § 9.11 of this Part.

B. Manufacturers (tax years beginning before January 1, 2015).

1. Manufacturers who maintain a principal business as described in Sector 31, 32 or 33 of the North American Industry Classification System as adopted by the United States Office of Management and Budget as revised from time to time, may, in lieu of apportioning net income to this state based on the apportionment fraction described in R.I. Gen. Laws § 44-11-14(a), elect for any year to apportion net income to this state based upon the following apportionment fraction:
a. For the tax year beginning on or after January 1, 2004, but before January 1, 2005, thirty percent (30%) of the property factor, thirty percent (30%) of the payroll factor and forty percent (40%) of the receipts factor may be used;

b. For the tax year beginning on or after January 1, 2005, twenty-five percent (25%) of the property factor, twenty-five percent (25%) of the payroll factor and fifty percent (50%) of the receipts factor may be used.

c. Motor carriers (tax years beginning before January 1, 2015).

2. In the case of motor carriers, the following method is used to determine the numerator of each factor:
a. Property Factor:
(1) Consists of the average net book value of situs assets plus a portion of the net book value of the line-haul vehicles. In determining the net book value of line-haul vehicles, compare Rhode Island pickup and delivery equipment to pick up and delivery equipment everywhere to arrive at a percentage due to Rhode Island for line-haul equipment.

(2) For a motor carrier who does not have a Rhode Island facility, but who regularly picks up and delivers in Rhode Island, delivery equipment will be apportioned to Rhode Island based upon its Rhode Island activities.

(3) Rental property shall be valued at eight times the annual net rental paid less annual sub-rentals received.

b. Receipts Factor: Average of the inbound/outbound Rhode Island receipts plus all other receipts attributable to Rhode Island.

C. Salaries and Wages Factor:

1. Consists of the situs wages plus a portion of the line-haul wages. Rhode Island line-haul wages are determined by the percentage of activity in Rhode Island.

2. For a motor carrier who does not have a Rhode Island facility, but who regularly picks up and delivers in Rhode Island, drivers' wages will be apportioned to Rhode Island based upon its Rhode Island activities.

D. Airlines (tax years beginning before January 1, 2015).

1. In the case of airlines, the following method is used to determine the numerator of each factor:
a. Property Factor:
(1) Situs assets shall be included based on the average net book value. Flight aircraft shall be included based on the following ratio: mileage of aircraft, by type, flown in this state compared to total aircraft mileage flown everywhere, multiplied by the net book value of flight aircraft everywhere.

(2) Rental property shall be valued at eight times the annual net rental paid less annual sub rentals received.

b. Receipts Factor:
(1) Passenger revenue and freight revenue shall be allocated to Rhode Island based on the ratio of departures of flight aircraft, by type, from locations in this state compared to total departures everywhere, multiplied by total passenger revenue everywhere

(2) All other receipts attributable to Rhode Island shall also be included in the numerator.

c. Salaries and Wages Factor:
(1) Situs wages shall be included plus a portion of flight payroll. Flight payroll shall be included based on the following ratio: mileage of aircraft, by type, flown in this state compared to total aircraft mileage flown everywhere, multiplied by the total flight payroll everywhere.

E. Taxpayers with specialty receipts (tax years beginning before January 1, 2015).

1. For those taxpayers whose Rhode Island receipts include sums from the exercise of various legal rights such as patents, copyrights, royalties, franchises, licenses, etc. which are used, broadcast, or copied (in any media), such receipts shall be included in the numerator of the gross receipts factor and the total of such receipts shall be included in the denominator. A patent is used in Rhode Island to the extent that it is employed in fabrication, manufacturing, production or other processing in Rhode Island or to the extent that a patented product is produced in Rhode Island.

2. A copyright is used in Rhode Island to the extent that printing or other publication originated therein.

3. Broadcast media is used in Rhode Island to the extent that the Rhode Island target audience is determinable as a part of the total audience. If the Rhode Island audience is not determinable, then the entire receipts from the Rhode Island source are includible in the numerator of the gross receipts.

4. In all cases, a taxpayer's method of assigning its sales shall be determined in good faith, applied in good faith, and applied consistently with respect to similar transactions and year to year. A taxpayer shall retain contemporaneous records that explain the determination and application of its method of assigning its sales, including its underlying assumptions, and shall provide such records to the tax administrator upon request.

F. Taxpayers with qualified USFDA manufacturing facilities in Rhode Island (tax years beginning before January 1, 2015).

1. A taxpayer with a Rhode Island facility which is both certified and registered by the United States Food and Drug Administration (USFDA) and is considered manufacturing as defined by the US Standard Industrial Classification Code(s)(SIC Code) 283, and 384 shall follow the three-factor apportionment formula as described in § 9.9 of this Part, except that the taxpayer may exclude certain values from the apportionment fraction, as follows:
a. From the numerator of the property fraction, the taxpayer may exclude the amount, if any, by which the net book value of qualified property in the tax year for which an exclusion is claimed under this provision exceeds the net book value of qualified property in the preceding tax year. For the purposes of this provision, "qualified property" means real estate and tangible personal property used solely and exclusively in all of the taxpayer's certified Rhode Island facilities.

b. From the numerator of the wages/payroll fraction, the taxpayer may exclude the amount, if any, by which total qualified payroll expenses of the taxpayer in the tax year for which an exclusion is claimed under this provision exceeds the total qualified payroll expenses of the taxpayer in the immediately preceding tax year. For purposes of this provision, "qualified payroll" means the total amount of salaries, wages and other compensation paid to employees and to officers, except officers who have a direct or indirect ownership interest in the taxpayer in excess of five percent (5%) or who are substantial creditors of the taxpayer, which is attributable solely and exclusively to services performed in connection with the taxpayer's activities or transactions at all of the taxpayer's certified Rhode Island facilities.

c. In the event that a facility is certified during the taxpayer's tax year or in the event that a facility ceases to be certified during the taxpayer's tax year, the taxpayer shall prorate the amounts determined under subsections §§ 9.10(F)(1)(a) and (b) of this Part.

d. The taxpayer shall attach to the return for each tax year for which an exclusion is claimed under this provision detailed calculations substantiating each exclusion and proof that the taxpayer has satisfied the conditions relating to registration and certification by USFDA contained in this section.

G. Regulated investment companies and securities brokerage services (tax years beginning before January 1, 2015).

1. Any taxpayer located within the state which sells management, distribution or administration services (including without limitations, transfer agent, fund accounting, custody and other similar or related services) as described in this provision to or on behalf of a regulated investment company (as defined in the Internal Revenue Code of 1986, as amended) may elect the allocation and apportionment method for the taxpayer's net income provided for in this provision. The election, if made, shall be irrevocable for successive periods of five (5) years. All net income derived directly or indirectly from the sale of management, distribution, or administration services to or on behalf of regulated investment companies, including net income received directly or indirectly from trustees, and sponsors or participants of employee benefit plans which have accounts in a regulated investment company, shall be apportioned to Rhode Island only to the extent that shareholders of the regulated investment company are domiciled in Rhode Island as follows:
a. Net income shall be multiplied by a fraction, the numerator of which shall be Rhode Island receipts from the services during the taxable year and the denominator of which shall be the total receipts everywhere from the services for the same taxable year.

b. For purposes of this provision, Rhode Island receipts shall be determined by multiplying total receipts for the taxable year from each separate regulated investment company for which the services are performed by a fraction. The numerator of the fraction shall be the average of the number of shares owned by the regulated investment company's shareholders domiciled in this state at the beginning of and at the end of the regulated investment company's taxable year, and the denominator of the fraction shall be the average of the number of the shares owned by the regulated investment company shareholders everywhere at the beginning of and at the end of the regulated investment company's taxable year.

2. Any taxpayer which provides securities brokerage services and which operates within the state may elect the allocation and apportionment method for the taxpayer's net income provided for in this provision. The election, if made, shall be irrevocable for successive periods of five (5) years. All net income derived directly or indirectly from the sale of securities brokerage services by a taxpayer shall be apportioned to Rhode Island only to the extent that securities brokerage customers of the taxpayer are domiciled in Rhode Island. The portion of net income apportioned to Rhode Island shall be determined by multiplying the total net income from the sale of the services by a fraction determined in the following manner:
a. The numerator of the fraction shall be the brokerage commissions and total margin interest paid in respect of brokerage accounts owned by customers domiciled in Rhode Island for the taxpayer's taxable year; and

b. The denominator of the fraction shall be the brokerage commissions and total margin interest paid in respect of brokerage accounts owned by all of the taxpayer's customers for the same taxable year.

H. Credit card banks (tax years beginning before January 1, 2015).

1. Any banking institution whose business activities are taxable within and outside of this state and whose activities are limited to those described in Section 2(c)(2)(F) of the Bank Holding Company Act (12 U.S.C. § 1841(c)(2)(F)) may elect the allocation and apportionment method for the taxpayer's net income provided for in this provision. The election, if made, shall be irrevocable for successive periods of five (5) years. All net income derived directly or indirectly from the banking institution shall be apportioned to Rhode Island only to the extent that customers of the taxpayer are domiciled in Rhode Island. The portion of net income apportioned to Rhode Island shall be determined by multiplying the total net income from the sale of the services by a fraction determined in the following manner:
a. The numerator of the fraction shall be the income derived from accounts owned by customers domiciled in Rhode Island for the banking institution's taxable year; and

b. The denominator of the fraction shall be income derived from accounts owned by all of the banking institution's customers for the same taxable year.

I. Retirement and pension plans (tax years beginning before January 1, 2015).

1. Any taxpayer located within the state that sells management, distribution or administration services, including without limitations, transfer agent, fund accounting, custody and other similar or related services, as described in this provision to or on behalf of an employee retirement plan or pension plan may elect the allocation and apportionment method for the taxpayer's net income provided for in this provision. The election, if made, shall be irrevocable for successive periods of five (5) years. All net income derived directly and indirectly from the sale of the management, distribution, or administration services to or on behalf of a retirement plan or pension plan, including net income received directly or indirectly from trustees, sponsors or participants of such a retirement plan or pension plan, shall be apportioned to Rhode Island only to the extent that the beneficiaries or participants of a retirement plan or pension plan are domiciled in Rhode Island as follows:
a. Net income shall be multiplied by a fraction, the numerator of which shall be Rhode Island receipts from the services during the taxable year and the denominator of which shall be the total receipts everywhere from the services for the same taxable year.

b. For the purposes of this provision, Rhode Island receipts shall be determined by multiplying total receipts for the taxable year from a retirement plan or pension plan for which the services are performed by a fraction. The numerator of the fraction shall be the average of the number of total beneficiaries or participants of each retirement plan or pension plan domiciled in this state at the beginning of and at the end of taxable year of the taxpayer, and the denominator of the fraction shall be the average of the number of total beneficiaries or participants of the retirement plan or pension plan everywhere at the beginning of and at the end of each taxable year of the taxpayer.

J. Sellers of international investment management services (tax years beginning before January 1, 2015).

1. Any qualified taxpayer located within the state which sells international investment management services to non-U.S. persons or non-U.S. investment funds shall exclude from its net income any income derived directly or indirectly from the sale of international investment management services.

2. For purposes of this section, "non-U.S. persons" means any person who is not a citizen of the United States and who is domiciled outside of the United States during the entire taxable year; "non-U.S. investment funds" means any collective investment fund the sole beneficiaries of which are non-U.S. persons.

3. For purposes of this section, "international investment management services" shall include, without limitation, investment advice, investment research, investment consulting, portfolio management, administration or distribution services (including, without limitation, transfer agent, fund accounting, customary and other similar or related services) rendered to or on behalf of non-U.S. persons and non-U.S. investment funds.

4. For purposes of this section, a "qualified taxpayer" is one which during the taxable year employs, or together with affiliated taxpayers with which it is eligible to file a consolidated tax return for federal income tax purposes, an average of not less than five hundred (500) full-time equivalent employees in the state.

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