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-20-25-9.9 - Three-Factor Apportionment Using Sales, Property and Payroll
Universal Citation: 280 RI Code of Rules 20 25 9.9
Current through September 18, 2024
A. Applicability of Three-Factor Apportionment. This apportionment Rule applies to the following taxpayers, unless the taxpayer is eligible to use a special apportionment formula available under R.I. Gen. Laws §§ 44-11-14.1 through 44-11-14.6 and §§ 9.10 and 9.11 of this Part:
1. 2015 and Thereafter. For tax years
beginning on or after January 1, 2015, any taxpayer that derives income from
sources both within and outside of this state or engages in any activities or
transactions both within and outside of this state for the purpose of profit or
gain, but which is not:
a. a C
corporation,
b. a combined group
with a C corporation member, or
c.
a member in a combined group with a C corporation member.
2. Pre-2015. For tax years beginning before
January 1, 2015, all taxpayers that derive their income from sources both
within and outside of this state for the purpose of profit or gain.
a. Note: With respect to the corporate income
tax responsibilities of C corporations for tax years beginning on or after
January 1, 2015, such taxpayers must refer to and comply with §
9.8 of this Part.
B. Three-Factor Apportionment - Formula. For all taxpayers to whom this § 9.9 of this Part applies, income shall be apportioned to this state by means of an apportionment formula to be computed as a simple arithmetical mean of three (3) fractions, as follows:
1. Property. The first fraction
shall represent that part held or owned within this state of the average net
book value of the total tangible property (real estate and tangible personal
property) held or owned by the taxpayer during the taxable year, without
deduction on account of any encumbrance thereon. Included in this property
factor are the following:
a.
Inventory,
b. Depreciable
Assets,
c. Leasehold
improvements,
d. Land,
e. Construction in progress to the extent
shown as a capital asset on the books of the corporation, and
f. Rental property (capitalized times
8).
2. Sales. The second
fraction shall represent that part of the taxpayer's total receipts from sales
or other sources during the taxable year which is attributable to the
taxpayer's activities or transactions within this state during the taxable
year. Under the three-factor apportionment formula applicable in §
9.9 of
this Part, taxpayers determining sales attributable to Rhode Island for
transactions other than sales of tangible personal property shall adhere to
cost of performance sourcing principles, and not the market-based sourcing
principles that apply in the context of single sales factor apportionment.
Under cost of performance sourcing principles, gross receipts from transactions
other than sales of tangible personal property are attributed to this state if
the income-producing activity which gave rise to the receipts is performed
wholly within this state. Also, gross receipts are attributed to this state if,
with respect to a particular item of income, the income-producing activity is
performed within and without this state but the greater portion of the
income-producing activity is performed within this state, based on costs of
performance. In all cases where a three-factor apportionment formula applies,
the sales fraction shall continue to be determined in the same manner that
applied in Rhode Island prior to the introduction of mandatory unitary combined
reporting. Taxpayers' receipts from sales include, but are not limited to,
receipts from the following:
a. Gross sales of
tangible personal property (inventory sold in the ordinary course of business)
where:
(1) Shipments are made to points
within this state; or
(2)
Shipments are made from an office, store, warehouse, factory or other place of
storage in this state and the selling entity does not have corporate income tax
nexus in the state of delivery.
b. Gross income from services performed
within this state;
c. Gross income
from rentals from property situated within this state;
d. Net income from the sale of real and
personal property, other than inventory sold in the ordinary course of business
as described in paragraph §
9.9(B)(1) of
this Part, or other capital assets located in the state;
e. Net income from the sale or other
disposition of securities or financial obligations;
f. Gross income from all other receipts
within this state;
g. Dividends
less exclusions for Rhode Island purposes, such as dividends received from
shares of stock of any payee liable for taxes as outlined in R.I. Gen. Laws
Chapters 44-11, 44-13 and 44-14 and dividends excluded for federal tax
purposes;
h. Interest less
exclusion for Rhode Island purposes, such as interest on certain obligations of
the United States and its possessions or interest on obligations of Rhode
Island Public Service Corporations;
i. Rent
j. Royalties;
k. Net Capital Gain as reported for federal
tax purposes;
l. Net Ordinary Gain
as reported for federal tax purposes;
m. Other Income; and
n. Income exempt from federal taxation but
taxable for Rhode Island purposes, such as income from obligations from other
states.
3. Payroll. The
third fraction shall represent that part of the total wages, salaries, and
other compensation to officers, employees, and agents paid or incurred by the
taxpayer during the taxable year which is attributable to services performed in
connection with the taxpayer's activities or transactions within this state
during the taxable year.
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