2013 -- H 5622

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LC01596

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2013

____________

A N A C T

RELATING TO TAXATION - BUSINESS CORPORATION TAX

     Introduced By: Representatives Costantino, Nunes, Trillo, Giarrusso, and Fellela

     Date Introduced: February 27, 2013

     Referred To: House Finance

It is enacted by the General Assembly as follows:

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     SECTION 1. Sections 44-11-1, 44-11-2, 44-11-2.1, 44-11-2.2, 44-11-3, 44-11-4, 44-11-

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5, 44-11-6, 44-11-7, 44-11-7.1, 44-11-8, 44-11-9, 44-11-10, 44-11-11, 44-11-11.1, 44-11-11.2,

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44-11-11.3, 44-11-12, 44-11-13, 44-11-14, 44-11-14.1, 44-11-14.2, 44-11-14.3, 44-11-14.4, 44-

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11-14.5, 44-11-14.6, 44-11-15, 44-11-19, 44-11-20, 44-11-21, 44-11-22, 44-11-23, 44-11-24, 44-

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11-25, 44-11-26, 44-11-27, 44-11-28, 44-11-29, 44-11-29.1, 44-11-30, 44-11-31, 44-11-32, 44-

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11-33, 44-11-34, 44-11-35, 44-11-36, 44-11-37, 44-11-38, 44-11-39, 44-11-40, 44-11-41, 44-11-

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43, 44-11-44 and 44-11-45 of the General Laws in Chapter 44-11 entitled "Business Corporation

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Tax" are hereby repealed.

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     44-11-1. Definitions. -- For the purpose of this chapter:

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      (1) (a) "Captive REIT" means a corporation, trust or association:

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      (i) That is considered a real estate investment trust for the taxable year under section 856

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of the Internal Revenue Code;

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      (ii) That is not regularly traded on an established securities market; and

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      (iii) More than fifty percent (50%) of the voting power or value of the beneficial interests

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or shares of which at any time during the last half of the taxable year, is owned or controlled,

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directly or indirectly, by a single entity that is subject to the provisions of Subchapter C of

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Chapter 1 of the Internal Revenue Code; and

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      (b) "Captive REIT" does not include:

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      (i) A corporation, trust or association more than fifty percent (50%) of the voting power

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or value of the beneficial interests or shares of which, at any time during which the corporation,

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trust or association satisfies item (1)(iii) of this subsection, is owned or controlled, directly or

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indirectly, by:

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      (A) A real estate investment trust other than a real estate investment trust described in

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item (i) of this subsection; or

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      (B) A person exempt from taxation under section 501(a) of the Internal Revenue Code;

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or

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      (C) A listed Australian Property Trust; and

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      (ii) Subject to regulations that the tax administrator adopts, a real estate investment trust

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that is intended to become regularly traded on an established securities market and that satisfies

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the requirements of section 865(A)(5) and (6) of the Internal Revenue Code by reason of section

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856(h)(2) of the Internal Revenue Code; and

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      (c) For purposes of this section, the constructive ownership rules prescribed under

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section 318(a) of the Internal Revenue Code, as modified by section 856(d)(5) of the Internal

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Revenue Code, shall apply in determining the ownership of stock, assets or net profits of any

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person.

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      (2) "Corporation" means every corporation, joint-stock company, or association,

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wherever incorporated, a real estate investment trust, a regulated investment company, a personal

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holding company registered under the Federal Investment Company Act of 1940, 15 U.S.C.

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section 80a-1 et seq., and also a trustee or trustees conducting a business where interest or

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ownership is evidenced by certificates or other written instruments, deriving any income from

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sources within this state or engaging in any activities or transactions within this state for the

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purpose of profit or gain, whether or not an office or place of business is maintained in this state,

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or whether or not the income, activities, or transactions are connected with intrastate, interstate, or

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foreign commerce, except:

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      (i) State banks, mutual savings banks, federal savings banks, trust companies, national

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banking associations, building and loan associations, credit unions, and loan and investment

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companies;

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      (ii) Public service corporations included in chapter 13 of this title, except as otherwise

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provided in section 44-13-2.2;

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      (iii) Insurance and surety companies;

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      (iv) Corporations specified in section 7-6-4, incorporated hospitals, schools, colleges,

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and other institutions of learning not organized for business purposes and not doing business for

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profit and no part of the net earnings of which inures to the benefit of any private stockholder or

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individual, whether incorporated under any general law of this state or by any special act of the

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general assembly of this state;

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      (v) Fraternal beneficiary societies as set forth in section 27-25-1;

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      (vi) Any corporation expressly exempt from taxation by charter;

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      (vii) Corporations which together with all corporations under direct or indirect common

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ownership that satisfies the other requirements of this paragraph employ not less than five (5)

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full-time equivalent employees in the state; which maintain an office in the state; and activities

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within the state which are confined to the maintenance and management of their intangible

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investments or of the intangible investments of corporations or business trusts registered as

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investment companies under the Investment Company Act of 1940, 15 U.S.C. section 80a-1 et

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seq., and the collection and distribution of the income from those investments or from tangible

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property physically located outside the state. For purposes of this paragraph, "intangible

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investments" includes, without limitation, investments in stocks, bonds, notes, and other debt

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obligations, including debt obligations of affiliated corporations, patents, patent applications,

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trademarks, trade names, copyrights, and similar types of intangible assets.

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      (3) "Fiscal year" means an accounting period of twelve (12) months ending on the last

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day of any month other than December.

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      (4) "Place of business" means a regular place of business, which, in turn, means any

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bona fide office, other than a statutory office, factory, warehouse, or other space which is

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regularly used by the taxpayer in carrying on its business. Where, as a regular course of business,

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property of the taxpayer is stored by it in a public warehouse until it is shipped to customers, the

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warehouse is considered a regular place of business of the taxpayer and, where as a regular course

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of business, raw material or partially furnished goods of a taxpayer are delivered to an

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independent contractor to be converted, processed, finished, or improved and the finished goods

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remain in the possession of the independent contractor until shipped to customers, the plant of the

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independent contractor is considered a regular place of business of the taxpayer. The mere

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consignment of goods by the taxpayer to an independent factor outside this state for sale at the

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consignee's discretion does not constitute the taxpayer as having a regular place of business

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outside this state.

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      (5) "Taxable year" means the calendar year or the fiscal year ending during the calendar

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year upon the basis of which the net income is computed under this chapter. "Taxable year"

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means, in the case of a return made for a fractional part of a year under the provisions of this

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chapter or under regulations prescribed by the tax administrator, the period for which the return is

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made.

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      (6) "Taxpayer" means and includes any corporation subject to the provisions of this

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chapter.

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     44-11-2. Imposition of tax. -- (a) Each corporation shall annually pay to the state a tax

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equal to nine percent (9%) of net income, as defined in section 44-11-11, qualified in section 44-

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11-12, and apportioned to this state as provided in sections 44-11-13 -- 44-11-15, for the taxable

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year.

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      (b) A corporation shall pay the amount of any tax as computed in accordance with

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subsection (a) of this section after deducting from "net income," as used in this section, fifty

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percent (50%) of the excess of capital gains over capital losses realized during the taxable year, if

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for the taxable year:

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      (1) The corporation is engaged in buying, selling, dealing in, or holding securities on its

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own behalf and not as a broker, underwriter, or distributor;

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      (2) Its gross receipts derived from these activities during the taxable year amounted to at

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least ninety percent (90%) of its total gross receipts derived from all of its activities during the

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year. "Gross receipts" means all receipts, whether in the form of money, credits, or other valuable

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consideration, received during the taxable year in connection with the conduct of the taxpayer's

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activities.

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      (c) A corporation shall not pay the amount of the tax computed on the basis of its net

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income under subsection (a) of this section, but shall annually pay to the state a tax equal to ten

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cents ($.10) for each one hundred dollars ($100) of gross income for the taxable year or a tax of

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one hundred dollars ($100), whichever tax shall be the greater, if for the taxable year the

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corporation is either a "personal holding company" registered under the federal Investment

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Company Act of 1940, 15 U.S.C. section 80a-1 et seq., "regulated investment company", or a

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"real estate investment trust" as defined in the federal income tax law applicable to the taxable

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year. "Gross income" means gross income as defined in the federal income tax law applicable to

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the taxable year, plus:

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      (1) Any interest not included in the federal gross income; minus

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      (2) Interest on obligations of the United States or its possessions, and other interest

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exempt from taxation by this state; and minus

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      (3) Fifty percent (50%) of the excess of capital gains over capital losses realized during

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the taxable year.

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      (d) (1) A small business corporation having an election in effect under subchapter S, 26

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U.S.C. section 1361 et seq., shall not be subject to the Rhode Island income tax on corporations,

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except that the corporation shall be subject to the provisions of subsection (a), to the extent of the

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income that is subjected to federal tax under subchapter S.

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      (2) The shareholders of the corporation who are residents of Rhode Island shall include

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in their income their proportionate share of the corporation's federal taxable income.

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      (3) [Deleted by P.L. 2004, ch. 595. art. 29, section 1.]

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      (4) [Deleted by P.L. 2004, ch. 595, art. 29, section 1.]

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      (e) Minimum tax. - The tax imposed upon any corporation under this section shall not be

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less than five hundred dollars ($500).

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     44-11-2.1. Surtax. -- Each corporation whose taxable year ends on or after March 31,

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1991 and before January 1, 1994 shall annually pay to the state a surtax of 11% on the amount of

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the tax computed under section 44-11-2. The surtax shall be added to the amount of the tax

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computed under section 44-11-2 in computing the total tax due by the corporation for the taxable

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year or years under this chapter. The estimated tax provisions of chapter 26 of this title shall

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apply to the surtax.

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     44-11-2.2. Pass-Through Entities -- Definitions -- Withholding -- Returns. -- (a)

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Definitions.

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      (1) "Pass-through entity" means a corporation that for the applicable tax year is treated as

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an S Corporation under IRC section 1362(a) [26 U.S.C. section 1362(a)] and a general

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partnership, limited partnership, limited liability partnership, trust, or limited liability company

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that for the applicable tax year is not taxed as a corporation for federal tax purposes under the

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state's check-the-box regulation.

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      (2) "Member" means an individual who is a shareholder of an S corporation; a partner in

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a general partnership, a limited partnership, or a limited liability partnership; a member of a

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limited liability company; or a beneficiary of a trust;

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      (3) "Nonresident" means an individual who is not a resident of or domiciled in the state,

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a business entity that does not have its commercial domicile in the state, and a trust not organized

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in the state.

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      (b) Withholding.

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      (1) A pass-through entity shall withhold income tax at the highest Rhode Island

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withholding tax rate provided for individuals or nine percent (9%) for corporations on the

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member's share of income of the entity which is derived from or attributable to sources within

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this state distributed to each nonresident member and pay the withheld amount in the manner

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prescribed by the tax administrator. The pass-through entity shall be liable for the payment of the

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tax required to be withheld under this section and shall not be liable to such member for the

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amount withheld and paid over in compliance with this section. A member of a pass-through

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entity that is itself a pass-through entity (a "lower-tier pass-through entity") shall be subject to

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this same requirement to withhold and pay over income tax on the share of income distributed by

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the lower-tier pass-through entity to each of its nonresident members. The tax administrator shall

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apply tax withheld and paid over by a pass-through entity on distributions to a lower-tier pass-

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through entity to the withholding required of that lower-tier pass-through entity.

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      (2) A pass-through entity shall, at the time of payment made pursuant to this section,

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deliver to the tax administrator a return upon a form prescribed by the tax administrator showing

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the total amounts paid or credited to its nonresident members, the amount withheld in accordance

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with this section, and any other information the tax administrator may require. A pass-through

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entity shall furnish to its nonresident member annually, but not later than the fifteenth day of the

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third month after the end of its taxable year, a record of the amount of tax withheld on behalf of

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such member on a form prescribed by the tax administrator.

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      (c) Notwithstanding subsection (b), a pass-through entity is not required to withhold tax

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for a nonresident member if:

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      (1) The member has a pro rata or distributive share of income of the pass-through entity

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from doing business in, or deriving income from sources within, this State of less than $1,000 per

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annual accounting period;

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      (2) The tax administrator has determined by regulation, ruling or instruction that the

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member's income is not subject to withholding; or

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      (3) The member elects to have the tax due paid as part of a composite return filed by the

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pass-through entity under subsection (d); or

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      (4) The entity is a publicly traded partnership as defined by Section 7704(b) of the

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Internal Revenue Code (26 U.S.C. section 7704(b)) that is treated as a partnership for the

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purposes of the Internal Revenue Code and that has agreed to file an annual information return

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reporting the name, address, taxpayer identification number and other information requested by

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the tax administrator of each unitholder with an income in the state in excess of $500.

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      (d) Composite return.

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      (1) A pass-through entity may file a composite income tax return on behalf of electing

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nonresident members reporting and paying income tax at the state's highest marginal rate on the

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members' pro rata or distributive shares of income of the pass-through entity from doing business

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in, or deriving income from sources within, this State.

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      (2) A nonresident member whose only source of income within a state is from one or

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more pass-through entities may elect to be included in a composite return filed pursuant to this

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section.

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      (3) A nonresident member that has been included in a composite return may file an

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individual income tax return and shall receive credit for tax paid on the member's behalf by the

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pass-through entity.

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     44-11-3. Filing of returns -- Due date. -- A return in the form and containing the

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information that the tax administrator may prescribe shall be filed with the tax administrator by

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the taxpayer:

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      (1) In case the taxable year of the taxpayer is the calendar year, on or before March 15 in

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the year following the close of the taxable year; and

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      (2) In case the taxable year of the taxpayer is a fiscal year, on or before the fifteenth

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(15th) day of the third (3rd) month following the close of the fiscal year.

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     44-11-4. Returns of affiliated groups of corporations. -- An affiliated group of

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corporations may file a consolidated return for the taxable year in lieu of separate returns;

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provided, that all the corporations which constitute the affiliated group at any time during the

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period for which the return is made and which are subject to taxation under this chapter shall

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consent to the making of the consolidated return. The tax administrator may prescribe rules and

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regulations as he or she may deem necessary in order that the tax liability of any affiliated group

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of corporations making a consolidated return and of each corporation in the group, liable to

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taxation under this chapter, both during and after the period of affiliation, may be determined,

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computed, assessed, collected, and adjusted in a manner as clearly to reflect the net income and

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the corporate excess and to prevent avoidance of tax liability.

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     44-11-5. Extension of time for filing of returns. -- The tax administrator may grant

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reasonable extensions of time for filing returns under rules and regulations as he or she shall

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prescribe.

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     44-11-6. Determination and payment of tax due -- Hearings and redeterminations. --

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(a) At the time of the filing of the return, the taxpayer shall pay to the tax administrator the

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amount of the tax as computed by it on the basis of its net income under section 44-11-2(a) or

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other provision as applicable. As soon as possible after the filing of the return, the tax

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administrator shall determine the correct tax payable under this chapter by the taxpayer, and if the

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tax determined shall exceed the amount which the taxpayer has paid at the time of filing its

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return, the tax administrator shall mail to the taxpayer a notice of the additional tax due indicating

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the basis on which the tax was determined.

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      (b) If any taxpayer is not satisfied with the amount of tax determined, the tax

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administrator, upon being notified, in writing, within thirty (30) days from the date of the mailing

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of the notice, shall fix an early date at his or her office when the taxpayer can be heard to show

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cause why the tax should be changed, and after which the tax administrator may redetermine the

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amount of that tax.

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      (c) If it shall appear subsequent to the mailing of any notice that the amount of the tax

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was erroneously stated, the tax administrator shall mail a corrected notice and fix a day when the

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taxpayer can be heard.

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      (d) The additional tax required to be paid by any taxpayer shall be due and payable

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within thirty (30) days after the mailing of the notice or corrected notice by the tax administrator.

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     44-11-7. Interest on delinquency payments. -- If any tax imposed by this chapter is not

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paid when due, a taxpayer shall be required to pay as part of the tax interest on the tax at the

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annual rate provided by section 44-1-7 from that time.

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     44-11-7.1. Limitations on assessment. -- (a) General. Except as provided in this section,

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the amount of the Rhode Island corporate income tax shall be assessed within three (3) years after

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the return was filed, whether or not the return was filed on or after the prescribed date. For this

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purpose, a tax return filed before the due date shall be considered as filed on the due date.

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      (b) Exceptions. (1) The tax may be assessed at any time if:

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      (i) No return is filed.

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      (ii) A false or fraudulent return is filed with intent to avoid tax.

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      (2) Where, before the expiration of the time prescribed in this section for the assessment

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of tax, or before the time as extended, both the tax administrator and the taxpayer have consented,

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in writing, to its assessment after that time, the tax may be assessed at any time prior to the

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expiration of the agreed upon period.

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      (3) If a taxpayer's deficiency is attributable to an excessive net operating loss carryback

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allowance, it may be assessed at any time that a deficiency for the taxable year of the loss may be

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assessed.

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      (4) An erroneous refund shall be considered to create an underpayment of tax on the date

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made. An assessment of a deficiency arising out of an erroneous refund may be made at any time

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within three (3) years thereafter, or at any time if it appears that any part of the refund was

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induced by fraud or misrepresentation of a material fact.

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      (c) Notwithstanding the provisions of this section, the tax may be assessed at any time

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within six (6) years after the return was filed if a taxpayer omits from its Rhode Island income an

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amount properly includable therein which is in excess of twenty-five percent (25%) of the amount

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of Rhode Island income stated in the return. For this purpose there shall not be taken into account

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any amount which is omitted in the return if the amount is disclosed in the return, or in a

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statement attached to the return, in a manner adequate to apprise the tax administrator of the

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nature and amount of the item.

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      (d) The running of the period of limitations on assessment or collection of the tax or

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other amount, or of a transferee's liability, shall, after the mailing of a notice of deficiency, be

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suspended for any period during which the tax administrator is prohibited from making the

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assessment or from collecting by levy, and for sixty (60) days thereafter.

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      (e) No period of limitations specified in any other law shall apply to the assessment or

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collection of Rhode Island corporate income tax.

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     44-11-8. Lien on real estate. -- The amount of any tax, penalty, and interest charge

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imposed upon any corporation under the provisions of this chapter shall, until collected,

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constitute a lien upon the corporation's real estate located in this state, and this lien shall take

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precedence over any other lien or encumbrance on the real estate.

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     44-11-9. Records, statements, and rules and regulations. -- Each taxpayer shall keep

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records, render statements, make returns, and comply with rules and regulations, not inconsistent

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with law, as the tax administrator may from time to time prescribe to carry into effect the

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provisions of this chapter.

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     44-11-10. Returns and statements required to show whether corporation liable. --

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The tax administrator may, whenever in his or her judgment if it is necessary, require any

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corporation, association, or organization, by notice served upon it, to make a return, render

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statements, or keep records as the tax administrator deems sufficient to show whether or not the

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corporation, association, or organization is liable for any tax under this chapter.

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     44-11-11. "Net income" defined.. -- (a) (1) "Net income" means, for any taxable year

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and for any corporate taxpayer, the taxable income of the taxpayer for that taxable year under the

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laws of the United States, plus:

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      (i) Any interest not included in the taxable income;

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      (ii) Any specific exemptions;

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      (iii) For a captive REIT, an amount equal to the amount of the dividends paid deduction

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allowed under the Internal Revenue Code for the taxable year;

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      (iv) The tax imposed by this chapter;

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      (v) Any deductions required to be added back to net income under the provisions of

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paragraph (f) of this section, and minus

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      (vi) Interest on obligations of the United States or its possessions, and other interest

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exempt from taxation by this state; and

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      (vii) The federal net operating loss deduction.

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      (2) All binding federal elections made by or on behalf of the taxpayer applicable either

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directly or indirectly to the determination of taxable income shall be binding on the taxpayer

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except where this chapter or its attendant regulations specifically modify or provide otherwise.

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Rhode Island taxable income shall not include the "gross-up of dividends" required by the federal

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Internal Revenue Code to be taken into taxable income in connection with the taxpayer's election

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of the foreign tax credit.

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      (b) A net operating loss deduction shall be allowed which shall be the same as the net

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operating loss deduction allowed under 26 U.S.C. section 172, except that:

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      (1) Any net operating loss included in determining the deduction shall be adjusted to

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reflect the inclusions and exclusions from entire net income required by subsection (a) of this

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section and section 44-11-11.1;

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      (2) The deduction shall not include any net operating loss sustained during any taxable

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year in which the taxpayer was not subject to the tax imposed by this chapter; and

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      (3) The deduction shall not exceed the deduction for the taxable year allowable under 26

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U.S.C. section 172; provided, that the deduction for a taxable year may not be carried back to any

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other taxable year for Rhode Island purposes but shall only be allowable on a carry forward basis

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for the five (5) succeeding taxable years.

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      (c) "Domestic international sales corporations" (referred to as DISCs), for the purposes

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of this chapter, will be treated as they are under federal income tax law and shall not pay the

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amount of the tax computed under section 44-11-2(a). Any income to shareholders of DISCs is to

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be treated in the same manner as it is treated under federal income tax law as it exists on

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December 31, 1984.

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      (d) A corporation which qualifies as a "foreign sales corporation" (FSC) under the

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provisions of subchapter N, 26 U.S.C. section 861 et seq., and which has in effect for the entire

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taxable year a valid election under federal law to be treated as a FSC, shall not pay the amount of

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the tax computed under section 44-11-2(a). Any income to shareholders of FSCs is to be treated

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in the same manner as it is treated under federal income tax law as it exists on January 1, 1985.

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      (e) As used in this section:

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      (1) "Affiliated group" has the same meaning as in section 1504 of the Internal Revenue

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Code.

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      (2) "Intangible expenses and costs" includes: (A) expenses, losses and costs for, related

10-30

to, or in connection directly or indirectly with the direct or indirect acquisition, use, maintenance

10-31

or management, ownership, sale, exchange, or any other disposition of intangible property to the

10-32

extent such amounts are allowed as deductions or costs in determining taxable income before

10-33

operating loss deduction and special deductions for the taxable year under the Internal Revenue

10-34

Code; (B) losses related to or incurred in connection directly or indirectly with factoring

11-1

transactions or discounting transactions; (C) royalty, patent, technical and copyright fees; (D)

11-2

licensing fees; and (E) other similar expenses and costs.

11-3

      (3) "Intangible property" means patents, patent applications, trade names, trademarks,

11-4

service marks, copyrights and similar types of intangible assets.

11-5

      (4) "Interest expenses and costs" means amounts directly or indirectly allowed as

11-6

deductions under section 163 of the Internal Revenue Code for purposes of determining taxable

11-7

income under the Internal Revenue Code to the extent such expenses and costs are directly or

11-8

indirectly for, related to, or in connection with the direct or indirect acquisition, maintenance,

11-9

management, ownership, sale, exchange or disposition of intangible property.

11-10

      (5) "Related member" means a person that, with respect to the taxpayer during all or any

11-11

portion of the taxable year, is a related entity, as defined in this subsection, a component member

11-12

as defined in section 1563(b) of the Internal Revenue Code, or is a person to or from whom there

11-13

is attribution of stock ownership in accordance with section 1563(e) of the Internal Revenue

11-14

Code.

11-15

      (6) "Related entity" means: (A) a stockholder who is an individual, or a member of the

11-16

stockholder's family enumerated in section 318 of the Internal Revenue Code, if the stockholder

11-17

and the members of the stockholder's family own directly, indirectly, beneficially or

11-18

constructively, in the aggregate, at least fifty percent (50%) of the value of the taxpayer's

11-19

outstanding stock; (B) a stockholder, or a stockholder's partnership, limited liability company,

11-20

estate, trust or corporation, if the stockholder and the stockholder's partnership, limited liability

11-21

companies, estates, trusts and corporations own directly, indirectly, beneficially or constructively,

11-22

in the aggregate, at least fifty percent (50%) of the value of the taxpayer's outstanding stock; or

11-23

(C) a corporation, or a party related to the corporation in a manner that would require an

11-24

attribution of stock from the corporation to the party or from the party to the corporation under

11-25

the attribution rules of section 318 of the Internal Revenue Code, if the taxpayer owns, directly,

11-26

indirectly, beneficially or constructively, at least fifty percent (50%) of the value of the

11-27

corporation's outstanding stock. The attribution rules on section 318 of the Internal Revenue Code

11-28

shall apply for purposes of determining whether the ownership requirements of this subdivision

11-29

have been met.

11-30

      (f) For purposes of computing its net income under this section, a corporation shall add

11-31

back otherwise deductible interest expenses and costs and intangible expenses and costs directly

11-32

or indirectly paid, accrued or incurred to, or in connection directly or indirectly with one or more

11-33

direct or indirect transactions with, one or more related members.

12-34

      (1) The adjustments required in subsection (f) of this section shall not apply if the

12-35

corporation establishes by clear and convincing evidence that the adjustments are unreasonable,

12-36

as determined by the tax administrator or the corporation and the tax administrator agree in

12-37

writing to the application or use of an alternative method of apportionment under section 44-11-

12-38

15. Nothing in this subsection shall be construed to the limit or negate the tax administrator's

12-39

authority to otherwise enter into agreements and compromises otherwise allowed by law.

12-40

      (2) The adjustments required in subsection (f) of this section shall not apply to such

12-41

portion of interest expenses and costs and intangible expenses and costs that the corporation can

12-42

establish by the preponderance of the evidence meets both of the following: (A) the related

12-43

member during the same income year directly or indirectly paid, accrued or incurred such portion

12-44

to a person who is not a related member; and (B) the transaction giving rise to the interest

12-45

expenses and costs or the intangible expenses and costs between the corporation and the related

12-46

member did not have as a significant purpose the avoidance of any portion of the tax due under

12-47

chapter 44-11.

12-48

      (3) The adjustments required in subsection (f) shall not apply if the corporation

12-49

establishes by clear and convincing evidence, as determined by the tax administrator, that: (i) a

12-50

principal purpose of the transaction giving rise to the payment of interest was not to avoid

12-51

payment of taxes due under this chapter; (ii) the interest is paid pursuant to a contract that reflects

12-52

an arm's length rate of interest and terms; and (iii) (A) the related member was subject to tax on

12-53

its net income in this state or another state or possession of the United States or a foreign nation;

12-54

(B) a measure of said tax included the interest received from the taxpayer; and (C) the effective

12-55

rate of tax applied to the interest received by the related member is no less than the effective rate

12-56

of tax applied to the taxpayer under this chapter minus 3 percentage points.

12-57

      (4) Partial Adjustments. - The add back required in subsection (f) shall not be required in

12-58

part if a portion of the add back would be unreasonable. A portion of the add back will be

12-59

considered unreasonable to the extent that the taxpayer establishes to the tax administrator by

12-60

clear and convincing evidence that interest or intangible expense was paid, accrued or incurred to

12-61

a related member that is taxed on the corresponding income by a state, U.S. possession or foreign

12-62

jurisdiction. An adjustment to the add back will be allowed based on a factor determined by the

12-63

apportioned tax rate of the related member in the other jurisdiction compared to the apportioned

12-64

tax rate of the taxpayer in this state. A taxpayer that seeks to claim this adjustment must file a

12-65

schedule that sets forth the information required by the tax administrator.

12-66

      (g) Nothing in this section shall require a corporation to add to its net income more than

12-67

once any amount of interest expenses and costs or intangible expenses and costs that the

12-68

corporation pays, accrues or incurs to a related member described in subsection (b) of this

13-1

section.

13-2

      (h) Any taxpayer required to make an adjustment required in subsection (f) for tax years

13-3

beginning on or after January 1, 2008, is additionally required to report to the tax administrator,

13-4

on forms required by him, the amount of any adjustments that would have been required if the

13-5

law applied to tax years beginning on or after January 1, 2007.

13-6

      (i) Nothing in this section shall be construed to limit or negate the tax administrator

13-7

authority to make adjustments under section 44-11-15.

13-8

     44-11-11.1. Amortization of air or water pollution prevention or hazardous solid

13-9

waste control facilities. -- (a) (1) General rule. - Every taxpayer, at his or her election, is entitled

13-10

to a deduction with respect to the amortization of the adjusted basis, for determining gain, of any

13-11

treatment facility, as defined in subsection (d) of this section, based on a period of sixty (60)

13-12

months. The amortization deduction shall be an amount, with respect to each month of the period

13-13

within the taxable year, equal to the adjusted basis of the facility at the end of the month divided

13-14

by the number of months, including the month for which the deduction is computed, remaining in

13-15

the period. The adjusted basis at the end of the month shall be computed without regard to the

13-16

amortization deduction for the month.

13-17

      (2) The amortization deduction with respect to any month shall be in lieu of the

13-18

depreciation deduction with respect to the facility for the month provided for under section 44-11-

13-19

11. The sixty (60) month period shall begin as to any prevention or treatment facility, at the

13-20

election of the taxpayer, with the month following the month in which the facility was completed,

13-21

or with the succeeding taxable year.

13-22

      (b) Election of amortization. - The election of the taxpayer under subsection (a) of this

13-23

section to take the amortization deduction and to begin the sixty (60) month period with the

13-24

month following the month in which the facility was completed shall be made only by a statement

13-25

to that effect in the return for the taxable year in which the facility was completed. The election of

13-26

the taxpayer under subsection (a) of this section to take the amortization deduction and to begin

13-27

the period with the taxable year succeeding the year shall be made only by a statement to that

13-28

effect in the return for the succeeding taxable year.

13-29

      (c) Termination of amortization deduction. - A taxpayer which has elected under

13-30

subsection (b) of this section to take the amortization deduction provided in subsection (a) of this

13-31

section may, at any time after making the election, discontinue the amortization deduction with

13-32

respect to the remainder of the amortization period, the discontinuance to begin as of the

13-33

beginning of any month specified by the taxpayer in a notice, in writing, filed with the tax

13-34

administrator before the beginning of the month. The depreciation deduction provided for under

14-1

section 44-11-11 shall be allowed, beginning with the first month as to which the amortization

14-2

deduction does not apply, and the taxpayer shall not be entitled to any further amortization

14-3

deduction with respect to the treatment facility.

14-4

      (d) Treatment facility. - For purposes of this section, "treatment facility" means any land,

14-5

facility, device, building, machinery, or equipment, the construction, reconstruction, erection,

14-6

installation, or acquisition of which: (1) is in furtherance of or in compliance with federal or state

14-7

requirements or standards for the control of water or air pollution or contamination; (2) has been

14-8

made by the taxpayer primarily to control the pollution or chapter 25 of title 23, respectively; and

14-9

(3) has been certified as approved in an order contamination of the water or the air of the state as

14-10

defined in chapter 12 of title 46 and entered by the director of environmental management. This

14-11

provision applies only to water and air pollution control properties and facilities that are installed

14-12

for the treatment of waste waters and air contaminants resulting from industrial processing. It

14-13

applies only to water or air pollution control properties and facilities placed in operation for the

14-14

first time after April 13, 1970.

14-15

      (e) Prevention facility. - For purposes of this section, "prevention facility" means any

14-16

land, facility, device, building, machinery, or equipment, the construction, reconstruction,

14-17

erection, installation, or acquisition of which: (1) is in furtherance of or in compliance with

14-18

federal or state requirements or standards for the prevention of water or air pollution or

14-19

contamination; (2) has been made by the taxpayer primarily to prevent the pollution or

14-20

contamination of the water or the air of the state as defined in chapter 12 of title 46 and chapter

14-21

25 of title 23, respectively; and (3) has been certified as approved by the director of

14-22

environmental management. This provision applies only to water and air pollution prevention

14-23

properties and facilities that are installed for the prevention of wastewaters, air contaminants, and

14-24

hazardous solid wastes resulting from industrial processing. The prevention facility amortization

14-25

deduction shall be available prospectively on July 13, 2000.

14-26

      (f) Certificate of compliance. - Any taxpayer who has adopted a "treatment facility" as

14-27

defined in subsection (d) of this section shall be entitled to the deduction afforded in subsection

14-28

(a) of this section; provided, that in no event shall an amortization deduction be allowed in

14-29

respect to any "treatment facility" for any taxable year unless an attested copy of the order of

14-30

approval of the facility entered by the director of environmental management and a written

14-31

statement of the department certifying that the installation of the facility has been completed and

14-32

that it is in proper operation are provided to the tax administrator at the time of filing of the

14-33

taxpayer's return.

15-34

      (g) Deduction from apportioned net income. - The deduction taken under subsection (a)

15-35

of this section on any treatment facility shall, in the case of a taxpayer whose income is subject to

15-36

apportionment under the provisions of section 44-11-14, be deducted from the portion of its entire

15-37

net income allocated to this state; provided, that its entire net income is computed without any

15-38

deduction for depreciation or amortization of any facility.

15-39

      (h) Amortization not to exceed cost. - The total of all deductions for depreciation and

15-40

amortization of any treatment facility allowed pursuant to the provisions of this and the

15-41

succeeding section shall not exceed its cost.

15-42

      (i) Amortization in excess of depreciation. - Gain from the sale or exchange of any

15-43

treatment facility which has been sold or exchanged by a taxpayer which has been constructed,

15-44

reconstructed, erected, installed, or acquired the facility as provided under subsection (f) of this

15-45

section and has taken the deduction provided by subsection (a) of this section, to the extent that

15-46

the adjusted basis of the facility is less than its adjusted basis determined by the method provided

15-47

for under section 44-11-11, shall be considered additional net income. In the case of a taxpayer

15-48

whose net income is subject to apportionment under the provisions of section 44-11-14, the

15-49

additional net income shall be specifically allocated to this state and is not subject to

15-50

apportionment.

15-51

     44-11-11.2. Definition of "treatment facility". -- For the purpose of section 44-11-

15-52

11.1(a) and (h), "treatment facility" also means any tangible personal property exempt from

15-53

taxation under section 44-3-3(26).

15-54

     44-11-11.3. Accelerated amortization deductions for certain manufacturers. -- (a)

15-55

Any taxpayer engaged in manufacturing activities in Rhode Island that has on the average over

15-56

the five (5) previous years annually produced goods at facilities located in Rhode Island which

15-57

generate net sales of at least ten million dollars ($10,000,000) and where on the average at least

15-58

eighty percent (80%) of that production has been for eventual sale to a branch of the United

15-59

States armed services may, if it represents that it anticipates the need to reduce its reliance on the

15-60

sales, elect to amortize the unrecovered basis of all or a portion of its depreciable assets over a

15-61

sixty (60) month period in equal monthly installments. This election shall be effective as of the

15-62

first day of the fiscal year of the taxpayer in which the election is made and shall apply only to

15-63

assets located in this state as of the effective date of the election. In the event any asset covered

15-64

by this election is sold or disposed of during the sixty (60) month period following the effective

15-65

date of the election, or if the asset is transferred to another location outside of Rhode Island and is

15-66

not replaced at a location in this state by an asset of at least equal value and with a similar

15-67

function, all deductions claimed with respect to the property under this section shall be

15-68

immediately included in the taxpayer's income for Rhode Island income tax purposes in the year

16-1

of the sale, disposition, or transfer.

16-2

      (b) If in any year during the five (5) year period following the effective date of the

16-3

election, the average annual level of its full-time employees in this state drops below one

16-4

thousand (1,000), the company shall recapture twenty percent (20%) of any benefit resulting from

16-5

the election for each decrease of one hundred (100) full-time employees below the level up to a

16-6

maximum of one hundred percent (100%) of the benefit.

16-7

     44-11-12. Dividends and interest excluded from net income. -- There shall not be

16-8

included in a taxpayer's net income:

16-9

      (1) Dividends received from the shares of stock of:

16-10

      (i) Any banking institution liable to a tax under chapter 14 of this title; or

16-11

      (ii) Any corporation liable to a tax imposed by this chapter; or

16-12

      (2) Dividends received from the shares of stock of, or interest received on, the bonds,

16-13

debentures, or other evidences of indebtedness or the distributive share of the taxable income of

16-14

any public service corporation or company liable to a tax imposed by chapter 13 of this title.

16-15

     44-11-13. Entire net income of business wholly within state. -- In the case of a

16-16

taxpayer deriving all its income from sources within this state or engaging in activities or

16-17

transactions wholly within this state for the purpose of profit or gain, or where the taxpayer does

16-18

not have a regular place of business outside this state other than a statutory office, its entire net

16-19

income shall be apportioned to this state.

16-20

     44-11-14. Allocation of income from business partially within state. -- (a) In the case

16-21

of a taxpayer deriving its income from sources both within and outside of this state or engaging in

16-22

any activities or transactions both within and outside of this state for the purpose of profit or gain,

16-23

its net income shall be apportioned to this state by means of an allocation fraction to be computed

16-24

as a simple arithmetical mean of three (3) fractions:

16-25

      (1) The first of these fractions shall represent that part held or owned within this state of

16-26

the average net book value of the total tangible property (real estate and tangible personal

16-27

property) held or owned by the taxpayer during the taxable year, without deduction on account of

16-28

any encumbrance thereon;

16-29

      (2) The second fraction shall represent that part of the taxpayer's total receipts from sales

16-30

or other sources during the taxable year which is attributable to the taxpayer's activities or

16-31

transactions within this state during the taxable year; meaning and including within that part, as

16-32

being thus attributable, receipts from:

16-33

      (i) Gross sales of its tangible personal property (inventory sold in the ordinary course of

16-34

business) where:

17-1

      (A) Shipments are made to points within this state; or

17-2

      (B) Shipments are made from an office, store, warehouse, factory or other place of

17-3

storage in this state and the taxpayer is not taxable in the state of the purchase.

17-4

      (ii) Gross income from services performed within the state;

17-5

      (iii) Gross income from rentals from property situated within the state;

17-6

      (iv) Net income from the sale of real and personal property, other than inventory sold in

17-7

the ordinary course of business as described in paragraph (i) of this subdivision, or other capital

17-8

assets located in the state;

17-9

      (v) Net income from the sale or other disposition of securities or financial obligations;

17-10

and

17-11

      (vi) Gross income from all other receipts within the state;

17-12

      (3) The third fraction shall represent that part of the total wages, salaries, and other

17-13

compensation to officers, employees, and agents paid or incurred by the taxpayer during the

17-14

taxable year which is attributable to services performed in connection with the taxpayer's

17-15

activities or transactions within this state during the taxable year.

17-16

      (b) Notwithstanding any of the provisions of this section, revenue and expenses subject

17-17

to the gross earnings tax pursuant to chapter 13 of this title shall not be included in the calculation

17-18

described in this section.

17-19

     44-11-14.1. Certified facility apportionment exclusion. -- (a) In the event that the

17-20

taxpayer has a Rhode Island facility which is both certified and registered by the United States

17-21

Food and Drug Administration (USFDA) and is considered manufacturing as defined by the US

17-22

Standard Industrial Classification Code(s)(SIC Code) 283, and 384, the taxpayer may exclude

17-23

from the allocation formula set forth in section 44-11-14:

17-24

      (1) From the numerator of the fraction set forth in section 44-11-14(a)(1), the amount, if

17-25

any, by which the net book value of qualified property in the tax year for which an exclusion is

17-26

claimed under this section exceeds the net book value of qualified property in the preceding tax

17-27

year. For purposes of this section, "qualified property" means real estate and tangible personal

17-28

property used solely and exclusively in all of the taxpayer's certified Rhode Island facilities.

17-29

      (2) From the numerator of the fraction set forth in section 44-11-14(a)(3), the amount, if

17-30

any, by which total qualified payroll expenses of the taxpayer in the tax year for which an

17-31

exclusion is claimed under this section exceeds the total qualified payroll expenses of the

17-32

taxpayer in the immediately preceding tax year. For purposes of this section, "qualified payroll"

17-33

means the total amount of salaries, wages and other compensation paid to employees and to

17-34

officers, except officers who have a direct or indirect ownership interest in the taxpayer in excess

18-1

of five percent (5%) or who are substantial creditors of the taxpayer, which is attributable solely

18-2

and exclusively to services performed in connection with the taxpayer's activities or transactions

18-3

at all of the taxpayer's certified Rhode Island facilities.

18-4

      (b) In the event that a facility is certified during the taxpayer's tax year or in the event

18-5

that a facility ceases to be certified during the taxpayer's tax year, the taxpayer shall prorate the

18-6

amounts determined under subdivisions (a)(1) and (2) of this section.

18-7

      (c) The taxpayer shall attach to the return for each tax year for which an exclusion is

18-8

claimed under this section detailed calculations substantiating each exclusion and proof that the

18-9

taxpayer has satisfied the conditions relating to registration and certification by USFDA

18-10

contained in this section.

18-11

     44-11-14.2. Allocation and apportionment of regulated investment companies and

18-12

securities brokerage services. -- (a) Notwithstanding any other provisions of the general laws,

18-13

any taxpayer located within the state which sells management, distribution or administration

18-14

services (including without limitations, transfer agent, fund accounting, custody and other similar

18-15

or related services) as described in this section to or on behalf of a regulated investment company

18-16

(as defined in the Internal Revenue Code of 1986, as amended) may elect the allocation and

18-17

apportionment method for the taxpayer's net income provided for in this section. The election, if

18-18

made, shall be irrevocable for successive periods of five (5) years. All net income derived directly

18-19

or indirectly from the sale of management, distribution, or administration services to or on behalf

18-20

of regulated investment companies, including net income received directly or indirectly from

18-21

trustees, and sponsors or participants of employee benefit plans which have accounts in a

18-22

regulated investment company, shall be apportioned to Rhode Island only to the extent that

18-23

shareholders of the regulated investment company are domiciled in Rhode Island as follows:

18-24

      (1) Net income shall be multiplied by a fraction, the numerator of which shall be Rhode

18-25

Island receipts from the services during the taxable year and the denominator of which shall be

18-26

the total receipts everywhere from the services for the same taxable year.

18-27

      (2) For purposes of this section, Rhode Island receipts shall be determined by

18-28

multiplying total receipts for the taxable year from each separate regulated investment company

18-29

for which the services are performed by a fraction. The numerator of the fraction shall be the

18-30

average of the number of shares owned by the regulated investment company's shareholders

18-31

domiciled in this state at the beginning of and at the end of the regulated investment company's

18-32

taxable year, and the denominator of the fraction shall be the average of the number of the shares

18-33

owned by the regulated investment company shareholders everywhere at the beginning of and at

18-34

the end of the regulated investment company's taxable year.

19-1

      (b) Notwithstanding any other provisions of the general laws, any taxpayer which

19-2

provides securities brokerage services and which operates within the state may elect the

19-3

allocation and apportionment method for the taxpayer's net income provided for in this section.

19-4

The election, if made, shall be irrevocable for successive periods of five (5) years. All net income

19-5

derived directly or indirectly from the sale of securities brokerage services by a taxpayer shall be

19-6

apportioned to Rhode Island only to the extent that securities brokerage customers of the taxpayer

19-7

are domiciled in Rhode Island. The portion of net income apportioned to Rhode Island shall be

19-8

determined by multiplying the total net income from the sale of the services by a fraction

19-9

determined in the following manner:

19-10

      (1) The numerator of the fraction shall be the brokerage commissions and total margin

19-11

interest paid in respect of brokerage accounts owned by customers domiciled in Rhode Island for

19-12

the taxpayer's taxable year; and

19-13

      (2) The denominator of the fraction shall be the brokerage commissions and total margin

19-14

interest paid in respect of brokerage accounts owned by all of the taxpayer's customers for the

19-15

same taxable year.

19-16

     44-11-14.3. Credit card banks -- Allocation and apportionment of income. --

19-17

Notwithstanding any other provisions of the general laws, any banking institution whose business

19-18

activities are taxable within and outside of this state and whose activities are limited to those

19-19

described in Section 2(c)(2)(F) of the Bank Holding Company Act (12 U.S.C. section

19-20

1841(c)(2)(F)) may elect the allocation and apportionment method for the taxpayer's net income

19-21

provided for in this section. The election, if made, shall be irrevocable for successive periods of

19-22

five (5) years. All net income derived directly or indirectly from the banking institution shall be

19-23

apportioned to Rhode Island only to the extent that customers of the taxpayer are domiciled in

19-24

Rhode Island. The portion of net income apportioned to Rhode Island shall be determined by

19-25

multiplying the total net income from the sale of the services by a fraction determined in the

19-26

following manner:

19-27

      (1) The numerator of the fraction shall be the income derived from accounts owned by

19-28

customers domiciled in Rhode Island for the banking institution's taxable year; and

19-29

      (2) The denominator of the fraction shall be income derived from accounts owned by all

19-30

of the banking institution's customers for the same taxable year.

19-31

     44-11-14.4. Allocation and apportionment -- Retirement and pension plans. --

19-32

Notwithstanding any provisions of this chapter, any taxpayer located within the state that sells

19-33

management, distribution or administration services, including without limitations, transfer agent,

19-34

fund accounting, custody and other similar or related services, as described in this section to or on

20-1

behalf of an employee retirement plan or pension plan may elect the allocation and apportionment

20-2

method for the taxpayer's net income provided for in this section. The election, if made, shall be

20-3

irrevocable for successive periods of five (5) years. All net income derived directly and indirectly

20-4

from the sale of the management, distribution, or administration services to or on behalf of a

20-5

retirement plan or pension plan, including net income received directly or indirectly from

20-6

trustees, sponsors or participants of such a retirement plan or pension plan, shall be apportioned

20-7

to Rhode Island only to the extent that the beneficiaries or participants of a retirement plan or

20-8

pension plan are domiciled in Rhode Island as follows:

20-9

      (1) Net income shall be multiplied by a fraction, the numerator of which shall be Rhode

20-10

Island receipts from the services during the taxable year and the denominator of which shall be

20-11

the total receipts everywhere from the services for the same taxable year.

20-12

      (2) For the purposes of this section, Rhode Island receipts shall be determined by

20-13

multiplying total receipts for the taxable year from a retirement plan or pension plan for which the

20-14

services are performed by a fraction. The numerator of the fraction shall be the average of the

20-15

number of total beneficiaries or participants of each retirement plan or pension plan domiciled in

20-16

this state at the beginning of and at the end of taxable year of the taxpayer, and the denominator

20-17

of the fraction shall be the average of the number of total beneficiaries or participants of the

20-18

retirement plan or pension plan everywhere at the beginning of and at the end of each taxable

20-19

year of the taxpayer.

20-20

     44-11-14.5. International investment management service income. -- (a)

20-21

Notwithstanding any other provisions of the general laws, any qualified taxpayer located within

20-22

the state which sells international investment management services to non-U.S. persons or non-

20-23

U.S. investment funds shall exclude from its net income any income derived directly or indirectly

20-24

from the sale of international investment management services.

20-25

      (b) For purposes of this section, "non-U.S. persons" means any person who is not a

20-26

citizen of the United States and who is domiciled outside of the United States during the entire

20-27

taxable year; "non-U.S. investment funds" means any collective investment fund the sole

20-28

beneficiaries of which are non-U.S. persons.

20-29

      (c) For purposes of this section, "international investment management services" shall

20-30

include, without limitation, investment advice, investment research, investment consulting,

20-31

portfolio management, administration or distribution services (including, without limitation,

20-32

transfer agent, fund accounting, customary and other similar or related services) rendered to or on

20-33

behalf of non-U.S. persons and non-U.S. investment funds.

21-34

      (d) For purposes of this section, a "qualified taxpayer" is one which during the taxable

21-35

year employs, or together with affiliated taxpayers with which it is eligible to file a consolidated

21-36

tax return for federal income tax purposes, an average of not less than five hundred (500) full-

21-37

time equivalent employees in the state.

21-38

     44-11-14.6. Allocation and apportionment -- Manufacturers. -- Notwithstanding any

21-39

other provision of the general laws, a taxpayer, as described in section 44-11-14(a), whose

21-40

principal business is described in sector 31, 32, or 33 of the North American Industry

21-41

Classification System, as adopted by the United States Office of Management and Budget and as

21-42

revised from time to time, may, in lieu of apportioning its net income to this state based on the

21-43

allocation fraction described in section 44-11-14(a), elect for any year to apportion its net income

21-44

to this state based on the following allocation fraction:

21-45

      (1) for the tax year beginning on or after January 1, 2004, but before January 1, 2005,

21-46

thirty percent (30%) of the property factor determined pursuant to section 44-11-14(a)(1) (the

21-47

"property factor"), thirty percent (30%) of the payroll factor determined pursuant to section 44-

21-48

11-14(a)(3) (the "payroll factor"), and forty percent (40%) of the sales factor determined pursuant

21-49

to section 44-11-14(a)(2) (the "sales factor");

21-50

      (2) for tax years beginning on or after January 1, 2005, twenty-five percent (25%) of the

21-51

property factor, twenty-five percent (25%) of the payroll factor and fifty percent (50%) of the

21-52

sales factor.

21-53

     44-11-15. Variation of method of allocating income. -- If at any time the tax

21-54

administrator, on his or her own motion or acting upon a complaint by a taxpayer, determines that

21-55

the methods of allocation provided are inequitable either to the state or to the taxpayer, the tax

21-56

administrator, after affording the taxpayer reasonable opportunity to be heard, may apply any

21-57

other method of allocation that is equitable and, if necessary, shall redetermine the tax.

21-58

     44-11-19. Supplemental returns -- Additional tax or refund. -- (a) Any taxpayer which

21-59

fails to include in its return any items of income or assets or any other information required by

21-60

this chapter or by regulations prescribed in pursuance of this chapter shall make a supplemental

21-61

return disclosing these facts. Any taxpayer whose return to the collector of internal revenue, or

21-62

whose net income returned, shall be changed or corrected by any official of the United States

21-63

government in any respect affecting a tax imposed by this chapter shall, within sixty (60) days

21-64

after receipt of a notification of the final adjustment and determination of the change or

21-65

correction, make the supplemental return required by this section.

21-66

      (b) Upon the filing of a supplemental return the tax administrator shall examine the

21-67

return and shall determine any additional tax or refund that may be due and shall notify the

21-68

taxpayer. Any additional tax shall be paid within fifteen (15) days after the notification together

22-1

with interest at the annual rate provided by section 44-1-7 from the original due date of the return

22-2

for the taxable year to the date of payment of the additional tax. Any refund shall be made by the

22-3

tax administrator together with interest at the annual rate provided by section 44-1-7.1 from the

22-4

date of payment of the tax to the date of the refund.

22-5

     44-11-20. Claims for refund -- Hearing upon denial. -- (a) Any taxpayer may file a

22-6

claim for refund with the tax administrator at any time within three (3) years after the tax has

22-7

been paid, or in the case of a change or correction of its taxable income by any official of the

22-8

United States government, within three (3) years after receiving notice of the change or

22-9

correction. If the tax administrator determines that the tax has been overpaid, he or she shall make

22-10

a refund with interest at the annual rate provided by section 44-1-7.1 from the date of payment.

22-11

      (b) If the claim for refund relates to an overpayment attributable to a net operating loss

22-12

carryback or a capital loss carryback, a taxpayer may file a claim for refund with the tax

22-13

administrator within the period which ends with the expiration of the 15th day of the 39th month

22-14

following the end of the taxable year of the net operating loss or net capital loss which results in

22-15

the carryback, or the period prescribed in subsection (a) of this section in respect of the taxable

22-16

year, whichever expires later.

22-17

      (c) Any taxpayer whose claim for refund has been denied may, within thirty (30) days

22-18

from the date of the mailing by the tax administrator of the notice of the decision, request a

22-19

hearing and the tax administrator shall, as soon as practicable, set a time and place for the hearing

22-20

and shall so notify the applicant.

22-21

     44-11-21. Information confidential -- Types of disclosure authorized- Penalties for

22-22

unauthorized disclosure. -- (a) It is unlawful for any state official or employee to divulge or to

22-23

make known to any person in any manner not provided by law the amount or source of income,

22-24

profits, losses, expenditures, or any particular set forth or disclosed in any return, or to permit any

22-25

return or copy or any book containing any abstract or particulars to be seen or examined by any

22-26

person except as provided by law. It is unlawful for any person to print or publish in any manner

22-27

not provided by law any return or any part or source of income, profits, losses, or expenditures

22-28

appearing in any return.

22-29

      (b) Any offense against this provision is punishable by a fine not exceeding one

22-30

thousand dollars ($1,000) or by imprisonment not exceeding one year, or both, at the discretion of

22-31

the court. If the offender is an officer or employee of the state of Rhode Island, he or she may be

22-32

dismissed from office or discharged from employment; provided, that the tax administrator may

22-33

authorize examination of the return by the tax officials regularly in the employ of another state or

22-34

of the federal government if a reciprocal arrangement exists.

23-1

     44-11-22. Tax administrator's power to summon witnesses and evidence. -- The tax

23-2

administrator may summon any corporation, or officer, agent, or employee of any corporation, or

23-3

any other person, to appear before him or her and produce records and documents at a time and

23-4

place named in the summons and to give testimony and to answer interrogatories, under oath,

23-5

respecting any matter which the tax administrator deems pertinent or material to the

23-6

administration of this chapter.

23-7

     44-11-23. Service of summons. -- The summons may be sent by registered or certified

23-8

mail to the corporation, or to any officer, agent, or employee of the corporation, or to any other

23-9

person, or may be left by any authorized agent of the tax administrator with the corporation, or

23-10

with any officer, agent, or employee of the corporation, or any other person, or left at his or her

23-11

last and usual place of abode. When the summons requires the production of records or

23-12

documents, it shall be sufficient if the records and documents are described with reasonable

23-13

certainty.

23-14

     44-11-24. Enforcement of summons. -- Whenever any person or corporation summoned

23-15

under the provisions of sections 44-11-22 and 44-11-23 neglects or refuses to obey the summons

23-16

or to give testimony or to answer interrogatories as required, the tax administrator may apply to

23-17

the sixth (6=ss th=ks ) division of the district court for a citation against that person or

23-18

corporation as for a contempt. Any judge of the court may hear the application and, if satisfactory

23-19

proof is made, shall issue a citation for the arrest of the person, or of any officer of the

23-20

corporation, and upon the person or officer being brought before the judge, he or she shall

23-21

proceed to a hearing of the case; and upon the hearing the judge shall have power to make an

23-22

order that he or she deems proper. A party aggrieved by an order of the court may appeal the

23-23

order to the supreme court in accordance with the procedures contained in the rules of appellate

23-24

procedure of the supreme court.

23-25

     44-11-25. Determination of tax without return. -- If any corporation fails to file a

23-26

return at the time and as prescribed by law, the tax administrator shall proceed to determine the

23-27

tax from any information he or she can obtain.

23-28

     44-11-26. Pecuniary penalty for failure to file return or to pay tax or for negligence.

23-29

-- (a) In the case of any failure to file a return within the time prescribed by law, there shall be

23-30

added to the tax five percent (5%) if the failure is for not more than one month, with an additional

23-31

five percent (5%) for each additional month or fraction of a month during which the failure

23-32

continues, not exceeding twenty-five percent (25%) in the aggregate, except that when a return is

23-33

filed after the time prescribed by law and it is shown that the failure to file the return at the

23-34

prescribed time was due to reasonable cause and not due to willful neglect, no addition to the tax

24-1

shall be made.

24-2

      (b) In the case of any failure to pay the tax as imposed by this chapter with the return on

24-3

or before the date prescribed by law (determined with regard to any extension of time for

24-4

payment), there shall be added to the amount shown as tax on the return five-tenths percent

24-5

(0.5%) of the amount of the tax if the failure is for not more than one month, with an additional

24-6

five-tenths percent (0.5%) for each additional month or fraction of a month during which the

24-7

failure continues, not exceeding twenty-five percent (25%) in the aggregate, except that when the

24-8

failure is due to reasonable cause and not to willful neglect, no addition to the tax shall be made.

24-9

      (c) In the case of any failure to pay any amount in respect of any tax required to be

24-10

shown on a return, which is not shown, including an assessment made as a result of mathematical

24-11

error, within thirty (30) days of the date of the notice and demand, there shall be added to the

24-12

amount of tax stated in the notice and demand five-tenths percent (0.5%) of the amount of the tax

24-13

if the failure is for not more than one month, with an additional five-tenths percent (0.5%) for

24-14

each additional month or fraction of a month during which the failure continues, not exceeding

24-15

twenty-five percent (25%) in the aggregate, except that when the failure is due to reasonable

24-16

cause and not to willful neglect, no addition to the tax shall be made.

24-17

      (d) If any part of a deficiency is due to negligence or intentional disregard of the Rhode

24-18

Island business corporation tax law or rules or regulations hereunder, but without intent to

24-19

defraud, five percent (5%) of that part of the deficiency shall be added to the tax. This amount

24-20

shall be in lieu of any other additional amount imposed by subsection (b) of this section.

24-21

     44-11-27. Pecuniary penalty for fraud. -- In case a false or fraudulent return is made

24-22

with intent to evade any tax imposed by this chapter, the tax administrator shall add to the tax

24-23

fifty percent (50%) of its amount.

24-24

     44-11-28. Collection of pecuniary penalties. -- The amount added to any tax under

24-25

sections 44-11-26 and 44-11-27 shall be collected as a part of and at the same time and in the

24-26

same manner as the tax, unless the tax has been paid before the discovery of the neglect, falsity,

24-27

or fraud, in which case the amount so added shall be collected in the same manner as the tax.

24-28

     44-11-29. Notice to tax administrator of sale of assets -- Tax due. -- (a) The sale or

24-29

transfer of the major part in value of the assets of a domestic corporation, or of the major part in

24-30

value of the assets situated in this state of a foreign corporation, other than in the ordinary course

24-31

of trade and in the regular and usual prosecution of the corporation's business, and the sale or

24-32

transfer of the major part in value of the assets of a domestic corporation, or of the major part in

24-33

value of the assets situated in this state of a foreign corporation which is engaged in the business

24-34

of buying, selling, leasing, renting, managing, or dealing in real estate, shall be fraudulent and

25-1

void as against the state unless the corporation shall, at least five (5) days before the sale or

25-2

transfer, notify the tax administrator of the proposed sale or transfer and of the price, terms, and

25-3

conditions the sale or transfer and of the character and location of the assets. Whenever a

25-4

corporation shall make such a sale or transfer, the tax imposed by this chapter shall become due

25-5

and payable at the time when the tax administrator is notified, or, if he or she is not notified, at

25-6

the time when he or she should have been notified.

25-7

      (b) This section shall not apply to sales by receivers, assignees under a voluntary

25-8

assignment for the benefit of creditors, trustees in bankruptcy, or public officers acting under

25-9

judicial process.

25-10

     44-11-29.1. Letters of good standing -- Fees. -- There shall be a fee of fifty dollars

25-11

($50.00) for any letter of good standing issued upon the request of a taxpayer. All fees collected

25-12

under this section shall be allocated to the tax administrator for enforcement and collection of all

25-13

taxes.

25-14

     44-11-30. Examination of taxpayer's records -- Witnesses. -- The tax administrator, for

25-15

the purpose of ascertaining the correctness of any return or for the purpose of determining the

25-16

amount of any tax imposed by this chapter, may, by any of his or her officers or employees

25-17

designated by him or her for that purpose, examine any books, papers, records, or memoranda

25-18

bearing upon the matters required to be included in the return, and may require the attendance of

25-19

the person executing the return or of any officer or employee of any corporation, association, or

25-20

organization, or the attendance of any other person, and may examine him or her under oath

25-21

respecting any matter which the tax administrator deems pertinent or material in determining the

25-22

liability of any corporation, association, or organization to a tax imposed by this chapter.

25-23

     44-11-31. Examinations as to liability of transferee. -- The tax administrator, for the

25-24

purpose of determining the liability of a transferee of the property of any corporation with respect

25-25

to any tax imposed upon the corporation, may, by any of his or her officers or employees

25-26

designated by him or her for that purpose, examine any books, papers, records, or memoranda

25-27

bearing upon the liability, and may require the attendance of the corporation or transferee, or of

25-28

any officer or employee of the corporation or transferee, or the attendance of any other person

25-29

having knowledge in the premises, and may take testimony with reference to the matter, with

25-30

power to administer oaths to any officer, employee, or other person.

25-31

     44-11-32. Violations by corporations. -- Whenever any corporation delivers or discloses

25-32

or causes to be delivered or disclosed to the tax administrator any false or fraudulent return,

25-33

account, or statement, with intent to defeat or evade any tax imposed under this chapter, or being

25-34

summoned to appear to testify or to appear and produce books as required under this chapter,

26-1

neglects to appear or to produce books, the corporation is guilty of a felony and upon conviction

26-2

shall be fined not exceeding ten thousand dollars ($10,000).

26-3

     44-11-33. Violations by individuals. -- Whenever any person delivers or discloses or

26-4

causes to be delivered or disclosed to the tax administrator any false or fraudulent return, account,

26-5

or statement, with intent to defeat or evade any tax imposed under this chapter, or being

26-6

summoned to appear to testify or to appear and produce books as required under this chapter,

26-7

neglects to appear or to produce books, the person is guilty of a felony and upon conviction

26-8

thereof shall be fined not exceeding ten thousand dollars ($10,000), or be imprisoned not

26-9

exceeding one year, or both.

26-10

     44-11-34. Criminal penalty for failure to file return. -- Any taxpayer, or any officer or

26-11

agent of the taxpayer, who willfully fails to file any return or statement, including a supplemental

26-12

return, required to be made under the provisions of this chapter within the time fixed or extended

26-13

is guilty of a felony and upon conviction shall be fined not exceeding ten thousand dollars

26-14

($10,000), or be imprisoned not exceeding one year, or both.

26-15

     44-11-35. Appeals. -- Appeals from administrative orders or decisions made pursuant to

26-16

any provisions of this chapter shall be to the sixth (6th) division district court pursuant to chapter

26-17

8 of title 8. The taxpayer's right to appeal shall be expressly made conditional upon prepayment

26-18

of all taxes, interest, and penalties unless the taxpayer moves for and is granted an exemption

26-19

from the prepayment requirement pursuant to section 8-8-26. If the court, after appeal, holds that

26-20

the taxpayer is entitled to a refund, the taxpayer shall also be paid interest on the amount at the

26-21

rate provided in section 44-1-7.1.

26-22

     44-11-36. Liability of fiduciaries. -- Any receiver, liquidator, trustee, trustee in

26-23

bankruptcy, assignee, conservator, or other fiduciary conducting or liquidating the business or

26-24

selling the assets of any corporation shall, except as provided in section 44-11-29(b), be subject to

26-25

the provisions of and the tax imposed by this chapter in the same manner and to the same extent

26-26

as if the business were being conducted or liquidated or the assets sold by the agents or officers of

26-27

the corporation.

26-28

     44-11-37. General collection powers. -- The tax administrator shall receive and collect

26-29

any tax imposed under this chapter in the same manner and with the same powers as are

26-30

prescribed for and given to collectors of taxes by chapters 7 -- 9 of this title.

26-31

     44-11-38. Collection by writ of execution. -- If any tax or penalty imposed by this

26-32

chapter is not paid within thirty (30) days after the tax or penalty shall become due and payable,

26-33

the tax administrator, in addition to any other powers provided by law, may petition the sixth

26-34

(6th) division of the district court for a writ of execution, setting forth the nonpayment of the tax

27-1

or penalty. The court shall appoint a time for a hearing and shall cause a reasonable notice to be

27-2

given to the adverse party, and at the time and place of the return of the notice shall summarily

27-3

proceed to hear the parties. If upon the hearing it shall appear that the tax or penalty is unpaid, the

27-4

court shall issue an execution for the collection of the tax or penalty, which shall run to the

27-5

sheriffs, or their deputies, of the several counties of this state, and in which the officer making

27-6

service of the execution shall be commanded to levy upon the property of the corporation as may

27-7

be taken on execution, and the officer charged with the service of the execution shall serve the

27-8

execution as commanded, and shall sell the property seized as property is sold when taken on

27-9

execution in actions at law, or the court shall take any other action as it may deem proper to

27-10

enforce the payment of the tax by the appointment of a receiver of the property of the corporation

27-11

or otherwise. A party aggrieved by a final order of the court may seek review of the order in the

27-12

supreme court by writ of certiorari in accordance with the procedures contained in section 42-35-

27-13

16.

27-14

     44-11-39. Tax as debt to state. -- Any tax imposed under the provisions of this chapter,

27-15

together with all increases, penalties, charges, and interest, shall also become, from the time the

27-16

same are due and payable, a debt due to the state of Rhode Island from the corporation liable for

27-17

the payment of the tax.

27-18

     44-11-40. Severability. -- If any provision of this chapter or the application of this

27-19

chapter to any corporation or circumstances is held invalid, the remainder of this chapter and the

27-20

application of the provisions to the other corporations or circumstances shall not be affected.

27-21

     44-11-41. Tax credit for machine tool, metal trade or plastic process technician

27-22

apprenticeships. -- (a) Any taxpayer who employs a machine tool and metal trade apprentice or

27-23

plastic process technician apprentice duly enrolled and registered under the terms of a qualified

27-24

program (as determined by the state apprenticeship council) is entitled to a tax credit for each

27-25

eligible apprentice for fifty percent (50)% of actual wages paid, or four thousand eight hundred

27-26

dollars ($4,800), whichever is less; provided, that the apprenticeships meet the following

27-27

requirements:

27-28

      (1) The tax credit is limited to qualified Machine Tool, Metal Trade and Plastics Process

27-29

Technician programs with apprenticeship periods of duration which are more than four thousand

27-30

(4,000) hours and less than ten thousand (10,000) hours.

27-31

      (2) The apprentice must be employed on a full-time basis, which is defined as working a

27-32

minimum of one hundred twenty (120) hours per month at the trade. Up to eighty (80) hours may

27-33

be applied during the tax year against the one hundred twenty (120) hour limitation.

28-34

      (3) Pre-apprentices are not counted as apprenticeships begun and wages earned by pre-

28-35

apprentices are not eligible for tax credits under this regulation.

28-36

      (4) The number of apprenticeships for which tax credit is allowed must exceed the

28-37

average number of apprenticeships begun during the five (5) preceding income years.

28-38

      (b) The tax credit is limited to the following trade: machinist, toolmaker, tool and

28-39

diemaker, model maker, gage maker, patternmaker, tool and machine setter, diesinker,

28-40

moldmaker, machine tool repairer, plastic process technician and in similar occupations which, as

28-41

above, involve multiple work processes including the shaping of metals by machine tool

28-42

equipment designed to perform cutting, grinding, milling, turning, drilling, boring, planing,

28-43

hobbing, and abrading operations.

28-44

     44-11-43. Passive investment treatment. -- (a) Notwithstanding any amendments or

28-45

revisions to, or the repeal of, section 44-11-1(1)(vii), or any other law, or new legislative action

28-46

that shall serve to repeal or limit the benefits conferred therein, the provisions of that statute as in

28-47

effect on the date of passage of this section shall continue to be applicable until December 31,

28-48

2014, for a "qualifying business" that meets the requirements set forth herein.

28-49

      (b) A "qualifying business" for the purposes of this chapter shall mean a business which

28-50

meets the terms and conditions imposed by the board of directors of the Rhode Island economic

28-51

development corporation and is designated as such upon a finding of fact that:

28-52

      (1) The business has committed to relocate from outside the state to a Rhode Island

28-53

location no less than an annual tax year average of two hundred and fifty (250) full-time

28-54

employees with a combined payroll of no less than twelve million dollars ($12,000,000) annually

28-55

within twenty-eight (28) months following such designation; for the purposes of this section "full-

28-56

time employee" means any employee of the qualified business who works a minimum of thirty

28-57

(30) hours per week within the state;

28-58

      (2) The business would not relocate such jobs to the state but for such a designation of a

28-59

qualifying business; and

28-60

      (3) The annual salary of each employee counted in subdivision (b)(1) shall be no less

28-61

than twenty-five thousand dollars ($25,000) per year, plus benefits typical to the industry.

28-62

      (c) The division of taxation shall require annual reports from a qualified business, which

28-63

shall include, but not be limited to, the number of individuals employed by the company within

28-64

the state, the job descriptions, and the annual salaries. The division of taxation shall verify these

28-65

annual reports and certify that they are correct. The certification shall be sent to the board of

28-66

directors of the economic development corporation, president of the senate, speaker of the house,

28-67

the chairperson of the senate finance committee, the chairperson of the house finance committee,

28-68

the senate fiscal advisor, and the house fiscal advisor. If the division of taxation finds that the

29-1

qualified business no longer meets the criteria set forth in subdivision (b)(1) or (3), and if, sixty

29-2

(60) days after receipt of written notice from the division of taxation describing such finding in

29-3

detail, the business has reasonably cured the noticed violations, then such business will continue

29-4

to receive the benefits offered under the provisions of subsection (f) as if such violation had not

29-5

occurred, otherwise that business shall no longer be considered a qualified business and shall no

29-6

longer be entitled to any further benefits under any agreement made under the provisions of

29-7

subsection (f) and such provisions shall become null and void.

29-8

      Notwithstanding the foregoing, upon a finding the violation was caused by natural

29-9

disaster, acts of terrorism, acts of war, or other similar events reasonably beyond the control of

29-10

the business, the division of taxation may extend the cure period hereunder for up to twelve

29-11

months.

29-12

      (d) The economic development corporation shall certify only one company pursuant to

29-13

this section, and such certification shall be issued prior to August 31, 2004.

29-14

      (e) The economic development corporation shall be authorized to enter into such

29-15

agreements as it may deem necessary or prudent in order to memorialize and effect the intent of

29-16

the provisions of this section. The terms of such agreements shall not extend beyond December

29-17

31, 2014. Any such agreement shall include provisions for recapture of some portion of lost tax

29-18

revenue, if any, resulting from the conveyance of the benefits contemplated hereunder, if the

29-19

division of taxation finds that the qualified business has failed to maintain its qualified status

29-20

pursuant to subsection (c) above. Such recapture provisions shall be in place for the first five (5)

29-21

years of the agreement, and shall require the recapture of the value of any tax revenue lost in the

29-22

last tax year that the company was a qualified company. Such recapture shall only apply to tax

29-23

revenue lost through the amendment or revision to, or the repeal of, section 44-11-1(1)(vii), or

29-24

any other law, or new legislative action that shall serve to repeal or limit the benefits conferred

29-25

therein, and the subsequent avoidance of such newly imposed tax by the company through the

29-26

function of this section. Calculation of any amount recaptured shall take into account other

29-27

preferential tax treatments, credits, or other benefits in order to assure that the company is treated

29-28

no less favorably under the recapture calculation than they would have been if they had not

29-29

become a qualifying company under the provisions of this section. The corporation may, within

29-30

the terms of the contract, include as a condition of default the failure to maintain employment

29-31

criteria more rigorous than the criteria set forth in subdivision (b)(1) or (3); however, a default for

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violation of such higher contractual standards shall not necessitate a recapture of lost revenues as

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contemplated herein.

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     44-11-44. Annual Rhode Island corporate income and tax data report. -- No later

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than March 15, 2010 and every March 15th thereafter, the division of taxation shall annually

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submit a report for the previous calendar year of Rhode Island corporate income and tax data by

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size of federal taxable income to the chairpersons of the house finance committee and senate

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finance committee, and the house fiscal advisor and the senate fiscal advisor. The report should

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be as similar as practical to the business and income tax data for Rhode Island federal taxpayers

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issued by the Statistics of Income Division of the Internal Revenue Service.

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     44-11-45. Combined reporting study. -- (a) For the purpose of this section:

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      (1) "Common ownership" means more than fifty percent (50%) of the voting control of

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each member of the group is directly or indirectly owned by a common owner or owners, either

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corporate or non-corporate, whether or not owner or owners are members of the combined group.

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      (2) "Member" means a corporation included in a unitary business.

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      (3) "Unitary business" means the activities of a group of two (2) or more corporations

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under common ownership that are sufficiently interdependent, integrated or interrelated through

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their activities so as to provide mutual benefit and produce a significant sharing or exchange of

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value among them or a significant flow of value between the separate parts. The term unitary

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business shall be construed to the broadest extent permitted under the United States Constitution.

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      (4) "United States" means the fifty (50) states of the United States, the District of

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Columbia, the United States' territories and possessions.

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      (b) Combined reporting.

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      (1) As part of its tax return for a taxable year beginning after December 31, 2010 but

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before January 1, 2013, each corporation which is part of an unitary business must file a report, in

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a manner prescribed by the tax administrator, for the combined group containing the combined

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net income of the combined group. The use of a combined report does not disregard the separate

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identities of the members of the combined group. The report shall include, at minimum, for each

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taxable year the following:

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      (i) The difference in tax owed as a result of filing a combined report compared to the tax

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owed under the current filing requirements;

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      (ii) The difference in tax owed as a result of using the single sales factor apportionment

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method under this paragraph as compared to the tax owed using the current three (3) factor

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apportionment method under section 44-11-14;

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      (iii) Volume of sales in the state and worldwide; and

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      (iv) Taxable income in the state and worldwide.

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      (2) The combined reporting requirement required pursuant to this section shall not

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include any persons that engage in activities enumerated in sections 44-13-4, 44-14-3, 44-14-4 or

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44-17-1, whether within or outside this state. Neither the income or loss nor the apportionment

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factors of such a person shall be included, directly or indirectly, in the combined report.

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      (3) Members of a combined group shall exclude as a member and disregard the income

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and apportionment factors of any corporation incorporated in a foreign jurisdiction (a "foreign

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corporation") if the average of its property, payroll and sales factors outside the United States is

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eighty percent (80%) or more. If a foreign corporation is includible as a member in the combined

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group, to the extent that such foreign corporation's income is subject to the provisions of a federal

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income tax treaty, such income is not includible in the combined group net income. Such member

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shall also not include in the combined report any expenses or apportionment factors attributable

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to income that is subject to the provisions of a federal income tax treaty. For purposes of this

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chapter, "federal income tax treaty" means a comprehensive income tax treaty between the United

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States and a foreign jurisdiction, other than a foreign jurisdiction which the organization for

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economic co-operation and development has determined has not committed to the internationally

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agreed tax standard, or has committed to the international agreed tax standard but has not yet

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substantially implemented that standard, as identified in the then-current organization for

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economic co-operation and development progress report.

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      (c) Any corporation which is required to file a report under this section which fails to file

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a timely report or which files a false report shall be assessed a penalty not to exceed ten thousand

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dollars ($10,000). The penalty may be waived for good cause shown for failure to timely file.

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      (d) The tax administrator shall on or before March 15, 2014, based on the information

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provided in income tax returns and the data submitted under this section, submit a report to the

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chairpersons of the house finance committee and senate finance committee, and the house fiscal

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advisor and the senate fiscal advisor analyzing the policy and fiscal ramifications of changing the

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business corporation tax statute to a combined method of reporting.

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     SECTION 2. This act shall take effect on July 1, 2013.

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LC01596

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO TAXATION - BUSINESS CORPORATION TAX

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     This act would repeal the business corporation tax in its entirety.

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     This act would take effect on July 1, 2013.

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LC01596

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