law24159

Chapter 159

2024 -- S 3152 SUBSTITUTE A
Enacted 06/24/2024

A N A C T

RELATING TO TAXATION -- TAXATION OF BANKS

Introduced By: Senator Louis P. DiPalma

Date Introduced: June 09, 2024

It is enacted by the General Assembly as follows:

SECTION 1. Sections 44-14-13 and 44-14-14.1 of the General Laws in Chapter 44-14

entitled "Taxation of Banks" are hereby amended to read as follows:

44-14-13. Business expenses deductible.

(a) In computing net income there shall be allowed as deductions all the ordinary and

necessary expenses paid or incurred by the taxpayer during the income period in carrying on its

trade or business, except United States income and excess profits taxes and the tax imposed by this

chapter. Without limiting the generality of the foregoing there shall be allowed as deductions: a

reasonable allowance for salaries and other compensation for personal services actually rendered;

rent; repairs; bad debts; interest; taxes, except United States income and excess profits taxes and

the tax imposed by this chapter; losses sustained and not compensated for by insurance or

otherwise; depreciation; depletion of mines, oil and gas wells, and timber; amortization of assets;

amortization of premiums on “securities” as defined in § 44-14-2(5)(ii); and contributions to any

corporation, association, or fund organized and operated exclusively for religious, charitable,

scientific, literary, or educational purposes, no part of the net earnings of which inures to the benefit

of any private shareholder or individual.

(b) For tax years beginning on or after January 1, 2025, to the extent that a taxpayer subject

to tax under this chapter has elected to allocate and apportion its net income pursuant to § 44-14-

14.1(f)(1) and would be included in a unitary business, as defined in § 44-11-1(11), with one or

more entities subject to tax under chapter 11 of this title if not for the exemptions from the definition

of "corporations corporation" set forth in § 44-11-1(4)(i), all business expense transactions

between the taxpayer and the members of the unitary business shall be added to net income of the

taxpayer subject to tax under this chapter; except that no such adjustment shall be required to the

extent it would result in duplicate taxation in violation of law.

deductible business expenses paid, accrued, or incurred to a related member, except that a deduction

shall be permitted to the extent that either:

(1) The taxpayer establishes by clear and convincing evidence, as determined by the tax

administrator, that the disallowance of the deduction is unreasonable; or

(2) The taxpayer and the tax administrator agree in writing to the application of an

alternative method of apportionment. For purposes of this subsection, the add back of a business

expense transaction will be considered unreasonable where the taxpayer establishes by clear and

convincing evidence that the transaction was primarily entered into for a valid business purpose

rather than to avoid payment of taxes due under this chapter, the business expense paid is pursuant

to a written contract that reflects arm’s length terms, and that it is supported by documented

economic substance. Nothing in this subsection shall be construed to limit or negate the tax

administrator’s authority to otherwise enter into agreements and compromises otherwise allowed

by law.

44-14-14.1. Apportionment and allocation of income for purposes of taxation.

(a) Except as specifically provided in this chapter a banking institution whose business

activity is taxable both within and outside of this state shall allocate and apportion its net income

as provided in §§ 44-14-14.1 — 44-14-14.5. A financial institution organized under the laws of a

foreign country, the Commonwealth of Puerto Rico, or a territory or possession of the United States

whose effectively connected income (as defined under the federal Internal Revenue Code) is

taxable both within this state and within another state, other than the state in which it is organized

shall allocate and apportion its net income as provided in §§ 44-14-14.1 — 44-14-14.5.

(b) All income shall be apportioned to this state by multiplying this income by the

apportionment percentage. The apportionment percentage is determined by adding the taxpayer’s

receipts factor (as described in § 44-14-14.3), property factor (as described in § 44-14-14.4), and

payroll factor (as described in § 44-14-14.5) together and dividing the sum by three. If one of the

factors is missing, the two remaining factors are added and the sum is divided by two. If two of the

factors are missing, the remaining factor is the apportionment percentage. A factor is missing if

both its numerator and denominator are zero, but it is not missing merely because its numerator is

zero.

basis) used by the taxpayer for the taxable year.

(d) For tax years ending prior to January 1, 2025, if If the allocation and apportionment

provisions of §§ 44-14-14.1 — 44-14-14.5 do not fairly represent the extent of the taxpayer’s

business activity in this state, the taxpayer may petition for or the tax administrator may require, in

respect to all or any part of the taxpayer’s business activity, if reasonable:

(1) The exclusion of any one or more of the factors;

(2) The inclusion of one or more additional factors which will fairly represent the

taxpayer’s business activity in this State state; or

(3) The employment of any other method to effectuate an equitable allocation and

apportionment of the taxpayer’s income.

(e) For tax years beginning on or after January 1, 2025, if the allocation and apportionment

provisions of §§ 44-14-14.1 through — 44-14-14.5 or subsection (f) of this section are not

reasonably adapted to approximate the net income derived from business carried on within the state,

a banking institution may apply to the tax administrator, or the tax administrator may require the

banking institution, to have its income derived from business carried on within the state determined

by an alternative method. Such application shall be made by attaching to its duly-filed return a

statement of the reasons why the banking institution believes that §§ 44-14-14.1 through — 44-14-

14.5 or subsection (f) of this section are not reasonably adapted to approximate its net income

derived from business carried on within the state and a description of the method sought by it. A

banking institution which so applies shall, upon receipt of a request therefor from the tax

administrator, file with the tax administrator, under oath of its treasurer, a statement of such

additional information as the tax administrator may require.

If, after such application by the banking institution, or after the tax administrator’s own

review, the tax administrator determines that §§ 44-14-14.1 through — 44-14-14.5 or subsection

(f) of this section are not reasonably adapted to approximate the banking institution’s net income

derived from business carried on within the state, the tax administrator shall by reasonable methods

determine the amount of net income derived from business activity carried on within the state. The

amount thus determined shall be the net income taxable under §§ 44-14-3 or § 44-14-4 and the

foregoing determination shall be in lieu of the determination required by §§ 44-14-14.1 through

— 44-14-14.5 or subsection (f) of this section. If an alternative method is used by the tax

administrator hereunder, the tax administrator, in their discretion, may require similar information

from such banking institution if it shall appear that such alternative method or §§ 44-14-14.1

through — 44-14-14.5 or subsection (f) of this section are not reasonably adapted to approximate

for the applicable year the banking institution’s net income derived from business carried on within

the state and may again by reasonable methods determine such income.

(f) For tax years beginning on or after January 1, 2025:, (1) Except except as specifically

provided in this chapter a banking institution whose business activity is taxable both within and

outside of this state may elect to allocate and apportion its net income by multiplying its net income

by its receipts factor as described in § 44-14-14.3. For purposes of an election made pursuant to

this subsection (1f), the following shall apply:

(i1) An election shall be made by filing the form prescribed by the tax administrator with

the taxpayer’s duly-filed return. The election shall take effect in the tax year for which the taxpayer

makes the election and shall remain in effect for all subsequent tax years; except that, after a

minimum of five (5) subsequent tax years after the tax year for which the election is made, in the

event of a material change of facts or law, a taxpayer may apply to the tax administrator to revoke

the election. Such application shall be made by attaching a statement of the event of a material

change of facts or law to the taxpayer’s duly-filed return. A banking institution which so applies

shall, upon receipt of a request therefor from the tax administrator, file with the tax administrator,

under oath of its treasurer, a statement of such additional information as the tax administrator may

require.

(ii2) If the receipts factor is missing, the whole of the banking institution’s net income shall

be taxable pursuant to §§ 44-14-3 through — 44-14-4. The receipts factor shall be missing if both

its numerator and denominator are zero, but it shall not be missing merely because its numerator is

zero.

(iii3) The receipts factor shall be computed according to the method of accounting (cash or

accrual basis) used by the taxpayer for the taxable year.

SECTION 2. Chapter 44-14 of the General Laws entitled "Taxation of Banks" is hereby

amended by adding thereto the following section:

44-14-39. Combined reporting study.

(a) For the purpose of this section:

(1) “Common ownership” means more than fifty percent (50%) of the voting control of

each member of the group is directly or indirectly owned by a common owner or owners, either

corporate or non-corporate, whether or not the owner or owners are members of the combined

group.

(2) “Member” means a banking institution included in a unitary business.

(3) “Unitary business” means the activities of a group of two (2) or more banking

institutions as defined in § 44-14-2(2) and corporations as defined in § 44-11-1(4) under common

ownership that are sufficiently interdependent, integrated, or interrelated through their activities so

as to provide mutual benefit and produce a significant sharing or exchange of value among them

or a significant flow of value between the separate parts. The term unitary business shall be

construed to the broadest extent permitted under the United States Constitution.

(4) “United States” means the fifty (50) states of the United States, the District of

Columbia, and the United States’ territories and possessions.

(b) Combined reporting.

(1) As part of its tax return for the taxable year beginning after December 31, 2023, but

before January 1, 2026, each banking institution which is part of a unitary business must file a

report, in a manner prescribed by the tax administrator, for the combined group containing the

combined net income of the combined group. The use of a combined report does not disregard the

separate identities of the members of the combined group. The report shall include, at a minimum,

for each taxable year the following:

(i) The difference in tax owed as a result of filing a combined report compared to the tax

owed under the current filing requirements;

(ii) Volume of sales in the state and worldwide; and

(iii) Taxable income in the state and worldwide.

(2) The combined reporting requirement required pursuant to this section shall not include

any persons that engage in activities enumerated in §§ 44-13-4 or § 44-17-1, whether within or

outside this state. Neither the income or loss nor the apportionment factors of such a person shall

be included, directly or indirectly, in the combined report.

(3) Members of a combined group shall exclude as a member and disregard the income and

apportionment factors of any banking institution chartered or corporation incorporated in a foreign

jurisdiction (a “foreign banking institution or corporation”) if the average of its property, payroll,

and sales factors outside the United States is eighty percent (80%) or more. If a foreign banking

institution or corporation is includible as a member in the combined group, to the extent that such

foreign banking institution or corporation’s income is subject to the provisions of a federal income

tax treaty, such income is not includible in the combined group net income. Such member shall

also not include in the combined report any expenses or apportionment factors attributable to

income that is subject to the provisions of a federal income tax treaty. For purposes of this chapter,

“federal income tax treaty” means a comprehensive income tax treaty between the United States

and a foreign jurisdiction, other than a foreign jurisdiction which the organization for economic co-

operation cooperation and development has determined has not committed to the internationally

agreed tax standard, or has committed to the international agreed tax standard but has not yet

substantially implemented that standard, as identified in the then-current organization for economic

co-operation cooperation and development progress report.

to file a timely report or which files a false report shall be assessed a penalty not to exceed ten

thousand dollars ($10,000). The penalty may be waived for good cause shown for failure to timely

file.

(d) The tax administrator shall on or before March 15, 2027, based on the information

provided in income tax returns and the data submitted under this section, submit a report to the

chairs of the house finance committee and senate finance committee, and the house fiscal advisor

and the senate fiscal advisor analyzing the policy and fiscal ramifications of changing the bank

excise tax statute to a combined method of reporting.

SECTION 3. Section 35-6-1 of the General Laws in Chapter 35-6 entitled "Accounts and

Control" is hereby amended to read as follows:

35-6-1. Controller — Duties in general.

(a) Within the department of administration there shall be a controller who shall be

appointed by the director of administration pursuant to chapter 4 of title 36. The controller shall be

responsible for accounting and expenditure control and shall be required to:

(1) Administer a comprehensive accounting and recording system that will classify the

transactions of the state departments and agencies in accordance with the budget plan;

(2) Maintain control accounts for all supplies, materials, and equipment for all departments

and agencies except as otherwise provided by law;

(3) Prescribe a financial, accounting, and cost accounting system for state departments and

agencies;

(4) Identify federal grant-funding opportunities to support the governor’s and general

assembly’s major policy initiatives and provide technical assistance with the application process

and post-award grants management;

(5) Manage federal fiscal proposals and guidelines and serve as the state clearinghouse for

the application of federal grants;

(6) Pre-audit all state receipts and expenditures;

(7) Prepare financial statements required by the several departments and agencies, by the

governor, or by the general assembly;

(8) Approve the orders drawn on the general treasurer; provided, that the pre-audit of all

expenditures under authority of the legislative department and the judicial department by the state

controller shall be purely ministerial, concerned only with the legality of the expenditure and

availability of the funds, and in no event shall the state controller interpose his or her judgment

regarding the wisdom or expediency of any item or items of expenditure;

(9) Prepare and timely file, on behalf of the state, any and all reports required by the United

States, including, but not limited to, the Internal Revenue Service, or required by any department

or agency of the state, with respect to the state payroll; and

(10) Prepare a preliminary closing statement for each fiscal year. The controller shall

forward the statement to the chairpersons of the house finance committee and the senate finance

committee, with copies to the house fiscal advisor and the senate fiscal and policy advisor, by

September 1 following the fiscal year ending the prior June 30 or thirty (30) days after enactment

of the appropriations act, whichever is later. The report shall include but is not limited to:

(i) A report of all revenues received by the state in the completed fiscal year, together with

the estimates adopted for that year as contained in the final enacted budget, and together with all

deviations between estimated revenues and actual collections. The report shall also include cash

collections and accrual adjustments;

(ii) A comparison of actual expenditures with each of the actual appropriations, including

supplemental appropriations and other adjustments provided for in the Rhode Island general laws;

(iii) A statement of the opening and closing surplus in the general revenue account; and

(iv) A statement of the opening surplus, activity, and closing surplus in the state budget

reserve and cash stabilization account and the state bond capital fund.

(b) The controller shall provide supporting information on revenues, expenditures, capital

projects, and debt service upon request of the house finance committee chairperson, senate finance

committee chairperson, house fiscal advisor, or senate fiscal and policy advisor.

report of the differences between the preliminary financial report and the final report as contained

in the audited annual financial statement.

(d) The controller shall create a special fund not part of the general fund and shall deposit

amounts equivalent to all deferred contributions under this act into that fund. Any amounts

remaining in the fund on June 15, 2010, shall be transferred to the general treasurer who shall

transfer such amounts into the retirement system as appropriate.

(e) Upon issuance of the audited financial statement, the controller shall transfer fifty

percent (50%) of all general revenues received in the completed fiscal year net of transfer to the

state budget reserve and cash stabilization account as required by § 35-3-20 in excess of those

estimates adopted for that year as contained in the final enacted budget to the employees’ retirement

system of the state of Rhode Island as defined in § 36-8-2 and fifty percent (50%) to the

supplemental state budget reserve account as defined in § 35-3-20.2, except that excess revenues

from fiscal year 2023 shall not be transferred to the supplemental state budget reserve account.

(f) The controller shall implement a direct deposit payroll system for state employees.

(1) There shall be no service charge of any type paid by the state employee at any time

which shall decrease the net amount of the employee’s salary deposited to the financial institution

of the personal choice of the employee as a result of the use of direct deposit.

(2) Employees hired after September 30, 2014, shall participate in the direct deposit

system. At the time the employee is hired, the employee shall identify a financial institution that

will serve as a personal depository agent for the employee.

(3) No later than June 30, 2016, each employee hired before September 30, 2014, who is

not a participant in the direct deposit system, shall identify a financial institution that will serve as

a personal depository agent for the employee.

(4) The controller shall promulgate rules and regulations as necessary for implementation

and administration of the direct deposit system, which shall include limited exceptions to required

participation.

SECTION 4. Sections 1 and 2 of this act shall take effect on January 1, 2025, and Section

3 of this act shall take effect upon passage.

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LC006255/SUB A

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