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Rhode Island Basic Business Taxes

Q1 2014
Corporate Tax Reduction

Jobs Development Act:
Corporate Income Tax Reduction for Job Creation
The Jobs Development Act provides an incremental reduction in the corporate income tax rate to as low as 3% for companies that create new employment in Rhode Island over a three-year period.

Film and Television Industry Incentives

Motion Picture Production Tax Credit
Rhode Island provides a transferable 25% tax credit against the corporate or personal income tax for all certified costs (including salaries) associated with Rhode Island primary locations of feature-length films, videos, video games, television series, or commercials.

Financial Service Industry Incentives

Alien Insurance Companies
Rhode Island allows a non-U.S. insurance company to become licensed in Rhode Island and, as long as it maintains its base of U.S. operations in Rhode Island, and to be treated as a Rhode Island domiciled insurance company for the purposes of obtaining licenses in other states.

Deregulation of Commercial Lines
This law exempts qualified commercial insurance lines from specific state review requirements, including filing policy forms, casualty insurance rating requirements, and certificate of compliance requirements.

Gross Premiums Tax Credits in Enterprise Zones
Rhode Island offers some of the most competitive ongoing tax incentives for job creation in Enterprise Zones. These credits may be taken against the gross premiums tax.

Income Apportionment - Depository Institutions
Income of banks having a regular place of business outside Rhode Island are entitled to a portion net income using a three-factor formula similar to that used for the corporate income tax.

Income Apportionment - Credit Card Banks
Banking institutions engaged only in credit card business may elect to apportion net income derived directly or indirectly from the banking institution to Rhode Island to the extent that customers of the taxpayer are domiciled in Rhode Island.

Income Apportionment - Regulated Investment Companies & Securities Brokerage
Income of Regulated Investment Companies and Securities Brokerage Services may be apportioned to Rhode Island using a one-factor formula based on the ratio of gross sales to Rhode Island residents to gross sales everywhere.

Income Apportionment - Retirement and Pension Plans
Pension fund service firms may use a one-factor formula based on the ratio of total Rhode Island receipts to total receipts everywhere. Taxpayers who provide traditional administrative services to pension or retirement plans may elect to have its net income apportioned on the basis of the domicile of its employee beneficiaries.

Insurance Company Retaliatory Tax Exemption
Foreign insurance companies are exempt from gross premiums retaliatory taxes in Rhode Island when their home jurisdiction does not impose a like tax.

Intangible Personal Property Sales Tax Exemption
Sales or transfers of intangible personal property such as stocks, bonds, accounts receivable, money, or insurance policies are exempt from the sales tax.

Rhode Island has no cap on credit card transactions and authorizes any interest rate agreed upon between lender and debtor.

International Investment Management Fee Income Tax Exemption
Companies with at least 500 employees in Rhode Island will not be taxed on fee income derived from international investment management services rendered to investors not domiciled in the United States.

Interstate Banking
Rhode Island allows out of state banks to operate branch offices in Rhode Island as long as the same opportunities are offered to Rhode Island banks as in their home state.

Mutual Insurance Holding Companies
Rhode Island effectively permits mutual insurance companies to access capital through stock issues without threatening policy holder rights or sacrificing the benefits of the mutual form of ownership.

Protected Cell Companies
The protected cell act facilitates insurance securitization transactions and rent-a-captive formation through its protected cell structure.

Telecommunication Sales Tax Exemption
Regulated investment companies with at least 500 full-time equivalent employees are exempt from the sales and use tax imposed on toll-free terminating telecommunication service.

Foreign Trade Zones

Foreign Trade Zone 105
Foreign Trade Zone # 105 consists of three different geographic locations in the State of Rhode Island which provide a variety of tax benefits, including: duty exemption on re-exports, duty elimination on manufacture, re-packaging, waste and scrap and relief from inverted tariffs.

General Business Taxes

General Business Taxes
Business income earned by a sole proprietor, a Limited Liability Corporation (LLC) or S-Corporation is typically passed through to the owner(s) and reported on a personal income tax return. Otherwise, C-corporations operating in Rhode Island are generally subject to four categories of business taxes, some of which can be modified through the tax credits or other incentives.

Historic Preservation

Historic Homeowner Tax Credit
Owners of Rhode Island historic residences may claim a credit against the Rhode Island personal income tax up to 20% of certified costs for exterior restoration work.
Job Training and Education

Workforce Development Tax Credit
Rhode Island grants a credit against the corporate income tax (or the insurance premium tax) equal to 50% of eligible training expenditures for new or existing employees, in accordance with an approved training plan.

Adult Education Tax Credit
Rhode Island allows for a tax credit of 50% of the direct costs for worksite and non worksite-based vocational training or basic education, up to a maximum of $300 per employee.

Employer's Apprenticeship Tax Credit
Employers of registered full-time apprentices in the metal and plastic industries are eligible for an annual corporate tax credit of 50% of the actual wages paid to the qualifying apprentice, or $4,800, whichever is less.

Educational Assistance and Development Credit
A contribution to a Rhode Island institution of higher education is allowed a tax credit of 8% for the amount above $10,000. The contribution must be for the establishment or maintenance of a faculty chair, department, work fellowship, or program of scientific research or education.

Job Training Grants
The Rhode Island Governor’s Workforce Board offers a training program for business and industry funded through a job development assessment of 0.51% on the firm's taxable payroll.

Manufacturing Incentives

Manufacturing Investment Tax Credit (4%)
A manufacturer is allowed a 4% tax credit against the Rhode Island corporate income tax on buildings and structural components, as well as machinery and equipment, which are owned or leased and are principally used in the production process (including storage).

High Performance Manufacturing Investment Tax Credit (10%)
High-performance manufacturers are allowed a 10% investment tax credit against their corporate tax on the cost or qualified lease amounts for tangible personal property or other tangible property, as well as buildings and structural components owned, leased to own, or leased for at least 20 years.

Business Income Apportionment for Manufacturers
Affiliated multi-state corporations may file single, separate Rhode Island corporate tax returns or file a consolidated return.

Apportionment Exclusion for Medical & Pharmaceutical Manufacturers
A Rhode Island manufacturer of Medical Instruments, Supplies or Pharmaceuticals whose facility is registered and certified by the United States Food & Drug Administration may modify the Rhode Island business income apportionment formula for the current tax year.

Miscellaneous Tax Credits and Incentives

Innovation Tax Credit
Rhode Island offers a tax credit to encourage investment in high-growth, high-wage innovation industries. The Rhode Island Innovation Tax Credit offers investors up to a 50% credit on eligible investments, with a maximum tax credit of $100,000.

Jobs Growth Act of 2005: Income Tax Reduction on Performance-Based Income
The Jobs Growth Act allows eligible businesses in any industry to offer their employees an exclusion of 50% of performance-based compensation from their Rhode Island gross income.

Bonus Program Private Participation
An employer who participates in the Bonus Program, which provides job training for former public assistance recipients, can qualify for a $250 tax credit per participant.

Child and Adult Daycare Tax Credit
A Rhode Island taxpayer that purchases or provides for adult or child day care services for adult family members or dependent children of the taxpayer's employees or to employees of its commercial tenants is allowed a tax credit.

Hazardous Waste Facilities Amortization
Rhode Island extends a business corporation tax amortization to include tangible personal property for the recycling, reuse or recovery of materials from the treatment of hazardous waste.

Hiring of Unemployed or Low-Income Residents
A tax credit of 40% of a newly-hired employee's first year wages (up to a maximum of $2,400) is allowed for businesses that employ and retain Rhode Island residents who were previously unemployed or receiving public assistance.

Natural Disaster Rebuilding
Manufacturers who have lost 60% or more of their facilities due to a natural disaster, resulting in the inability of active employees to continue production, may qualify for corporate income tax rate reductions under the Jobs Development Act for jobs retained or added.

Personal Income Tax Incentives

Top Personal Income Tax Rate
Rhode Island's top personal income tax rate is 5.99%.

Reduction of Long-Term Capital Gains Tax
For all capital assets purchased prior to January 1, 2002 and sold on or after January 1, 2007, the Rhode Island capital gains tax rate will be 8.33% of the Federal capital gains rate in effect prior to the enactment of the federal Economic Growth and Tax Relief Reconciliation Act of 2001(EGTRRA). Thereafter, the rate will be 1.67%.

Research and Development

Research & Development Expense Credit
Rhode Island offers a 22.5% tax credit for increases in qualified research expenses.

Research & Development Property Credit
A corporation is allowed a 10% tax credit for expenditures paid or incurred for the construction, reconstruction or acquisition of any property which is principally used or to be used for research and development in the experimental or laboratory sense.

Elective Deduction for Research & Development Facilities
In lieu of depreciation or the investment tax credit, a corporation is allowed a one year write-off for expenditures paid or incurred during the taxable year for the construction, reconstruction or acquisition of all qualifying depreciable tangible property used or to be used for the purpose of research and development in the experimental or laboratory sense.

Research & Development Sales Tax Exemptions
Sales or use of scientific equipment, computers, software and related items to a qualifying firm to be used predominantly for research and development purposes are exempt from Rhode Island Sales and Use Tax.

Sales Tax Exemptions

Manufacturing Fuels & Raw Materials
Sales of tangible personal property, computer software, and public utility services are exempt from sales tax when the property or service becomes a component part of a manufactured product for resale, or when the property or service is used in the process of manufacturing or processing products for resale.

Manufacturing Machinery & Equipment
Sales, storage, use, or other consumption of tools, dies, and molds, and machinery and equipment (including replacement parts), and related items to the extent used in an industrial plant in connection with the actual manufacture, conversion, or processing of tangible personal property are exempt from sales tax.

Scientific Equipment
Scientific equipment used for research and development by eligible firms is exempt from the state sales tax.

Pollution Control Equipment
Pollution control property and supplies are exempt from the state sales tax.

Aircraft, Boats and Aircraft Fuel
Rhode Island exempts the sale, storage, use or other consumption of new or used aircraft and aircraft parts from taxation. Fuel used for propulsion of aircraft is also exempt. Boats are also exempt from the sales tax.

Professional and Occupational Services
Professional services such as those provided by physicians, attorneys, accountants, engineers, and others are exempt from state sales tax.

Intangible Personal Property
Sales or transfers of intangible personal property such as stocks, bonds, accounts receivable, money, or insurance policies are exempt.

Small Business Incentives

Small Business Capital Investment Tax Incentives
Small business entities or venture capital partnerships may be eligible for tax deductions or modifications or capital gains exclusion.

State Enterprise Zones

State Enterprise Zones
Any business with a certified business facility within a state-designated Enterprise Zone or a Federally-designated Enterprise Community in Rhode Island may qualify for the Enterprise Zone Business Tax Credit. Only qualified c-corporations are eligible.

Rhode Island Economic Development Corporation (RIEDC)
315 Iron Horse Way, Suite 101
Providence, RI 02908
Phone: (401) 278-9100
Fax: (401) 273-8270

Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.

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