2014 -- S 2988

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LC005614

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2014

____________

A N   A C T

RELATING TO STATE AFFAIRS AND GOVERNMENT - TAXATION

     Introduced By: Senators DaPonte, Paiva Weed, Ruggerio, Algiere, and Walaska

     Date Introduced: May 07, 2014

     Referred To: Senate Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Section 42-64.5-3 of the General Laws in Chapter 42-64.5 entitled "Jobs

Development Act" is hereby amended to read as follows:

     42-64.5-3. Tax rate reduction. – (a) The rate of tax payable by an eligible company and

each of its eligible subsidiaries for any taxable year ending on or after July 1, 1995, on its net

income pursuant to the applicable income tax provisions of the general laws, including the

provisions of sections 44-11-2(a), 44-14-3(a), 44-14-4 and 44-17-1, or on its gross earnings

pursuant to section 44-13-4(4), shall be reduced by the amount specified in section 42-64.5-4; this

rate reduction shall be applied annually once to those eligible companies which are permitted by

law to file a consolidated state tax return and in the case of eligible companies not permitted by

law to file consolidated state tax returns, then the rate reduction shall be applied annually to each

eligible company and its eligible subsidiaries; provided, however, except as provided in section

42-64.5-7, should any eligible company fail to maintain in any taxable year after 1997 or, if

applicable, the third taxable year following the base employment period election set forth in

section 42-64.5-5, the number of units of new employment it reported for its 1997 tax year or, if

applicable, the third taxable year following the base employment period election set forth in

section 42-64.5-5; the rate reduction provided for in this chapter shall expire permanently.

     (b) Effective for tax years beginning on or after January 1, 2015, the rate imposed under §

44-11-2 shall be reduced from nine percent (9.0%) to seven percent (7.0%). An eligible company

subject to tax under § 44-11-2 shall calculate the rate payable by subtracting the amount specified

in § 42-64.5-4 from nine percent (9.0%). The total rate reduction under this section shall be

effective for tax years beginning on or after January 1, 2015.

     SECTION 2. Sections 42-64.14-10 and 42-64.14-11 of the General Laws in Chapter 42-

64.14 entitled "The I-195 Redevelopment Act of 2011" are hereby amended to read as follows:

     42-64.14-10. Life sciences tax rate reduction. -- The rate of tax payable by an eligible

life sciences company and each of its eligible subsidiaries for any taxable year beginning on or

after January 1, 2011, on its net income pursuant to the provisions of subsection 44-11-2(a), shall

be reduced by the amount specified in section 42-64.14-11; this rate reduction shall be applied

annually once to those eligible life sciences companies which are permitted by law to file a

consolidated state tax return or as part of a combined group and in the case of eligible companies

not permitted required by law to file consolidated state tax returns or as part of a combined group,

then the rate reduction shall be applied annually to each eligible life sciences company and its

eligible subsidiaries; provided, however, should any eligible life sciences company fail to

maintain in any taxable year after 2014 or, if applicable, the third taxable year following the base

employment period election set forth in section 42-64.14-12, the number of units of new

employment it reported for its 2014 tax year or, if applicable, the third taxable year following the

base employment period election set forth in section 42-64.14-12, the rate reduction provided for

in this chapter shall expire permanently.

     42-64.14-11. Reduction rate schedule. – (a) The amount of the rate reduction specified

in section 42-64.14-10 for any eligible life sciences company for each taxable year beginning on

or after January 1, 2012, shall be based upon the aggregate amount of new employment of the

eligible life sciences company and its eligible subsidiaries for each taxable year, and shall be

determined by multiplying the numerical equivalent of one-quarter of one percent (.25%) by the

number of units of new employment for each taxable year through the taxable year ending in

2014 or, if applicable, the third taxable year following the base employment period election set

forth in section 42-64.14-12; and for each taxable year thereafter, the number of units of new

employment reported for the taxable year 2014 or, if applicable, the third taxable year following

the base employment period election set forth in section 42-64.14-12; provided, however, the

amount of each rate reduction shall in no event be lower than three percent (3%).

     (b) Effective for tax years beginning on or after January 1, 2015, the rate imposed under §

44-11-2 shall be reduced from nine percent (9.0%) to seven percent (7.0%). An eligible company

subject to tax under § 44-11-2 shall calculate the rate payable by subtracting the amount specified

in § 42-64.5-4 from nine percent (9.0%). The total rate reduction under this section shall be

effective for tax years beginning on or after January 1, 2015.

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     SECTION 3. Sections 44-11-1, 44-11-2, 44-11-4, 44-11-11 and 44-11-14 of the General

Laws in Chapter 44-11 entitled "Business Corporation Tax" are hereby amended to read as

follows:

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

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

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

of the Internal Revenue Code;

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

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

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

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

Chapter 1 of the Internal Revenue Code; and

      (b) "Captive REIT" does not include:

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

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

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

indirectly, by:

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

item (i) of this subsection; or

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

or

      (C) A listed Australian Property Trust; and

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

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

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

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

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

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

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

person.

      (2) "Combined group" means a group of two (2) or more corporations in which more

than fifty percent (50%) of the voting stock of each member corporation is directly or indirectly

owned by a common owner or owners, either corporate or non-corporate, or by one or more of

the member corporations, and that are engaged in a unitary business.

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

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

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

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

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

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

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

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

foreign commerce, except:

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

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

companies;

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

provided in section 44-13-2.2;

      (iii) Insurance and surety companies;

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

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

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

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

general assembly of this state;

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

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

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

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

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

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

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

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

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

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

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

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

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

day of any month other than December.

     (6) "Member" means a corporation included in a unitary business.

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

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

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

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

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

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

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

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

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

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

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

outside this state.

     (8) "Tax haven" means a jurisdiction that, during the tax year in question has no, or

nominal effective tax on the relevant income and:

     (i) Has laws or practices that prevent effective exchange of information for tax purposes

with other governments on taxpayers benefiting from the tax regime;

     (ii) Has a tax regime which lacks transparency. A tax regime lacks transparency if the

details of legislative, legal or administrative provisions are not open and apparent, or are not

consistently applied among similarly situated taxpayers, or if the information needed by tax

authorities to determine a taxpayer's correct tax liability, such as accounting records and

underlying documentation, is not adequately available;

     (iii) Facilitates the establishment of foreign-owned entities without the need for a local

substantive presence, or prohibits these entities from having any commercial impact on the local

economy;

     (iv) Explicitly or implicitly excludes the jurisdiction's resident taxpayers from taking

advantage of the tax regime's benefits, or prohibits enterprises that benefit from the regime from

operating in the jurisdiction's domestic market; or

     (v) Has created a tax regime which is favorable for tax avoidance, based upon an overall

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assessment of relevant factors, including whether the jurisdiction has a significant untaxed

offshore financial/other services sector relative to its overall economy.

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

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

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

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

return is made.

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

chapter.

     (11) "Unitary business" means the activities of a group of two (2) or more corporations

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.

     (12) "United States" means the fifty (50) states of the United States, the District of

Columbia, the United States' territories and possessions.

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

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

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

year. For tax years beginning on or after January 1, 2015, each corporation shall annually pay to

the state a tax equal to seven percent (7.0%) of net income, as defined in § 44-11-11, qualified in

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

year.

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

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

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

for the taxable year:

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

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

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

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

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

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

activities.

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

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

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

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

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

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

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

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

the taxable year, plus:

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

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

exempt from taxation by this state; and minus

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

the taxable year.

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

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

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

income that is subjected to federal tax under subchapter S.

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

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

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

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

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

less than five hundred dollars ($500).

     44-11-4. Returns of affiliated groups of corporations. – For tax years beginning before

January 1, 2015, an An affiliated group of corporations may file a consolidated return for the

taxable year in lieu of separate returns; provided, that all the corporations which constitute the

affiliated group at any time during the period for which the return is made and which are subject

to taxation under this chapter shall consent to the making of the consolidated return. The tax

administrator may prescribe rules and regulations as he or she may deem necessary in order that

the tax liability of any affiliated group of corporations making a consolidated return and of each

corporation in the group, liable to taxation under this chapter, both during and after the period of

affiliation, may be determined, computed, assessed, collected, and adjusted in a manner as clearly

to reflect the net income and the corporate excess and to prevent avoidance of tax liability.

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

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

laws of the United States, plus:

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

      (ii) Any specific exemptions;

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

allowed under the Internal Revenue Code for the taxable year;

      (iv)(iii) The tax imposed by this chapter;

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

paragraph (f) of this section, and minus

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

exempt from taxation by this state; and

      (vii)(v) The federal net operating loss deduction.

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

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

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

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

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

of the foreign tax credit.

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

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

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

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

section and section 44-11-11.1;

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

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

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

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

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

for the five (5) succeeding taxable years.

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

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

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

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.

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

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

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

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

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

      (e) As used in this section:

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

Code.

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

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

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

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

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

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

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

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

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

service marks, copyrights and similar types of intangible assets.

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

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

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

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

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

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

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

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

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

Code.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

have been met.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

chapter 44-11.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

section.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

any encumbrance thereon;

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

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

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

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being thus attributable, receipts from:

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

business) where:

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

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

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

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

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

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

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

assets located in the state;

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

and

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

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

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

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

activities or transactions within this state during the taxable year.

     (b) For tax years beginning on or after January 1, 2015, all taxpayers organized under

subchapter C of the Internal Revenue Code deriving income from sources both within and outside

of this state, or engaging in any activities or transactions both within and outside of this state for

the purpose of profit or gain, its net income shall be apportioned to this state by means of an

allocation fraction to be computed as a simple arithmetical of the following factors:

     (1) The factor shall represent that part of the taxpayer's total receipts from sales or other

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

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

attributable, receipts from:

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

business) where:

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

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

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

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

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

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

the ordinary course of business as described in subsection (b)(1)(i) of this section, or other capital

assets located in the state;

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

and

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

     (vii) Except as otherwise provided under this section, for a taxpayer that is a unitary

business group, sales include sales in this state of every member included in the unitary business

group without regard to whether the member has nexus in this state. Sales between members

included in a unitary business group must be eliminated in calculating the sales factor.

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

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

calculation described in this section.

     SECTION 4. Chapter 44-11 of the General Laws entitled "Business Corporation Tax" is

hereby amended by adding thereto the following section:

     44-11-4.1. Combined reporting. -- (a) For tax years beginning on or after January 1,

2015, each corporation which is part of an unitary business with one or more other corporations

must file a return, in a manner prescribed by the tax administrator, for the combined group

containing the combined income, determined under subsection (b) of this section, of the

combined group.

     (b) An affiliated group of C corporations, as defined in section 1504 of the Internal

Revenue Code, may elect to make a consolidated return with respect to the combined reporting

requirement imposed by § 44-11-4.1(a) for the taxable year in lieu of an unitary business group.

The making of a consolidated return shall be upon the condition that all C corporations which at

any time during the taxable year have been members of the affiliated group consent to be

included in such return. The making of a consolidated return shall be considered as such consent.

Such election may not be revoked in less than five (5) years unless approved by the tax

administrator.

     (c) The use of a combined report does not disregard the separate identities of the taxpayer

members of the combined group. Each taxpayer member is responsible for tax based on its

taxable income or loss apportioned to this state.

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

and apportionment factors of any corporation not incorporated in the United States (a "non US

corporation") if the sales factors outside the United States is eighty percent (80%) or more. If a

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non US corporation is includible as a member in the combined group, to the extent that such non

US 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 are defined as a tax haven.

     (e) Net operating losses; a tracing protocol shall apply to net operating losses created

before January 1, 2015. Such net operating losses shall be allowed to offset only the income of

the corporation that created the net operating loss; the net operating loss cannot be shared with

other members of the combined group. No deduction is allowable for a net operating loss

sustained during any taxable year in which a taxpayer was not subject to the Rhode Island

business corporation tax. For net operating losses created in tax years beginning on or after

January 1, 2015 such loss allowed shall be the same as the net operating loss deduction allowed

under 26 U.S.C. 172 for the combined group, except that:

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

reflect the inclusions and exclusions from entire net income required by §§ 44-11-11(a) and 44-

11-11.1;

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

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

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

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

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

the five (5) succeeding taxable years.

     (f) Tax Credits and Tax Rate Reduction.

     (1) A tracing protocol shall apply to Rhode Island tax credits earned before tax years

beginning on or before January 1, 2015. Such Rhode Island tax credits shall be allowed to offset

only the tax liability of the corporation that earned the credits; the Rhode Island tax credits cannot

be shared with other members of the combined group. Rhode Island tax credits earned in tax

years beginning on or after January 1, 2015, may be applied to other members of the group.

     (2) The tax rate reductions authorized under chapter 64.5 of title 42 (Jobs Development

Act) and chapter 64.14 of title 42 (I-195 Redevelopment Act of 2011) shall be allowed against the

net income of the entire combined group.

     SECTION 5. Section 44-11-45 of the General Laws in Chapter 44-11 entitled "Business

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Corporation Tax" is hereby repealed.

     44-11-45. 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 owner or owners are members of the combined group.

      (2) "Member" means a corporation included in a unitary business.

      (3) "Unitary business" means the activities of a group of two (2) or more corporations

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, the United States' territories and possessions.

      (b) Combined reporting.

      (1) As part of its tax return for a taxable year beginning after December 31, 2010 but

before January 1, 2013, each corporation which is part of an 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 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) The difference in tax owed as a result of using the single sales factor apportionment

method under this paragraph as compared to the tax owed using the current three (3) factor

apportionment method under section 44-11-14;

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

      (iv) 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 sections 44-13-4, 44-14-3, 44-14-4 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 corporation incorporated in a foreign jurisdiction (a "foreign

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

group, to the extent that such foreign 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 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 and development progress report.

      (c) Any corporation which is required to file a report under this section which fails 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, 2014, based on the information

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

chairpersons 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

business corporation tax statute to a combined method of reporting.

     SECTION 6. Section 44-26-2.1 of the General Laws in Chapter 44-26 entitled

"Declaration of Estimated Tax by Corporations" is hereby amended to read as follows:

     44-26-2.1. Declaration -- Due date -- Payment -- Interest. -- (a) Notwithstanding any

general or specific statute to the contrary, every corporation having a taxable year ending

December 31, 1990, or thereafter, shall file a declaration of its estimated tax for the taxable year

ending December 31, 1990, or thereafter, if its estimated tax can reasonably be expected to

exceed five hundred dollars ($500). The declaration, sworn to by the officer of the corporation

who is required to sign its return under any of the chapters and section mentioned in section 44-

26-1 shall contain the pertinent information and be in the form that the tax administrator may

prescribe. The entire amount of the estimated tax shall constitute the amount of the advance

required to be paid.

     (b)(1) Except as provided in subdivision (2) of this subsection, the declaration of

estimated tax required of corporations by subsection (a) of this section shall be filed as follows:

If the requirements of subsection (a) of this section The declaration shall be filed on or

are first met: before:

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the first day of the third month of the taxable year the fifteenth day of the third month of

after the first day of the third month and before the taxable year;

the first day of the sixth month of the taxable year the fifteenth day of the sixth month of

the taxable year.

     (2) The declaration of estimated tax required of corporations subject to section 27-3-38

relating to surplus line brokers premium tax or under any special act or acts in lieu of the

provisions of that section or in amendment of or in addition to that section shall be filed as

follows:

If the requirements of subsection (a) of this section The declaration shall be filed on or

are first met: before:

Before the first day of the fourth month of the the thirtieth day of the fourth month

of the taxable year taxable year

After the first day of the fourth month and

before the first day of the sixth month of the

taxable year the thirtieth day of the sixth month of

the taxable year

After the first day of the sixth month and

before the first day of the tenth month of the the thirtieth day of the tenth month of

taxable year the taxable year

After the first day of the tenth month and

before the first day of the twelfth month of the

of the taxable year the thirty-first day of the twelfth month

taxable year

      (c) An amendment of a declaration may be filed in any interval between installment

dates prescribed for the taxable year, but only one amendment may be filed in each interval.

     (d) The tax administrator may grant a reasonable extension of time, not to exceed thirty

(30) days, for filing a declaration.

     (e) (1) The amount of the advance based on the estimated tax declared under subsection

(a) of this section by corporations described in subdivision (b)(1) of this section shall be paid as

follows:

     (i) If the declaration is filed on or before the fifteenth (15th) day of the third (3rd) month

of the taxable year, the advance shall be paid in two (2) installments. The first installment in the

amount of forty percent (40%) of the estimated tax shall be paid at the time of the filing of the

declaration. The second and last installment in the amount of sixty percent (60%) of the estimated

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tax shall be paid on or before the fifteenth (15th) day of the sixth (6th) month of the taxable year.

     (ii) If the declaration is filed after the fifteenth (15th) day of the third (3rd) month of the

taxable year and is not required by subsection (b) of this section to be filed on or before the

fifteenth (15th) day of the third (3rd) month of the taxable year, but is required to be filed on or

before the fifteenth (15th) day of the sixth (6th) month, the advance shall be paid in full at the

time of filing.

     (2) The amount of the advance based in the estimated tax declared under subsection (a) of

this section by corporations listed in subdivision (b)(2) of this section shall be paid as follows:

     (i) If the declaration is filed on or before the thirtieth (30th) day of the fourth (4th) month

of the taxable year, the advance shall be paid in four (4) equal installments. The first installment

shall be paid on or before the thirtieth (30th) day of the fourth (4th) month of the taxable year,

and the second (2nd), third (3rd), and fourth (4th) installments shall be paid on or before the

thirtieth (30th) day of the sixth (6th) month, the thirtieth (30th) day of the tenth (10th) month, and

the thirty-first (31st) day of the twelfth (12th) month of the taxable year, respectively.

     (ii) If the declaration is filed before the thirtieth (30th) day of the sixth (6th) month of the

taxable year, the advance shall be paid in three (3) equal installments. The first installment shall

be paid on or before the thirtieth (30th) day of the sixth (6th) month of the taxable year and the

second (2nd) and third (3rd) installments shall be paid on or before the thirtieth (30th) day of the

tenth (10th) month and the thirty-first (31st) day of the twelfth (12th) month of the taxable year

respectively.

     (iii) If the declaration is filed on or before the thirtieth (30th) day of the tenth (10th)

month of the taxable year, the advance shall be paid in two (2) equal installments. The first

installment shall be paid on or before the thirtieth (30th) day of the tenth (10th) month of the

taxable year and the second installment shall be paid on or before the thirty-first (31st) day of the

twelfth (12th) month of the taxable year.

     (iv) If the declaration is filed after the time prescribed in subdivision (b)(2) of this

section, including cases in which an extension of time for filing the declaration has been granted,

there shall be paid at the time of the filing all installments of the advance which would have been

payable on or before that time if the declaration had been filed within the time prescribed in

subdivision (b)(2) of this section.

     (f) If the declaration is filed after the time prescribed in subsection (b) of this section

including cases in which an extension of time for filing the declaration has been granted,

paragraph (e)(1)(ii) of this section does not apply, and there shall be paid at the time of the filing

all installments of the advance which would have been payable on or before that time if the

LC005614 - Page 18 of 20

declaration had been filed within the time prescribed in subsection (b).

     (g) If any amendment of a declaration is filed, the installment payable on or before the

fifteenth (15th) day of the sixth (6th) month, if any, or in the case of corporations licensed as

surplus line brokers under section 27-3-38, the installments payable on or before the thirtieth

(30th) days of the sixth (6th) or tenth (10th) month and thirty-first (31st) day of the twelfth (12th)

month are ratably increased or decreased, as the case may be, to reflect the increase or decrease,

as the case may be, in the estimated tax by reason of the amendment.

     (h) At the election of the corporation, any installment of the advance may be paid prior to

the date prescribed for payment.

     (i) In the case of any underpayment of the advance by a corporation, except as provided

in this section, there is added to the tax due under chapters 11 -- 15 and 17 of this title, or section

27-3-38, for the taxable year an amount determined at the rate described in section 44-1-7 upon

the amount of the underpayment for the period of the underpayment. For the purpose of this

subsection, the "amount of the underpayment" is the excess of the amount of the installment or

installments which would be required to be paid if the advance payments were equal to eighty

percent (80%) of the tax shown on the return for the taxable year. For the purposes of this

subsection, the "period of the underpayment" is the period from the date the installment was

required to be paid to the date prescribed under any of the chapters previously mentioned in this

section for the payment of the tax for the taxable year or, with respect to any portion of the

underpayment, the date on which the portion is paid, whichever date is the earlier. A payment of

the advance on the fifteenth (15th) day of the sixth (6th) month, or for section 27-3-38 on the

thirtieth (30th) day of the sixth (6th) month, of the taxable year is considered a payment of any

previous underpayment only to the extent that the payment exceeds the amount of the installment

due on the fifteenth (15th) day of the sixth (6th) month, or for section 27-3-38 on the thirtieth

(30th) day of the sixth (6th) month, of the taxable year.

     (j) Notwithstanding the provisions of this section, the addition to the tax with respect to

any underpayment of any installment is not imposed if the total amount of all payments of the

advance made on or before the last date prescribed for payment of the installment equals or

exceeds the amount which would have been required to be paid on or before that date if the

amount of the advance was an amount equal to one hundred percent (100%) of the tax computed

at the rates applicable to the taxable year but otherwise on the basis of the fact shown on the

return of the corporation for and the law applicable to the preceding taxable year.

     (k) This section is effective for estimated payments being made by corporations for

taxable years ending on or after December 31, 1990.

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     (l) Notwithstanding any other provisions of this section any taxpayer required to make an

adjustment in accordance with section 44-11-11(f) in a tax year beginning in calendar year 2008

shall compute estimated payments for that tax year as follows: (1) The installments must equal

100% of the tax due for the prior year plus any additional tax due for the current year adjustment

under section 44-11-11(f), or (2) That installments must equal 100% of the current year tax

liability.

     (m) Notwithstanding any other provisions of this section any taxpayer required to file a

combined report in accordance with § 44-11-4.1 in a tax year beginning on or after January 1,

2015 shall compute estimated payments for that tax year as follows:

     (1) The installments must equal one hundred percent (100%) of the tax due for the prior

year plus any additional tax due to the combined report provisions under § 44-11-4.1; or

     (2) The installments must equal one hundred percent (100%) of the current year tax

liability.

     SECTION 7. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO STATE AFFAIRS AND GOVERNMENT - TAXATION

***

     This act would reduce the annual business corporation tax from nine percent (9%) to

seven percent (7%) for tax years commencing on or after January 1, 2015. The act would also

revise the reporting requirements and procedures for corporations affiliated or involved in a

combined group or a unitary business, which terms are defined in the act.

     This act would take effect upon passage.

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