Apportionment of Net Income Regulation CT 15-04

Regulation Authority:

R.I. Gen. Laws Sections 44-11-13 through to and including 44-11-15

Purpose and Reason:

The purpose of this rule making is to implement Rhode Island General Laws (RIGL) Sections 44-11-13 through 44-11-15. This amendment provides guidance regarding Apportionment of Net Income for Business Corporation Tax. There is also a change in style and format. Regulation CT 15-04, Apportionment of Net Income, replaces Regulation CT 04-04, Allocation of Income and Net Worth. The new regulation implements style and formatting changes to conform to a standardized presentation scheme. A significant portion of the existing text from Regulation 04-04 remains unchanged, but there are a number of additions meant to implement significant changes to Rhode Island’s corporate income tax framework and the introduction of mandatory combined reporting for tax years beginning January 1, 2015 and thereafter. In Rule 5, many additional definitions have been established to clarify the meaning of certain key terms. Rule 6 has been included to explain applicable principles of apportionment in the corporate income tax area, and how such principles apply to entities in tax years before and after the introduction of combined reporting. Rule 7 is included to specifically acknowledge the introduction of mandatory combined reporting and sets forth some of the basic required principles when combined reporting applies. In Rule 8, a comprehensive approach to single sales factor apportionment and market based sourcing, as required under mandatory combined reporting, is set forth with numerous examples. These apportionment rules cover numerous forms of receipts, including but not limited to the sale of tangible personal property and various forms of services and intangible property. In Rule 9, the Regulation preserves the traditional three-factor apportionment formula in certain applicable circumstances. Similarly, in Rule 10, the Regulation preserves the applicability of special apportionment formulas for certain industries prior to the tax year beginning January 1, 2015. Pursuant to statute, Rule 11 outlines the applicability of special apportionment formulas in limited circumstances for tax years beginning January 1, 2015 and thereafter, and eliminates special apportionment formulas in some instances. Rule 12 sets forth the Tax Administrator’s authority to vary methods of apportionment and the process for resolution of disputes related to the method of apportionment applied. In Rule 13, the Division of Taxation’s policy with regard to record-keeping requirements is clarified. Rule 15 sets forth a series of comprehensive examples relating to the application of single sales factor apportionment and market based sourcing.