Rhode Island Franchise Tax: Everything You Need to Know
Rhode Island franchise tax was owed by Rhode Island corporations and was due before the 15th day of the third month after the close of the business's tax year.3 min read
Rhode Island franchise tax was owed by Rhode Island corporations and was due before the 15th day of the third month after the close of the business's tax year. The amount due for the franchise tax was dependent on the amount of authorized shares of stock, but the minimum franchise tax payment was $500.
The franchise tax was repealed beginning January 2015. Because of the repeal, S corporations are subject to a minimum tax under the statute for corporate tax, instead of a franchise tax. These changes were forecasted to increase business corporation tax revenue in the state in 2015 by 2.7 million.
Rhode Island also requires that businesses file an annual report yearly by March 1. The filing fee is $50. The tax and annual report is required by LLC's, S Corporations, and C Corporations.
Another requirement of businesses in Rhode Island is an EIN number, which is a federal tax identification number. Most banks also require an EIN number to open a business checking account. Rhode Island does not require businesses to obtain a state identification number as well.
In Rhode Island, business licenses or permits are also required by most businesses. Corporations that are deemed S corporations federally do not also need a state S corporation election.
There are several items required to be kept by Rhode Island businesses in their corporate offices:
- Accurate books and record of accounts
- Minutes of proceedings of shareholder meetings, committees, and board of director meetings
- A list of shareholder names, addresses, number and class of shares held
The Rhode Island governor signed a law with major changes to the structure of Rhode Island corporate income and franchise tax effective January 1, 2015. The law aligned Rhode Island business requirements with that of other states by implementing mandatory combined reporting for unitary businesses, single sales factor apportionment for C corporations, and sales of services to have market-based sourcing.
As of 2015, Rhode Island businesses are required to report income tax on a combined basis. This means that for companies that share greater than 50% common ownership, the income tax must be filed for the combined group as one. There are several exceptions for certain businesses that are considered to be exclusions to this rule. Filing combined income tax does not, however, disregard the businesses as separate entities and each entity is still responsible for tax based on its own taxable income. Under this act, businesses can also elect to be considered part of a unitary group, even if a unitary relationship does not exist.
Net operating losses occurring before this law went into place, under this act, cannot be shared among the unitary group, but must be tracked separately and only used to offset the income of the corporation that had the loss. Very similarly, any tax credits from before this law was enacted needs to be tracked to the individual company and also cannot be shared among the group.
In Rhode Island, both businesses and individuals need to pay income tax as well. As of January 2015, the corporate tax rate was changed to 7% with a minimum of $500. Before 2015, the corporation income tax rate is the greater of 9% of net taxable income or $2.50 for every $10,000 of authorized capital stock. The minimum payment is $250.
Rhode Island personal income tax rates are as follows:
- 3.75% for 0-33,950
- 7% for 33,950-82,250
- 7.75% for 82,250-171,550
- 9% for 171,550-372,950
- 9.9% for 372,950 +
The Rhode Island standard deductions and personal exemptions are:
- $5, 450 standard deduction for a single filing
- $9,100 standard deduction for a joint filing
- $3,500 personal exemption for singles and dependents
Also pursuant to the changes for 2015, Rhode Island is using a single sales factor formula for corporate income tax apportionment, instead of the prior three factor formula. The act also requires that market based pricing applies to sales of services by C corporations. It is arguable that companies not designated as C corporations may not be required to abide by this.
Along with these big changes to corporate taxation, this law includes changes to estate taxes, gasoline tax, real estate tax, earned income tax credit, and several other changes.
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