Rhode Island offers an increasingly competitive, predictable business environment. Thanks to our governor and legislature's leadership on pension and Medicaid reform, we have reined in structural costs and flattened their trajectories. As a result, we can ensure businesses a stable tax structure.
Rhode Island has not raised its top personal income, corporate income or sales tax rates in a generation. Instead, we recently lowered our top personal income tax rate (from 9.9% to 5.99%), as well as our corporate tax rate (from 9% to 7%). Rhode Island's corporate tax rate is now the lowest in the Northeast.
A strong signal of the state's commitment to economic growth, Rhode Island's legislature passed, nearly unanimously and in record time, a powerful suite of new programs aimed at growing businesses and creating jobs as proposed by Governor Raimondo. These incentives, benefiting businesses of every size, are some of the most significant and comprehensive in the Northeast, if not the nation.
For some taxpayers, the actual rate could be lower, depending on certain factors.
In addition, effective for tax years beginning on or after January 1, 2015, C-Corporations will use a single sales factor to apportion income to Rhode Island (in lieu of the standard three-factor apportionment formula). The annual corporate minimum tax is $450.
Beginning January 2011, Rhode Island's personal income tax structure has been modified to lower the personal income tax rates in the state. Highlights of the legislation include:
General Business Incentives
Anchor Institution Tax Credit
Compensates existing Rhode Island businesses that attract suppliers, service providers and/or major customers to relocate to Rhode Island.
Eligible relocations must have 10 jobs 2015-2018; 25 jobs 2019-2020
Sector, location, demonstrated role in relocation decision, impact on state, prevailing brokerage fee and ROI all factors in award
Industry Cluster Grants
Competitive grants administered by the commerce corporation to start, grow, or improve industry sector partnerships, encouraging companies to work together to solve problems, exchange technology and share talent.
Competitive startup and technical assistance grants ($75-250K)
Competitive program grants ($100-500K) to businesses that enhance cluster growth, effectiveness, etc.
Innovation Tax Credit
Rhode Island offers a tax credit to encourage investment in high-growth, high-wage innovation industries. The RI Innovation Tax credit offers up to a 50% credit on qualified capital investments, with a maximum tax credit of $100,000. To be eligible to apply for the credit, a company must produce traded goods or services, have annual gross revenues of less than $1 million in the prior two calendar years, and must be categorized as one of the following industries: biotechnology and life sciences; communication and information technology; financial services; marine and defense manufacturing; professional, technical and educational services; and industrial and consumer product manufacturing and design.
The credit may be carried forward for a period not to exceed three years. Companies must apply for the credit prior to the investment. Once an application is approved, the company has up to 12 months to invest and provide proof of investment to the Commerce RI Board of Directors. Upon completion of this process, Commerce RI will certify the company's eligibility for the credit with the Rhode Island Division of Taxation.
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. In return, the company pays a 5% tax each year on the performance-based income paid that year. An application for certification would be filed with the Rhode Island Commerce Corporation.
In order to qualify, a company must hire 100 new employees in the state and add at least $10 million to its state payroll. Those new workers must earn at least 125% of the state's average annual compensation.
Employees cannot have been previously employed by the company. The tax cut applies only to bonus or incentive income, not base salary.
Investment Tax Credit - Non-Manufacturing Firms
Firms in certain non-manufacturing industries are also able to take the 10% investment tax credit on owned or leased tangible personal property and other intangible property placed in service on or after January 1, 1998.
The 10% credit is not allowed on buildings, structural components, motor vehicles and furniture for non-manufacturing firms. The investment tax credit may not reduce the taxpayer's liability below 50% of the taxpayer's total tax liability before the credits for that year. Unused credits may be carried forward up to seven years.
Research and Development
Provides financial/technical assistance to small businesses (fewer than 500 employees) in innovation sectors. Competitive awards ($5,000-$50,000) to purchase R&D technical assistance from state and regional higher-ed institutions.
Innovate Rhode Island Small Business Fund
Provides grants of up to $3,000 to companies developing innovative products - offsetting the costs associated with preparing competitive Phase I federal SBIR/STTR applications - and matching grants of up to $45,000 to pursue Phase II awards.
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.
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.
Income Apportionment - Depository Institutions
Income of banks having a regular place of business outside Rhode Island are entitled to apportion 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.
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 (32 acres at the Port of Providence, the Airport Business Park adjacent to T.F. Green Airport in Warwick, Rhode Island and the Quonset - Davisville Port) which provide a variety of tax benefits, including: duty exemption on re-exports, duty elimination on manufacture, re-packaging, waste and scrap; relief from inverted tariffs; no duty on rejected or defective parts; no duty charged on merchandise while it is in a foreign trade zone; no duty on domestic content or value added and relief from local property taxes for foreign merchandise stored or held in a FTZ for export.
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.
Real Estate Incentives
Rebuild Rhode Island Tax Credit
Provides capital to qualified real estate projects that demonstrate a "financing gap".
Up to 20% of eligible project costs; 30% if certain criteria are met; minimum project cost of $5 million
Sales tax exemption on building materials, furnishings and equipment
Credits payable in 5 years following completion (certificate of occupancy)
Tax Increment Financing
Provides capital to eligible projects by rebating new state tax revenue generated.
Projects must demonstrate need through a "financing gap"
Reimbursements may not exceed 30% of total project costs (exemption for public infrastructure/utilities) or 75% of incremental revenue generated
I- 195 Redevelopment Fund
Adjacent to Providence's vibrant downtown, world-renowned universities and cutting-edge medical centers, the I-195 Redevelopment District offers an unparalleled development opportunity. The $25 million I-195 Redevelopment Fund has been created to finance projects that have the potential to catalyze development in the district.