Section 280-RICR-20-25-10.16 - Tax Credits; Tracing; JDA; Life SciencesA. For purposes of this regulation, a tracing protocol shall apply to all Rhode Island corporate income tax credits. The tracing protocol is the same as the one which applies to NOLs (see § 10.13 of this Part).B. Rhode Island tax credits earned before January 1, 2015, shall be allowed to offset only the tax liability of the corporation that earned the credits; such credits cannot be shared with other members of the combined group.C. Rhode Island tax credits earned in tax years beginning on or after January 1, 2015, may be applied to other members of the group unless prohibited under the terms of this Part. D. Jobs Development Act. 1. The Jobs Development Act rate reduction under R.I. Gen. Laws Chapter 42-64.5 applies to eligible companies filing as part of a combined group and to a group making the federal consolidated election for Rhode Island combined reporting purposes. The reduction shall be allowed against the net income of the entire combined group for credits earned in tax years beginning on or after January 1, 2015.2. For tax year 2014, the corporate income tax rate is nine percent (9.0%), and the amount of the Jobs Development Act rate reduction cannot exceed six (6) percentage points. Thus, the eligible corporation's tax rate cannot be less than three percent (3.0%).3. For tax year 2015, the corporate income tax rate is seven percent (7.0%), and the amount of the Jobs Development Act rate reduction cannot exceed four (4) percentage points. Thus, the eligible corporation's tax rate cannot be less than three percent (3.0%).4. As a result of legislation enacted on June 30, 2015 (R.I. Gen Laws § 44-48.3-12), the tax rate reduction provision allowed under the Jobs Development Act is discontinued as of July 1, 2015. However, any company that has qualified for a rate reduction under the Jobs Development Act before July 1, 2015, will be allowed to maintain the rate reduction in effect as of June 30, 2015, although no additional rate reduction under the program will be allowed.E. Life Sciences Rate Reduction 1. The life sciences rate reduction under the I-195 Redevelopment Act of 2011, R.I. Gen. Laws Chapter 42-64.14, applies to eligible companies filing as part of a combined group and to a group making the federal consolidated election for Rhode Island combined reporting purposes. The reduction shall be allowed against the net income of the entire combined group for credits earned in tax years beginning on or after January 1, 2015.2. For tax year 2014, the corporate income tax rate is nine percent (9.0%), and the amount of the life sciences rate reduction cannot exceed six (6) percentage points. Thus, the eligible corporation's tax rate cannot be less than three percent (3.0%).3. For tax year 2015, the corporate income tax rate is seven percent (7.0%), and the amount of the life sciences rate reduction cannot exceed four (4) percentage points. Thus, the eligible corporation's tax rate cannot be less than three percent (3.0%). Corporate Income Tax Rate Reduction |
Tax Year 2014 | Tax Year 2015 |
Corporate income tax rate: | 9.00% | 7.00% |
Maximum rate reduction | (6.00%) | (4.00%) |
Tax rate cannot be less than: | 3.00% | 3.00% |
Applies to Jobs Development Act rate reduction under RIGL Chapter 42-64.5 and life sciences rate reduction (The I-195 Redevelopment Act of 2011) under RIGL Chapter 42-64.14. |
F. Departing member of combined group. 1. Even though a tax credit (and a credit carryforward) may sometimes be shared among the taxable members of a combined group, as described above, the credit nonetheless remains the property of the taxpayer that initially generated the credit.2. In the event that a taxable member of a combined group ceases to be a member of the combined group, any credit carryforward owned by such taxpayer is no longer available for use by the other taxable members of the combined group with which the taxpayer was previously affiliated. In such a situation, if the taxpayer becomes a member of a new combined group, the taxpayer may not share the credit with the taxable members of its new combined group unless one of the taxable members of the new combined group was also a member of the taxpayer's combined group during the year that the credit was generated and all other requirements described in § 10.16 of this Part and in Rhode Island General Laws are met.3. In the event that a taxpayer that has a credit carryforward becomes a member of a new combined group, tracing protocol rules shall apply; any amount of credit carryforward that cannot be applied because of these limitations shall be carried forward consistent with the rules and limitations described in § 10.16 of this Part and in Rhode Island General Laws.4. In the event that a member of a combined group has a credit carryforward and subsequently takes part in a merger or consolidation, the credit carryforward will be lost if, for example, the member liquidates or terminates as a result of the merger or consolidation.G. Tax credit recapture. 1. In the event that a taxpayer generates a credit for a tax year beginning on or after January 1, 2015, and then subsequently disposes of the associated property, or where the property otherwise ceases to be in qualified use within the meaning of the applicable credit statute, recapture of the credit shall be determined pursuant to applicable Rhode Island statutes and regulations based upon the total credit previously taken by the taxpayer and its combined group members. a. Example: (1) In general, a business that builds, acquires, constructs, erects, or reconstructs a building for use chiefly in the production process is allowed a four percent (4%) investment tax credit against the Rhode Island corporate income tax.(2) Recapture of the investment tax credit is required where property on which a credit has been taken is disposed of or ceases to be in qualified use prior to the end of its useful life, except: (AA) where property was in qualified use for its entire useful life, or(BB) where property was in qualified use for more than twelve (12) consecutive years.(3) In such a case, the recapture formula is: tax credit taken on property ceasing to qualify times a fraction: the numerator is the useful life of property in months minus the qualified use in months; the denominator is the useful life of property in months.(4) The formula for recapture computation is expressed as follows: Recapture = |
Tax credit taken on property ceasing to qualify, times: |
(useful life of property in months - qualified use in months) / (useful life of property in months) |
In this example, XYZ Corp. is treated as a C corporation for federal income tax purposes and is part of a combined group whose members are engaged in a unitary business and which is subject to Rhode Island combined reporting. |
XYZ Corp., a calendar-year corporation, acquires a five-story building, including structural components, (each story of equal square footage) on January 1, 2015. The building's basis is $100,000. The building has a 20-year life. XYZ Corp. rents out or leases out one floor. XYZ Corp. uses the remaining four floors: three of them for production, one for administration and distribution. Thus, of the five stories in the building, four are for qualified use; one is not. |
Investment Tax Credit = 4% x ($100,000 - $20,000) = $3,200. |
On January 1, 2016, XYZ Corp. rents out a floor that it had previously been using in administration and distribution. Thus, one of the four floors it had been using has fallen out of qualified use - and recapture is required. Recapture (expressed as "R" below) is computed as follows: |
R = ($3,200 x 1/4) x (240 months - 12 months) |
240 months |
R = $800 x 95% R = $760 |
b. Example: The facts and circumstances are the same as above, except that XYZ Corp. on January 1, 2016, rents out two floors that it had previously used in production. XYZ Corp. is therefore renting out three floors and using the remaining two floors: one for production, one for administration and distribution. |
Because the entire building is not used more than fifty percent (50%) in production, there is a recapture of the entire remaining investment credit, computed as follows: R = ($3,200 x 4/4) x (240 months - 12 months) |
240 months |
R = $3,200 x 95% R = $3,040 |
In both examples, because the credit was generated on or after January 1, 2015, by a member of the combined group (in this case, XYZ Corp.), recapture is the responsibility of the entire group. |
2. § 10.16 of this Part applies even if the taxpayer first leaves the combined group, then in a subsequent year disposes of the qualified property or otherwise causes recapture, and therefore in such subsequent tax year is no longer included in a combined group with the corporations whose use of the credit must be considered for purposes of recapture.3. Where a taxpayer generates a credit for a tax year beginning on or after January 1, 2015, there shall be no recapture if the taxpayer subsequently transfers the qualified property to another taxable member of its combined group with which the credit could be shared in accordance with the terms and conditions of § 10.16 of this Part. However, in this case, if the transferee leaves the combined group or subsequently transfers the property outside the combined group or to a member of the combined group with which the credit cannot be shared, there shall be recapture of the credit on the part of the taxpayer that generated the credit based upon the total credit previously taken by the combined group members. In any other case where a Rhode Island credit that is subject to recapture can be shared amongst combined group members, the recapture shall be evaluated in a similar manner.280 R.I. Code R. 280-RICR-20-25-10.16