Rhode Island Incentives and Workforce Development Guide
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Corporate Tax Incentives
Innovation Tax Credit: Rhode Island offers a tax credit to encourage investment in high-growth, high-wage innovation industries. The Rhode Island 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 innovation 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 (RIGL 42-64.11-1) 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.
Corporate Tax Rate Reduction
Corporate income tax rate cut: The corporate income tax rate under Rhode Island General Laws (RIGL) § 44-11-2 will be 7%, down from the current 9%. The rate reduction of two percentage points will take effect for tax years beginning on or after January 1, 2015. For some taxpayers, the actual rate could be lower, depending on certain factors (such as the Jobs Development Act rate reduction).
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 remains at $500.
Effective: Tax years beginning on or after January 1, 2015
Citation: RIGL 44-11
Jobs Development Act: Corporate Income Tax Reduction for Job Creation. The Jobs Development Act (RIGL 42-64.5-1) provides an incremental reduction in the corporate income tax rate (currently 9% – set to be lowered to 7% effective January, 2015 – the lowest top corporate tax rate in the Northeast) to companies that create new employment in Rhode Island over a three-year period. For tax years beginning before January 1, 2015 the reduction equals:
- A quarter percentage point (0.25%) for every 10 new jobs created, for those companies having a baseline employment below 100; or
- A quarter percentage point (0.25%) for every 50 new jobs created, for those companies having a baseline employment above 100.
For years beginning on or after January 1, 2015 the reduction equals:
- A two tenths of one percentage point (0.20%) for every 10 new jobs created, for those companies having a baseline employment below 100; or
- A two tenths of one percentage point (0.20%) for every 50 new jobs created, for those companies having a baseline employment above 100.
The corporate income tax may be reduced to as low as 3%. The rate reduction is permanent, as long as the company maintains the same level of employment that it had at the end of the third year following the company’s self-selected base period. New employees must be paid at least 250% of the state minimum wage (the current state minimum wage is $9.00/ hour). This benefit is subject to a finding of revenue neutrality and vote of the Commerce RI board.
Manufacturing Investment Tax Credit (4%): A manufacturer is allowed a 4% tax credit against the Rhode Island corporate income tax on buildings and structural components, as well as machinery and equipment, which are owned or leased and are principally used in the production process (including storage). Property principally used for administration and distribution purposes is not eligible. The investment tax credit may not reduce the taxpayer’s liability below the minimum business tax. Unused credits may be carried forward for up to seven years.
High Performance Manufacturing Investment Tax Credit (10%): High-performance manufacturers are allowed a 10% investment tax credit against their corporate tax on the cost of qualified lease amounts for tangible personal property or other tangible property, as well as buildings and structural components owned, leased to own or leased for at least 20 years. Under current law, credits are transferable between related entities. Unused credits may be carried forward up to 15 years for biotechnology firms and up to seven years for other types of manufacturers.
To meet the definition of a high-performance manufacturer, the firm must be in SIC codes 28, 30, 34 to 36 or 38, and the employer’s median annual wage paid to its full-time equivalent employees must be greater than the average annual wage paid by all Rhode Island employers in the same two-digit SIC. In addition, the company must meet at least one of the following three criteria:
- The employer’s median annual wage paid to its full-time equivalent employees is greater than or equal to 125% of the average annual wage paid by all employers in the state, or
- The average annual wage paid to the employer’s full-time equivalent employees classified as production workers (as defined by the Department of Labor and Training) is greater than the average annual wage paid to all production workers in the state in the same two-digit SIC, or
- The firm invests at least 2% of total payroll costs in worker training or retraining.
Biotechnology-related firms wishing to use the Investment Tax Credit beyond seven years must, for each tax year, maintain an average quarterly employment level that is at least 9.5% above the level maintained in the fourth year of the initial credit and pay an average quarterly median wage that is at least equal to the quarterly median wage for the previous three calendar years.
Business Income Apportionment for Manufacturers: Affiliated multi-state corporations may file single, separate Rhode Island corporate tax returns or file a consolidated return. In either case, the corporate net income/net worth is subject to Rhode Island apportionment using the average of a three-factor formula (property, receipts and payroll).
- For tax years beginning on or after January 1, 2005, the alternate apportionment formula allows for a 25% property factor, a 25% payroll factor and a 50% receipts factor.
Apportionment Exclusion for Medical & Pharmaceutical Manufacturers. A Rhode Island manufacturer of Medical Instruments, Supplies or Pharmaceuticals whose facility is registered and certified by the United States Food & Drug Administration may modify the Rhode Island business income apportionment formula for the current tax year.
- The property value portion in the numerator may be reduced by the increase in book value of tangible personal property in Rhode Island in the current taxable year over the previous year.
- The wage value portion in the numerator may be reduced by the increase in total qualified payroll in Rhode Island in the current taxable year over the previous year.
Accelerated Amortization for Defense Industry Manufacturers. Qualified corporations which have annually produced goods worth at least $10,000,000 at facilities located in Rhode Island, over a period of five consecutive years, may accelerate the amortization of depreciable assets over a five-year period if an average of at least 80% of that production has been for sale to a branch of the United States Armed Services. The company must anticipate the need to reduce its reliance on such sales in order to qualify.
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 tangible 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 credits for that year. Unused credits may be carried forward up to seven years.
1. The firm must be in one of the following categories of the Standard Industrial Classification (SIC)
2. One of the following criteria must apply:
- More than half of the firm’s gross revenues come from out-of-state sales, or
- More than half of the firm’s gross revenues come from sales to the federal government, or
- More than half of the firm’s gross revenues come from a combination of sales as described above.
Research and Development
Research & Development Expense Credit. Rhode Island offers a 22.5% tax credit for increases in qualified research expenses – the highest rate in America. This credit is available Rhode Island companies filed as a C-corporation. If the increase above base period expenditures exceeds $111,111, the credit equals 16.9% of the excess. Unused credits may be carried forward for up to seven years.
Research & Development Property Credit. A taxpayer is allowed a 10% tax credit for expenditures paid or incurred for the construction, reconstruction or acquisition of any property that is principally used or to be used for research and development in the experimental or laboratory sense. Leased property is not eligible. The property must be depreciable and have a useful life of three years or more. This credit is available Rhode Island companies filed as a C-corporation. Unused credit may be carried forward for up to seven years.
Elective Deduction for Research & Development Facilities. In lieu of depreciation or the investment tax credit, a taxpayer 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, including buildings, which is used or to be used for the purpose of research and development in the experimental or laboratory sense. The deduction is allowed under the corporate income tax.
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.
Job Training & Education
Job Training Tax Credit. Rhode Island law (RIGL 42-64.6) grants a credit against the corporate income tax (or the insurance premium tax) equal to 50% of eligible training expenditures for new or existing employees, in accordance with an approved training plan. Employees must be full-time, and after training, the employee must earn at least 150% of the Rhode Island minimum wage. Training plans must be filed with the Rhode Island Human Resources Investment Council for prior written approval. The credit is capped at $5,000 per employee over a three-year period.
Adult Education Tax Credit. The Adult Education Tax Credit (RIGL 44-46) allows for a corporate tax credit of 50% of the direct costs for vocational training or basic education, up to a maximum of $300 per employee. The maximum overall credit is $5,000 per employer per calendar year. The employee must remain employed by the business for 13 consecutive weeks and a minimum of 455 hours of paid employment before the credit can be claimed. This credit is available Rhode Island companies filed as a C-corporation. Credits cannot be carried forward.
Employer’s Apprenticeship Tax Credit. Employers of registered full-time apprentices in the metal and plastic industries are eligible for an annual corporate tax credit of 50% of the actual wages paid to the qualifying apprentice, or $4,800, whichever is less. The number of apprenticeships for which tax credit is allowed must exceed the average number of apprenticeships begun during the five preceding income years. The following trades are eligible: machinist, toolmaker, model-maker, gage maker, pattern-maker, plastic process technician, tool and machine setter, die- sinker, mold-maker, tool and die maker, and machine tool repair.
Educational Assistance and Development Credit. Under RIGL 44-42, a contribution to a Rhode Island institution of higher education is allowed a tax credit of 8% for the amount above $10,000. The contribution, which can include qualified tangible personal property, must be for the establishment or maintenance of a faculty chair, department, work fellowship, or program of scientific research or education. The 8% tax credit is applied against the corporate income tax, the bank excise tax or the insurance companies tax. Unused credits may be carried forward up to five years.
Job Training Grants. The Governor’s Workforce Board offers a training program for business and industry funded through a job development assessment of 0.21% on the firm’s taxable payroll. (Each employer’s unemployment tax rate is reduced annually by 0.21% to ensure that this program does not result in a tax increase.) This pool of money is available to create customized training programs tailored specifically for a company and free from income and other restrictions imposed by federally-funded programs.
Film & Television Industry Incentives
Rhode Island, one of the most scenic and culturally diverse locations on the East coast, provides a natural setting for the production of motion pictures, films, television programs and other media. Colonial-era homes, Gilded Age mansions, urban skylines and open country vistas are all available in a compact area that is 48 miles long and 37 miles wide. The state is also home to one of the world’s premiere art, design and technology institutions—the Rhode Island School of Design in Providence.
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 film, video, video games, television series or commercials. There are no caps on the amount of certified costs that are eligible for the credit. A “primary location” means the locations within which at least 51% of the motion picture principal photography days are filmed. Unused credits can be carried forward for up to three years.
The film/TV commercial/video game production must be filmed primarily in Rhode Island and have a minimum budget of $300,000. The Rhode Island Port of Entry Act passed in 1997 allows a foreign (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, be treated as a Rhode Island domiciled insurance company for the purposes of obtaining licenses in other states.
Small Business Incentives
Small Business Capital Investment Tax Incentives. Small business entities or venture capital partnerships that are certified by the Rhode Island Commerce Corporation may be eligible for two types of special incentives:
- Deductions or modifications: The deduction or modification is equal to the taxpayer’s qualifying investment in a certified venture capital partnership or equal to the entrepreneur’s investment in a qualifying business entity. Restrictions prohibit the deduction of modification from reducing the business corporation tax, public service corporation tax or bank excise tax to less than the minimum tax. This tax credit cannot be taken against a taxpayer’s personal income tax. The amount of unused deductions or modifications may not be carried over to following years.
- Capital gains exclusion: The calculation of the business corporation tax, public service corporation tax or bank excise tax may exclude long-term capital gains from sale or exchange of an interest in a qualifying business entity or certified venture capital partnership if:
- it is recognized by a partner in a certified venture capital partnership from the sale or exchange of an interest in the partnership, or
- it is a partner’s distributive share (from a certified venture capital partnership) of a long-term capital gain recognized by the partnership from the sale or exchange of an interest in a qualifying business entity, or
- it is recognized by an entrepreneur from the sale or exchange of an interest in a qualifying business entity. Taxpayers must provide proof of the date and amount of the investment in the qualifying business entity or certified venture capital partnership.
Disabled Access Credit for Small Business. A tax credit of up to $1,000 is available to small businesses that incur expenses in complying with federal or state laws protecting the rights of persons with disabilities. The credit is equal to 10% of the total amount expended up for removing architectural, communication, physical, or transportation barriers; providing qualified interpreters or other effective methods of delivering aurally delivered materials to persons with hearing impairments; providing readers, tapes, or other effective means of making visually delivered materials available to persons with visual impairments; providing job coaches or other effective means of supporting workers with severe impairments in competitive employment; providing specialized transportation services to employees or customers with mobility impairments; buying or modifying equipment for persons with disabilities; and providing similar services, modifications, material or equipment for persons with disabilities. A “small business” is one that, for the preceding year, had 30 or fewer full-time employees, or had $1 million or less in gross receipts.