H 8611Taxes

Taxation - Taxation of Banks

This bill allows banks to calculate their Rhode Island taxes based only on their sales within the state.

Signed into law36 Yea0 Nay1 Not voting

Population
Affected

Introduced Jun 3, 2026Committee House Finance

Plain-English Summary

This bill changes how banks operating both inside and outside Rhode Island calculate their state taxes. Starting in 2025, banks can choose to base their taxable income solely on their receipts (sales) within the state, rather than using a combination of receipts, property, and payroll. If a bank chooses this new method, it must stick with it for at least five years and cannot claim certain job creation tax benefits. The bill also updates the process for banks to request an alternative tax calculation method if standard rules do not accurately reflect their Rhode Island business activity.

For younger readers

When banks do business in Rhode Island and other states, they have to pay taxes on the money they make here. Right now, a math formula using their sales, buildings, and workers decides their tax. This bill says that starting in 2025, banks can choose to use a simpler math formula that only looks at their sales. If a bank chooses this new rule, they have to use it for at least five years. Also, if they use the new rule, they can't get certain special tax breaks for hiring new workers.

Who & Where It Applies

Impacted groups

BanksFinancial institutionsTax administratorsCorporate accountantsOut-of-state banks

Impacted communities

All

Constitutional & Fiscal Check

None Likely. The bill modifies corporate tax apportionment formulas and administrative procedures for banking institutions, which falls well within the state's taxation authority. It does not implicate free speech, search and seizure, or due process rights, provided the tax administrator's discretion is applied uniformly and allows for standard administrative appeals.

Estimated cost

None

Estimated revenue

Amount unknown

Bill Analysis

Both viewpoints

For Progressives

Prevents banks that elect the new single-factor tax method from claiming certain corporate tax reductions, ensuring they do not exploit multiple tax loopholes simultaneously.
Grants the state tax administrator explicit authority to mandate an alternative tax calculation if a bank's reported income does not fairly represent its business activity, helping to ensure corporations pay their fair share.
Allowing taxation based solely on receipts (sales) means out-of-state banks are taxed based on the revenue they extract from local communities, potentially increasing funds available for public services.
Allows wealthy financial institutions to choose their own tax calculation method, which they will likely use to lower their tax burden and reduce state revenue.
Removing the payroll and property factors from the tax equation could disincentivize banks from maintaining physical branches and employing local workers in the state.
Caters to corporate interests by providing banks with flexible tax optimization strategies that are unavailable to ordinary working-class taxpayers.

For Conservatives

Simplifies the tax code for financial institutions by allowing them to use a single-factor apportionment, reducing corporate accounting burdens.
Encourages banks to hire workers and build physical locations in Rhode Island without being penalized by higher state income taxes for doing so.
Provides corporations with the freedom to choose the tax calculation method that best suits their business model, promoting a more business-friendly environment.
Grants broad, subjective authority to the state tax administrator to reject a bank's chosen tax calculation and force an alternative method.
Penalizes banks that opt for the simplified tax method by stripping them of their ability to claim job creation tax benefits under the Jobs Development Act.
Locks businesses into their elected tax method for a minimum of five years, restricting their financial flexibility in a changing economy.

Votes

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Full Bill Text

Changes to existing Rhode Island law · 3 additions

SECTION 1. Section 44-14-14.1 of the General Laws in Chapter 44-14 entitled "Taxation of Banks" is hereby amended to read as follows: 44-14-14.1. Apportionment and allocation of income for purposes of taxation.

(a) Except as specifically provided in this chapter a banking institution whose business activity is taxable both within and outside of this state shall allocate and apportion its net income as provided in §§ 44-14-14.1 — 44-14-14.5. A financial institution organized under the laws of a foreign country, the Commonwealth of Puerto Rico, or a territory or possession of the United States whose effectively connected income (as defined under the federal Internal Revenue Code) is taxable both within this state and within another state, other than the state in which it is organized shall allocate and apportion its net income as provided in §§ 44-14-14.1 — 44-14-14.5.

(b) All income shall be apportioned to this state by multiplying this income by the apportionment percentage. The apportionment percentage is determined by adding the taxpayer’s receipts factor (as described in § 44-14-14.3), property factor (as described in § 44-14-14.4), and payroll factor (as described in § 44-14-14.5) together and dividing the sum by three. If one of the factors is missing, the two remaining factors are added and the sum is divided by two. If two of the factors are missing, the remaining factor is the apportionment percentage. A factor is missing if both its numerator and denominator are zero, but it is not missing merely because its numerator is zero.

(c) Each factor shall be computed according to the method of accounting (cash or accrual basis) used by the taxpayer for the taxable year.

(d) For tax years ending prior to January 1, 2025, if the allocation and apportionment provisions of §§ 44-14-14.1 — 44-14-14.5 do not fairly represent the extent of the taxpayer’s business activity in this state, the taxpayer may petition for or the tax administrator may require, in respect to all or any part of the taxpayer’s business activity, if reasonable:

(1) The exclusion of any one or more of the factors;

(2) The inclusion of one or more additional factors which will fairly represent the taxpayer’s business activity in this state; or

(3) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer’s income.

(e) For tax years beginning on or after January 1, 2025, if the allocation and apportionment provisions of §§ 44-14-14.1 — 44-14-14.5 or subsection (f) of this section are not reasonably adapted to approximate the net income derived from business carried on within the state, a banking institution may apply to the tax administrator, or the tax administrator may require the banking institution, to have its income derived from business carried on within the state determined by an alternative method. Such application shall be made by attaching to its duly-filed return a statement of the reasons why the banking institution believes that §§ 44-14-14.1 — 44-14-14.5 or subsection

(f) of this section are not reasonably adapted to approximate its net income derived from business carried on within the state and a description of the method sought by it. A banking institution which so applies shall, upon receipt of a request therefor from the tax administrator, file with the tax administrator, under oath of its treasurer, a statement of such additional information as the tax administrator may require. If, after such application by the banking institution, or after the tax administrator’s own review, the tax administrator determines that §§ 44-14-14.1 — 44-14-14.5 or subsection (f) of this section are not reasonably adapted to approximate the banking institution’s net income derived from business carried on within the state, the tax administrator shall by reasonable methods determine the amount of net income derived from business activity carried on within the state. The amount thus determined shall be the net income taxable under § 44-14-3 or § 44-14-4 and the foregoing determination shall be in lieu of the determination required by §§ 44-14-14.1 — 44-14- 14.5 or subsection (f) of this section. If an alternative method is used by the tax administrator hereunder, the tax administrator, in their discretion, may require similar information from such banking institution if it shall appear that such alternative method or §§ 44-14-14.1 — 44-14-14.5 or subsection (f) of this section are not reasonably adapted to approximate for the applicable year the banking institution’s net income derived from business carried on within the state and may again by reasonable methods determine such income.

(f) For tax years beginning on or after January 1, 2025, except as specifically provided in this chapter a banking institution whose business activity is taxable both within and outside of this state may elect to allocate and apportion its net income by multiplying its net income by its receipts factor as described in § 44-14-14.3. For purposes of an election made pursuant to this subsection (f), the following shall apply:

(1) An election shall be made by filing the form prescribed by the tax administrator with the taxpayer’s duly-filed return. The election shall take effect in the tax year for which the taxpayer makes the election and shall remain in effect for all subsequent tax years; except that, after a minimum of five (5) subsequent tax years after the tax year for which the election is made, in the event of a material change of facts or law, a taxpayer may apply to the tax administrator to revoke the election. Such application shall be made by attaching a statement of the event of a material change of facts or law to the taxpayer’s duly-filed return. A banking institution which so applies shall, upon receipt of a request therefor from the tax administrator, file with the tax administrator, under oath of its treasurer, a statement of such additional information as the tax administrator may require.

(2) If the receipts factor is missing, the whole of the banking institution’s net income shall be taxable pursuant to §§ 44-14-3 — 44-14-4. The receipts factor shall be missing if both its numerator and denominator are zero, but it shall not be missing merely because its numerator is zero.

(3) The receipts factor shall be computed according to the method of accounting (cash or accrual basis) used by the taxpayer for the taxable year.

(4) A banking institution electing apportionment under this subsection shall not claim any benefit pursuant to chapter 64.5 of title 42.

SECTION 2. This act shall take effect upon passage and be effective for tax years beginning on or after January 1, 2025.