Rhode Island Code of Regulations › Title 280 - Department of Revenue › Chapter 20 - Division of Taxation › Subchapter 25 - Business Corporation Tax › Part 10 - Combined Reporting (280-RICR-20-25-10) › Section 280-RICR-20-25-10.8 - Unitary Business - Further Defined

Current through June 14, 2024
A. Combined
				 reporting in Rhode Island is required only in those instances in which a
				 unitary business exits. A "unitary business," as defined in §
										10.5     of this Part, means the
				 activities of a group of two (2) or more corporations under common ownership
				 that are sufficiently interdependent, integrated or interrelated through their
				 activities so as to provide mutual benefit and produce a significant sharing or
				 exchange of value among them or a significant flow of value between the
				 separate parts. The term "unitary business" also refers to a single business
				 entity or a commonly owned or controlled group of business entities that are
				 sufficiently interdependent, integrated, and interrelated through their
				 activities so as to provide synergy and mutual benefit that produces a sharing
				 or exchange of value among them and a significant flow of value to the separate
				 parts.
B. A determination under
				 this regulation of whether an entity forms part of a combined group engaged in
				 a unitary business with another entity is determined based on the facts and
				 circumstances of each case. To the extent compatible with Rhode Island law, any
				 legal or factual determination relevant to the existence or nonexistence of a
				 unitary business will favor consistency with legal and factual determinations
				 of other unitary states.
C. Under
				 the Rhode Island General Laws, the term "unitary business" shall be construed
				 to the broadest extent permitted under the United States Constitution.
				 Therefore, if the C corporation meets either of the tests set forth in this
				 §
										10.8     of this Part - the "Interdependence of functions test" or the "Three
				 unities test" - the corporation is deemed to be part of the unitary
				 business.
D. Interdependence of
				 functions test
1. One or more related
				 business organizations engaged in business activity - entirely within this
				 state, or both within and without this state - are unitary if there exists
				 interdependence in their functions. This test adopts the decisional law of the
				 United States Supreme Court with respect to the constitutional prerequisites
				 for requiring unitary combination. The Court has variously expressed the
				 constitutional test, holding that a finding of unitary relationship requires
				 "contribution or dependency" between businesses; "substantial mutual
				 interdependency" or "flow of value"; functional integration, centralized
				 management, or economy of scale.
2.
				 These concepts collectively express the Court's view of the constitutional
				 parameters of required combination. Rhode Island's "interdependence of
				 functions test" extends as far as, but no further than, the constitutional
				 limits found by the Court.
3. Any
				 of the following circumstances indicates that an interdependence of functions
				 exists:
a. Same Line of Business. The
				 principal activities of the entities are in the same general line of business.
				 Examples of the same line of business are manufacturing, wholesaling, and
				 retailing of tangible personal property; transportation or finance.
(1) In determining whether two entities are
				 in the same general line of business, consideration shall be given to the
				 nature and character of the basic operations of each entity, including, but not
				 limited to, sources of supply, goods or services produced or sold, labor force,
				 and market.
(2) Two entities are in
				 the same general line of business when their operations are sufficiently
				 similar to reasonably conclude that the entities are likely to depend upon or
				 contribute to one another.
b. Vertically Structured Business. The
				 principal activities of the entities are different steps of a vertically
				 structured business. Illustrations of such different steps are exploration,
				 mining and drilling, production, refining, marketing, and transportation of
				 natural resources.
c. Strong
				 Centralized Management. Centralized management may be evidenced by executive
				 level policy made by a central person, board or committee and not by each
				 entity in areas such as, but not limited to, purchasing, accounting, finance,
				 tax compliance, legal services, human resources, health and retirement plans,
				 product lines, capital investment and marketing.
d. Non-Arm's-Length Prices. Goods or services
				 or both are supplied at non-arm's length prices between or among entities.
				 Existence of arm's-length pricing between entities, however, does not indicate
				 lack of unity.
e. Existence of
				 Benefits from Joint, Shared or Common Activity. A discount, cost-saving, or
				 other benefit can be shown to result from joint purchases, leaseholds, or other
				 forms of joint, shared, or common activities between or among
				 entities.
f. Relationship of Joint,
				 Shared or Common Activity to Income-Producing Operations. In determining
				 whether or not there exists a joint, shared, or common activity which is
				 indicative of a unitary relationship, consideration shall be given to the
				 nature and character of the basic operations of each entity. Such consideration
				 shall include, but not be limited to, the entity's sources of supply, its goods
				 or services produced or sold, and its labor force and market, to determine
				 whether the joint, shared, or common activity is directly beneficial to,
				 related to, or reasonably necessary to the income-producing activities of the
				 unitary business.
g. Exercise of
				 Control. The exercise of control by one entity over another entity.