Filing Requirements for RI Businesses: In State vs. Out of State
posted Dec 5, 2017 by Stephanie Burns, EA in the Global Tax Blog
Starting a business in Rhode Island? Or starting to conduct business in Rhode Island even though you’re based in another state? There are required tax filings you need to be aware of for both scenarios.
In state businesses
Every entity must register with the Rhode Island Secretary of State and, even if no business is conducted within RI for a particular year, there are filing requirements:
An entity treated as a C-corporation for federal tax purposes is required to file Form RI 1120C. C corporations must pay the Rhode Island business corporation tax each year, typically 7% of net income. There is a minimum tax of $450 per year. For tax years beginning on or after January 1, 2017, the minimum tax will be $400.
- Wait, what’s a C corp? A C corporation, under United States federal income tax law, refers to any corporation that is taxed separately from its owners.
An entity treated as an S corporation must file Form RI-1120S and pay the annual minimum tax ($450 per year, or $400 per year for years beginning on or after January 1, 2017).
- Wait, what’s an S corp? S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.
Any limited liability companies (LLCs) must pay an annual charge equal to the minimum business corporation tax ($450, or $400 for years beginning on or after January 1, 2017). This includes a single member LLC and any LLC treated as a disregarded entity for federal tax purposes. LLCs must also file form RI-1065.
- Wait, what’s an LLC? LLCs are hybrid entities which combine the characteristics of a corporation and a partnership or sole proprietorship. LLC members cannot be held personally liable for the company’s debts or liabilities.
Out of state businesses
You must “foreign qualify” in RI if your home base is in another state (i.e. you have not lived in RI over the past year). Foreign qualifying is simply registering to do business in a state other than the one in which you incorporated. Corporations and LLCs are considered domestic only in their state of incorporation. For example, if you form an LLC in MA, it is only considered domestic in MA and considered a foreign LLC in other states.
As part of the foreign qualifying process:
- You must register for a Certificate of Authority in RI and pay required state fees, which notifies the state that your company is conducting business within its borders.
- Your business will be subject to ongoing reporting requirements, fees and taxes in both your state of incorporation and state of qualification. If your business expands into new states and you need to foreign qualify, these initial and ongoing fees should be considered in your budget.
Does every out of state business have to foreign-qualify?
If you answer “yes” to any of the following statements, you must foreign-qualify....
- Does your company have a physical presence in the state?
- Does your company have employees in the state?
- Does your company accept orders in the state?
- Does your company have a bank account in the state?
Instead of foreign qualifying, you can consider...
- Incorporating/turning business into LLC in the other state(s) in which you intend to transact business - This involves turning your sole proprietorship or general partnership into a company formally recognized by your state of incorporation, in this case RI. In this process, the company becomes its own legal business structure set apart from the business’ founders. The company's owner or owners create a separate legal entity to transact business through incorporation.
Doing business in other states than the one you’re incorporated in can be tricky. It’s best to reach out to your tax advisor for advice on getting started in another state.
Questions? Contact us.