State of Rhode Island - Division of Taxation
Business Corporation Tax
Regulation CT 95-02
Nexus for Business Corporation Tax
Title 44, Chapter 11, Section 1(a) provides generally that a corporation will be subject to the business corporation tax if it is ". . . deriving any income from sources within this state or engaging in any activities or transactions within this state for the purpose of profit or gain, whether or not an office or place of business is maintained in this state, or whether or not such income, activities or transactions are connected with intrastate, interstate, or foreign commerce. . ."
For foreign corporations (corporations not organized under Rhode Island law) whose SOLE contact with Rhode Island is EXCLUSIVELY related to the sale of tangible personality, Federal law provides generally that a state is prohibited from taxing the income of a business where the only connection is the solicitation of orders for tangible personalty where the orders are sent outside the state for approval and where the approved orders are filled from stocks of tangible personalty kept outside the state. (Public Law 86-272)
I. NATURE OF PROPERTY BEING SOLD
Only the solicitation to sell tangible personal property is afforded immunity under P.L. 86-272; therefore, the leasing, renting, licensing or other disposition of tangible personal property, or transactions involving intangibles, such as franchises, patents, copyrights, trade marks, service marks and the like, or any other type of property are not protected activities under P.L. 86-272.
The sale or delivery and the solicitation for the sale or delivery of any type of service that is not either (1) ancillary to solicitation or (2) otherwise set forth herein as a protected activity is also not protected under Public Law 86-272.
II. Solicitation of Orders and Activities Ancillary to Solicitation
For the in-state activity to be a protected activity under P.L. 86-272, it must be limited solely to solicitation (except for de minimus activities described in paragraph III. and those activities conducted by independent contractors described in paragraph V below). Solicitation means (1) speech or conduct that explicitly or implicitly invites an order; and (2) activities that neither explicitly nor implicitly invite an order, but are entirely ancillary to requests for an order.
Ancillary activities are those activities that serve no independent business function for the seller apart from their connection to the solicitation of orders. The mere assignment of activities to sales personnel does not, merely by such assignment, make such activities ancillary to solicitation of orders. Additionally, activities that seek to promote sales are not ancillary, because P.L. 86-272 does not protect activity that facilities sales; it only protects ancillary activities that facilitate the request for an order. The conducting of activities not falling within the foregoing definition of solicitation will cause the company to lose its protection from a net income tax afforded by P.L. 86-272, unless the disqualifying activities, taken together, are either de minimis or are otherwise permitted under this regulation.
III. De Minimis Activities
De minimis activities are those that, when taken together, establish only a trivial connection with the taxing State. An activity conducted within a taxing State on a regular or systematic basis or pursuant to a company policy (whether such polity is in writing or not) shall normally not be considered trivial. Whether or not an activity consists of a trivial or non-trivial connection with the State is to be measured on both a qualitative and quantitative basis. If such activity either qualitatively or quantitatively creates a non-trivial connection with the taxing State, then such activity exceeds the protection of P.L. 86-272. Establishing that the disqualifying activities only account for a relatively small part of the business conducted within the taxing State is not determinative of whether a de minimis level of activity exists. The relative economic importance of the disqualifying in-state activities, as compared to the protected activities, does not determine whether the conduct of the disqualifying activities within the taxing State is inconsistent with the limited protection afforded by P.L. 86-272.
IV. Specific Listing of Unprotected and Protected Activities
A. Unprotected Activities:
The following in-state activities (assuming they are not of a de minimis level) are not considered as either solicitation of orders or ancillary thereto or otherwise protected under P.L. 86-272 and will cause otherwise protected sales to lose their protection under the Public Law:
1. Making repairs or providing maintenance or service to the property sold or to be sold.
2. Collecting current or delinquent accounts, whether directly or by third parties, through assignment or otherwise.
3. Investigating credit worthiness.
4. Installation or supervision of installation at or after shipment or delivery.
5. Conducting training courses, seminars or lectures for personnel other than involved only in solicitation.
6. Providing any kind of technical assistance or service including, but not limited to, engineering assistance or design service, when one of the purposes thereof is other than the facilitation of the solicitation of orders.
7. Investigating, handling, or otherwise assisting in resolving customer complaints, other than mediating direct customer complaints when the sole purpose of such mediation is to ingratiate the sales personnel with the customer.
8. Approving or accepting orders.
9. Repossessing property.
10. Securing deposits on sales.
11. Picking up or replacing damaged or returned property.
12. Hiring, training, or supervising personnel, other than personnel involved only in solicitation.
13. Using agency stock checks or any other instrument or process by which sales are made within this state by sales personnel.
14. Maintaining a sample or display room in excess of two weeks (14 days) within the state during the tax year.
15. Carrying samples for sale, exchange or distribution in any manner for consideration or other value.
16. Owning, leasing, using or maintaining any of the following facilities or property in-state:
a. Repair shop.
b. Parts department.
c. Any kind of office other than an in-home office as described as permitted under IV.A.18 and IV.B.2.
e. Meeting place for directors, officers, or employees.
f. Stock of goods other than samples for sales personnel or that are used entirely ancillary to solicitation.
g. Telephone answering service that is publicly attributed to the company or to employees or agent(s) of the company in their representative status.
h. Mobile stores, i.e., vehicles with drivers who are sales personnel making sales from the vehicles.
i. Real property or fixtures to real property of any kind.
17. Cosigning stock of goods or other tangible personal property to any person, including an independent contractor, for sale.
18. Maintaining, by any employee or other representative, an office or place of business of any kind (other than an in-home office located within the residence of the employee or representative that (i) is not publicly attributed to the company or to the employee or representative of the company in an employee or representative capacity, and (ii) so long as the use of such office is limited to soliciting and receiving orders from customers; for transmitting such orders outside the state for acceptance or rejection by the company; or for such other activities that are protected under Public Law 86-272 or under paragraph IV.B. of this regulation).
A telephone listing or other public listing within the state for the company or for an employee or representative of the company in such capacity or other indications through advertising or business literature that the company or its employee or representative can be contacted at a specific address within the state shall normally be determined as the company maintaining within this state an office or place of business attributable to the company or to its employee or representative in a representative capacity. However, the normal distribution and use of business cards and stationery identifying the employee's or representative's name, address, telephone and tax numbers and affiliation with the company shall not, by itself, be considered as advertising or otherwise publicly attributing an office to the company or its employee or representative.
The maintenance of any office or other place of business in this state that does not strictly qualify as an "in-home" office as described above shall, by itself, cause the loss of protection under this regulation.
For the purpose of this subsection it is not relevant whether the company pays directly, indirectly, or not at all for the cost of maintaining such in-home office.
19. Entering into franchising or licensing agreements; selling or otherwise disposing of franchises and licenses; or selling or otherwise transferring tangible personal property pursuant to such franchise or license by the franchisor or licensor to its franchisee or licensee within the state.
20. Conducting any activity not listed in paragraph IV.B. below which is not entirely ancillary to requests for orders, even if such activity helps to increase purchases.
B. Protected Activities:
The following in-state activities will not cause the loss of protection for otherwise protected sales:
1. Soliciting orders for sales by any type of advertising.
2. Soliciting of orders by an in-state resident employee or representative of the company, so long as such person does not maintain or use any office or other place of business in the state other than an "in-home" office as described in IV.A.18. above.
3. Carrying samples and promotional materials only for display or distribution without charge or other consideration.
4. Furnishing and setting up display racks and advising customers on the display of the company's products without charge or other consideration.
5. Providing automobiles to sales personnel for their use in conducting protected activities.
6. Passing orders, inquiries and complaints on to the home office.
7. Missionary sales activities; i.e., the solicitation of indirect customers for the company's goods. For example, a manufacturer's solicitation of retailers to buy the manufacturer's goods from the manufacturer's wholesale customers would be protected if such solicitation activities are otherwise immune.
8. Coordinating shipment or delivery without payment or other consideration and providing information relating thereto either prior to or subsequent to the placement of an order.
9. Checking of customers' inventories without a charge therefore (for re-order, but not for other purposes such as quality control).
10. Maintaining a sample or display room for two weeks (14 days) or less within the state during the tax year.
11. Recruiting, training or evaluating sales personnel, including occasionally using homes, hotels or similar places for meetings with sales personnel.
12. Mediating direct customer complaints when the purpose thereof is solely for ingratiating the sales personnel with the customer and facilitating requests for orders.
13. Owning, leasing, using or maintaining personal property for use in the employee or representative's "in-home" office or automobile that is solely limited to the conducting of protected activities. Therefore, the use of personal property such as a cellular telephone, facsimile machine, duplicating equipment, personal computer and computer software that is limited to the carrying on of protected solicitation and activity entirely ancillary to such solicitation or permitted by this regulation under paragraph IV.B. shall not, by itself, remove the protection under this regulation.
14. Shipping or delivering goods into this state by means of private vehicle, rail, water, air or other carrier, irrespective of whether a shipment or delivery fee or other charge is imposed, directly or indirectly, upon the purchaser.
V. INDEPENDENT CONTRACTORS
P.L. 86-272 provides protection to certain in-state activities if conducted by an independent contractor that would not be afforded if performed by the company or its employees or other representatives. Independent contractors may engage in the following limited activities in the state without the company's loss of immunity:
1. Soliciting sales.
2. Making sales.
3. Maintaining an office.
Sales representatives who represent a single principal are not considered to be independent contractors and are subject to the same limitations as those provided under P.L. 86-272 and this regulation.
Maintenance of a stock of goods in the state by the independent contractor under consignment or any other type of arrangement with the company, except for purposes of display and solicitation, shall remove the protection.
VI. MISCELLANEOUS PRACTICES
A. Application to Corporation Incorporated in State or to Person Resident or Domiciled in State:
The protection afforded by P.L. 86-272 and the provisions of this regulation do not apply to any corporation incorporated within this state or to any person who is a resident of or domiciled in this state.
B. Registration or Qualification to do Business:
A company that registers or otherwise formally qualifies to do business within this state does not, by that fact alone, lose its protection under P.L. 86-272. Where, separate from or ancillary to such registration or qualification, the company receives and seeks to use or protect any additional benefit or protection from this state through activity not otherwise protected under P.L. 86-272 or this regulation, such protection shall be removed.
C. Loss of Protection for Conducting Unprotected Activity During Part of Tax Year:
The protection afforded under P.L. 86-272 and the provisions of this regulation shall be determined on a tax year by tax year basis. Therefore, if at any time during a tax year the company conducts activities that are not protected under P.L. 86-272 or this regulation, no sales in this state or income earned by the company attributed to this state during any part of said tax year shall be protected from taxation under said Public Law or this regulation.
D. Activities of Affiliated Companies:
In determining whether the activities of any company have been conducted within this state beyond the protection of P.L. 86-272 or paragraph IV.B. of this regulation, only those in-state activities that are conducted by or on behalf of said company shall be considered for this purpose. Activities that are conducted by any other person or business entity, whether or not said person or business entity is affiliated with said company, shall not be considered attributable to said company, unless such other person or business entity was acting in a representative capacity on behalf of said company.
VII. NEXUS OF CORPORATE PARTNERS
A. General Partners. Any corporation acting as a general partner of any partnership (limited or general) which is doing business in Rhode Island and which partnership owns property or maintains a place of business in the state and where the general partner is engaged, directly or indirectly, in the participation or in the domination or control of all or any portion of the business activities or affairs of the partnership shall be subject to the business corporation tax.
B. Limited Partners. Any corporation acting as a limited partner of any partnership (limited or general) which is doing business in Rhode Island, and which separate from or ancillary to its rights and obligations as a limited partner, is not conducting other activity not otherwise protected under P.L. 86-272 or this regulation shall not be subject to the business corporation tax.
Corporations exempted from the business corporation tax under 44-11-1(a) and which are subject to taxation according to their specific industry--banks and financial institutions, utilities and insurance companies--are NOT subject to this regulation.
R. GARY CLARK TAX ADMINISTRATOR
EFFECTIVE DATE: APRIL 1, 1995
THIS REGULATION AMENDS AND SUPERSEDES REGULATION CT 88-2 EFFECTIVE DECEMBER 31, 1988.