Rhode Island LLC Taxes

If you're considering forming a Limited Liability Company (LLC) in Rhode Island, it's essential to be aware of the varied tax implications that you’ll need to comply with. 

This comprehensive Rhode Island LLC Taxes guide explains the intricacies of federal, state and local tax requirements, providing a clear understanding of what to expect and how to navigate them effectively. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

How Is an LLC Taxed in Rhode Island?

Taxation in Rhode Island isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.

While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as one of the following:

• C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay personal income taxes on any distributions they take.
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay self-employment tax or FICA tax on them.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Rhode Island to help you ensure your LLC navigates them effectively.

Rhode Island Local Taxes

In Rhode Island, a variety of local taxes can impact your LLC, with the specifics varying by municipality. 

To assist you in effectively navigating the tax landscape, we have outlined the most common local taxes below.

Property Taxes

Rhode Island's property tax system operates under state-imposed caps and allows for varying municipal rates. The legislation limits yearly increases in property taxes to a maximum of 4% over the previous year's total levy.

Tax rates differ significantly between cities and towns, with residential real estate rates ranging from about 4.90%–24.51% per $1,000 of assessed value. Commercial and personal properties follow similar variable rate structures. Property taxes are collected annually by the respective municipal tax assessor's offices throughout Rhode Island.

Note: For specific information on property tax rates for each municipality, LLCs can refer to the Division of Municipal Finance’s website or contact their local tax assessor's office directly.

Local Meals and Beverage Tax 

LLCs operating as eating and drinking establishments must collect a 1% local meals and beverage tax. This tax applies to all sales of meals and beverages, regardless of whether they are prepared in the establishment or consumed on the premises.

While this is separate from the 7% state sales tax, a Rhode Island business may combine these rates on sales checks or other proof of sale to show an 8% rate. However, they must maintain records that separate these taxes for accurate reporting to the RI Division of Taxation. 

Note: The local tax collected is distributed to the city or town where the meals and beverages were sold, requiring LLCs to report this tax by location on their tax returns. 

Local Hotel Tax 

LLCs operating hotels are subject to a local hotel tax of 1%, in addition to a state-imposed 5% hotel tax. This local tax is applied to the total charge for occupancy and is collected and administered in line with the state hotel tax regulations. The revenue from this local tax is distributed quarterly to the city or town where the hotel is located. 

Note: The motor vehicle excise tax in Rhode Island has been fully phased out as of Fiscal Year 2023, offering significant tax relief to businesses utilizing company-owned vehicles.

Recommended Service: Schedule a free consultation with 1-800Accountant to ensure your business remains legally compliant. 

Rhode Island State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in Rhode Island. 

Corporate Income Taxes

In Rhode Island, the corporate income tax is set at 7% of the state's taxable income, beginning with the federal taxable income and then adjusting for state-specific deductions and additions.

This tax applies to all corporations engaging in business activity within the state, including a minimum tax requirement for such entities. Rhode Island's approach to taxation also includes the Finnegan method for sales factor representation and market-based sourcing, making it a combined reporting state.

Individual Income Taxes

LLCs, classified as pass-through entities for tax purposes, are subject to the state's personal income tax system. The tax is based on the federal adjusted gross income, modified according to Rhode Island's tax laws. For the 2022 tax year, the tax rates are structured progressively:

• 3.75% on income up to $68,200
• 4.75% on income over $68,200 and up to $155,050
• 5.99% on income over $155,050

For LLCs operating both in and outside Rhode Island, income apportionment is essential. They utilize a three-factor formula to apportion net income, considering:

• The ratio of real and tangible property in Rhode Island to total property everywhere.
• The ratio of salaries and wages paid within the state to the total salaries and wages.
• The ratio of gross receipts in Rhode Island to gross receipts everywhere.

This method ensures a fair assessment of taxes based on the extent of business activities conducted in Rhode Island.

Note: These tax rates are applicable to all filing statuses. For incomes below $100,000, calculations are based on the Rhode Island Tax Table, whereas for incomes above $100,000, the Rhode Island Tax Computation Worksheet is used.

Sales and Use Taxes

LLCs involved in retail sales, rentals, or leasing of tangible personal property, specific utilities, and certain services are obligated to pay sales tax. This tax is imposed on retailers at a rate of 7% of their gross receipts from taxable sales. Complementing the sales tax is the use tax, also levied at 7%. It applies to the storage, use, or consumption of tangible personal property within the state. 

Note: It is important to note that certain casual sales, like those between immediate family members, are exempt from this tax.

Hotel Tax

LLCs operating lodging facilities in Rhode Island, such as hotels, motels, and residential rentals, are obligated to comply with the state's Hotel Tax regulations. This tax is applicable to transient lodging accommodations, covering up to the first thirty consecutive days of a rental. The tax rates vary, with 6% applied to room rentals and 1% for entire house rentals. 

Compliance includes registering for the Hotel Tax and ensuring the timely filing and remittance of collected taxes. Monthly returns must be filed by the 20th day of the month following the rental period. Keep in mind that the hotel tax is additional to the state sales tax.

Hard-to-Dispose Tax 

LLCs involved in the sale, use, or consumption of hard-to-dispose materials in Rhode Island are subject to the Hard-to-Dispose Tax. This tax applies to items such as lubricating oils, antifreeze, organic solvents, and tires. 

The specific tax rates vary: 

• $0.10 per quart for lubricating oils
• $0.20 per gallon for antifreeze,
• $0.005 per gallon for organic solvents
• $1 per tire

Additionally, a $6.00 fee is levied on new motor vehicles at the time of titling. The tax must be collected by wholesalers and paid to the state, with monthly returns due by the 25th of the following month.

Note: LLCs involved in the sale of Hard-to-Dispose Materials in Rhode Island must submit an HTDT-2 application. This applies to any seller, regardless of their location, if they are distributing these materials to retailers within the state.

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the Internal Revenue Service (IRS) will not treat single and multi-member LLCs as separate entities from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income tax on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as a C corporation or S corporation, which changes how these taxes are levied in different ways.

Self-Employment Tax

In addition to income tax, members of single- and multi-member LLCs will need to pay federal self-employment taxes on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employer Taxes

If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in Rhode Island

Below, we’ve outlined the general process an LLC in Rhode Island will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Federal Tax Identification Number or Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return. 

Step 2: Find The Right Tax Forms

Once you've gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it's a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State Tax Returns: You can file your state taxes electronically using the RI Tax Portal.
• Local Tax Returns: For accurate information on specific local tax filing procedures, it's advisable to directly consult local tax authorities.

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

Keep Your Rhode Island LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant. 

Rhode Island LLC Annual Report

LLCs in Rhode Island must file an annual report each year, starting from the calendar year following their registration with the state. The filing period for this report is between February 1 and May 1, excluding the year of incorporation.

When filing, it's important to list the entity's true principal place of business, not the registered agent's address, and provide a brief description of the business conducted in Rhode Island. An accurate North American Industry Classification System (NAICS) code is also required. 

For LLCs, the annual report must be filed between February 1 and May 1, with an annual charge of $50. If you fail to pay this fee on time, a late penalty of $25 is applied from June 1. Businesses not in good standing, known as revoked entities, must follow additional steps before filing their annual report.

Licensure and Tax Requirements

In Rhode Island, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Sales Tax Licenses: Businesses involved in selling or leasing tangible personal property or offering taxable services are required to obtain a Sales Tax Permit. This can be done through the Rhode Island Division of Taxation Combined Online Registration Service, which also facilitates registration, filing, and tax payments.
• Professional Licenses: If your LLC operates in professional services, specific licensing may be required. Healthcare professionals, for instance, need licenses from the Rhode Island Department of Health. Real estate professionals, on the other hand, are licensed by the Department of Business Regulation. This ensures that practitioners in these fields meet the state's professional standards and qualifications. 
• Environmental Permits: LLCs engaged in activities like waste management or those that could affect air and water quality need environmental permits. These permits, ensuring adherence to environmental standards, are issued by the Permit Application Center (PAC) of the Rhode Island Department of Environmental Management (DEM). 

Note: For comprehensive details on statewide permits and licenses, visit the Rhode Island Department of Business Regulation website.

Rhode Island LLC Taxes FAQs