Rhode Island is the smallest state, but its business taxes are in the middle of the New England pack. C corporations pay a flat 7%, individuals pay 3.75% to 5.99% and the 7% sales tax is uniform across the state. Every corporation and LLC pays a $400 minimum tax, which makes Rhode Island relatively expensive for very small businesses and side projects.
This guide covers Rhode Island's business taxes for 2026, with worked examples and comparisons with Massachusetts and Connecticut.
Rhode Island business taxes at a glance
A Rhode Island C corporation pays a flat 7% on profit, or $400 if that's higher. Pass-through owners pay graduated personal rates, with most small-business income taxed at 3.75% or 4.75%. LLCs pay the $400 minimum tax even if they lose money, plus a $50 annual report, so a dormant LLC still costs $450 a year. Customers pay a 7% sales tax everywhere in the state, with an extra 1% on restaurant meals. Payroll costs include the employee-funded Temporary Disability Insurance program and a small employer Job Development Assessment.
Corporate income tax
| Item | 2026 |
|---|---|
| Corporate income tax rate | 7% |
| Minimum tax | $400 |
- Apportionment: Single sales factor with market-based sourcing.
- Combined reporting: Required for unitary groups since 2015.
- Credits: Rebuild Rhode Island tax credits, Qualified Jobs Incentive credits, research credits and the Innovation Voucher program.
- Returns: Form RI-1120C is due on the 15th day of the fourth month after year-end.
Personal income tax and pass-through owners
| Taxable income (single, 2026, approx.) | Rate |
|---|---|
| $0 to $82,050 | 3.75% |
| $82,050 to $186,450 | 4.75% |
| Over $186,450 | 5.99% |
- LLC owners, partners and sole proprietors pay these rates on profit.
- S corporation shareholders pay on their share. S corporations pay the $400 minimum tax.
- PTE election: Entity-level tax at 5.99%, deductible federally.
- Nonresident withholding: Pass-through entities withhold tax for nonresident owners.
Sales and use tax
| Item | Rate |
|---|---|
| General sales | 7% |
| Meals and beverages | 7% plus 1% local |
| Hotel and short-term rentals | 7% sales tax plus 5% state hotel tax plus 1% local |
- Clothing up to $250 per item and groceries are exempt.
- Services: Rhode Island taxes some services, including pet care, interior design and some software services. The base was expanded in recent budgets.
- Remote sellers with more than $100,000 of Rhode Island sales or 200 transactions must collect.
Payroll and property taxes
- Temporary Disability Insurance (TDI): Funded by employee contributions of 1.1% of wages up to $100,000 in 2026, and includes Temporary Caregiver Insurance.
- Unemployment insurance: Employers pay on a wage base near $30,000. Employers also pay a 0.21% Job Development Assessment.
- Property tax: High, with rates set by each city and town. Some municipalities tax business tangible property, though the state has raised the exemption to $50,000 of tangible property per business.
Forming a business in Rhode Island: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $150 | $230 (including franchise fee for minimum shares) |
| Annual report | $50 | $50 |
| Minimum tax | $400 | $400 |
| Minimum annual cost | $450 | $450 |
| Registered agent | Required | Required |
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| Rhode Island corporate tax at 7% | $35,000 |
| Federal tax at 21% on $465,000 | $97,650 |
| Total income tax | $132,650 (26.5%) |
For a single LLC owner with $150,000 of Rhode Island taxable income, state tax is about $6,305. At $75,000 it is about $2,813. The LLC would also pay the $400 minimum tax.
How Rhode Island compares with its neighbors
| State | Corporate rate | Top personal rate | Sales tax |
|---|---|---|---|
| Rhode Island | 7% | 5.99% | 7% |
| Massachusetts | 8% plus property measure | 9% (5% below $1.08M) | 6.25% |
| Connecticut | 7.5% | 6.99% | 6.35% |
Rhode Island's corporate rate is the lowest of the three, and its top personal rate is below Connecticut's. Massachusetts taxes most income at a flat 5%, which is less than Rhode Island's 5.99% top rate but more than its 3.75% bottom rate. Rhode Island's 7% sales tax is the highest in New England.
Choosing an entity in Rhode Island
- Sole proprietorship: Avoids the $400 minimum tax, but offers no liability protection.
- LLC: $450 a year in minimum tax and report fees; owners pay up to 5.99%.
- S corporation: Same personal rates and $400 minimum, with federal payroll tax savings.
- C corporation: 7% plus 21% federally.
Who pays the most in Rhode Island
Small and inactive entities pay disproportionately because of the $400 minimum tax. A freelancer earning $20,000 through an LLC pays the same $400 as a business earning $2 million, plus the $50 report fee. Retailers collect the highest state sales tax in New England, and property owners in Providence and other cities pay high property taxes. Mid-sized pass-through businesses with profits under about $186,000 pay moderate rates.
Doing business across Rhode Island
Most of Rhode Island's population lives within about 30 miles of Providence, which is also part of the larger Boston economic area. Many residents commute to Massachusetts, and many Massachusetts residents work in Rhode Island. Neither state has a reciprocity agreement with the other, so commuters pay tax to the state where they work and claim a credit in their home state. Rhode Island's coastal economy includes tourism, defense manufacturing, shipbuilding and a growing marine technology sector.
Tax planning tips for Rhode Island businesses
Dissolve unused entities. The $400 minimum tax continues every year until an entity is formally dissolved and obtains a letter of good standing from the Division of Taxation. Close LLCs you no longer use.
Elect the PTE tax. For profitable pass-through owners, the election makes Rhode Island tax deductible federally.
Apply for Rebuild Rhode Island and Qualified Jobs incentives. These programs offer substantial credits for development projects and job creation, but require approval before work begins.
Rhode Island taxes by business type
Freelancers and consultants. A sole proprietor avoids the $400 minimum tax and pays only personal income tax, but forming an LLC adds $450 a year in fixed costs. For a consultant earning $60,000, that's an extra 0.75% of income just to keep the entity in good standing, so weigh the liability protection against the cost.
Restaurants and hospitality. Restaurants collect 8% on meals, combining the 7% sales tax and the 1% local meals tax. Hotels and short-term rentals collect 13% or more once the state hotel tax and local tax are added. Newport and Providence depend heavily on these businesses.
Manufacturers and defense contractors. Rhode Island's defense cluster, anchored by submarine construction at Quonset Point, benefits from the single sales factor, which taxes only in-state sales. A manufacturer selling mostly to out-of-state customers can have a small Rhode Island tax base despite large local payroll and property.
Recent changes for 2025 and 2026
- Income tax brackets indexed for inflation.
- Sales tax base expanded to more services and digital products in recent budgets.
- Tangible property exemption raised to $50,000 per business.
- TDI contribution rate cut to 1.1% for 2026, from 1.3% in 2025, with the wage base raised to $100,000.
Is Rhode Island a good state for business?
Advantages
- Moderate corporate and personal income tax rates
- Uniform statewide sales tax with no local add-ons except on meals
- Proximity to Boston at a lower cost
- Targeted incentives for development and job creation
Drawbacks
- $400 minimum tax on every corporation and LLC
- Highest sales tax rate in New England
- High property taxes
- Small domestic market
Compliance checklist
- File Articles of Organization or Incorporation with the Secretary of State.
- Register with the Division of Taxation for sales tax, withholding and income tax.
- Register with the Department of Labor and Training for unemployment insurance and TDI if you hire.
- File the annual report each year.
- Pay the $400 minimum tax with the entity's return.
- File Form RI-1120C, RI-1120S or RI-1065 each year.
Compare Rhode Island with its neighbors below or estimate your taxes in the United States calculator. See LLC taxes for more.