2019 -- H 5156

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LC000178

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2019

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A N   A C T

RELATING TO TAXATION -- PERSONAL INCOME TAX

     Introduced By: Representatives McNamara, Ackerman, Jackson, Solomon, and Bennett

     Date Introduced: January 23, 2019

     Referred To: House Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Section 44-30-12 of the General Laws in Chapter 44-30 entitled "Personal

Income Tax" is hereby amended to read as follows:

     44-30-12. Rhode Island income of a resident individual.

     (a) General. The Rhode Island income of a resident individual means his or her adjusted

gross income for federal income tax purposes, with the modifications specified in this section.

     (b) Modifications increasing federal adjusted gross income. There shall be added to

federal adjusted gross income:

     (1) Interest income on obligations of any state, or its political subdivisions, other than

Rhode Island or its political subdivisions;

     (2) Interest or dividend income on obligations or securities of any authority, commission,

or instrumentality of the United States, but not of Rhode Island or its political subdivisions, to the

extent exempted by the laws of the United States from federal income tax but not from state

income taxes;

     (3) The modification described in § 44-30-25(g);

     (4)(i) The amount defined below of a nonqualified withdrawal made from an account in

the tuition savings program pursuant to § 16-57-6.1. For purposes of this section, a nonqualified

withdrawal is:

     (A) A transfer or rollover to a qualified tuition program under Section 529 of the Internal

Revenue Code, 26 U.S.C. § 529, other than to the tuition savings program referred to in § 16-57-

6.1; and

     (B) A withdrawal or distribution which is:

     (I) Not applied on a timely basis to pay "qualified higher education expenses" as defined

in § 16-57-3(12) of the beneficiary of the account from which the withdrawal is made;

     (II) Not made for a reason referred to in § 16-57-6.1(e); or

     (III) Not made in other circumstances for which an exclusion from tax made applicable

by Section 529 of the Internal Revenue Code, 26 U.S.C. § 529, pertains if the transfer, rollover,

withdrawal or distribution is made within two (2) taxable years following the taxable year for

which a contributions modification pursuant to subdivision (c)(4) of this section is taken based on

contributions to any tuition savings program account by the person who is the participant of the

account at the time of the contribution, whether or not the person is the participant of the account

at the time of the transfer, rollover, withdrawal or distribution;

     (ii) In the event of a nonqualified withdrawal under subparagraphs (i)(A) or (i)(B) of this

subdivision, there shall be added to the federal adjusted gross income of that person for the

taxable year of the withdrawal an amount equal to the lesser of:

     (A) The amount equal to the nonqualified withdrawal reduced by the sum of any

administrative fee or penalty imposed under the tuition savings program in connection with the

nonqualified withdrawal plus the earnings portion thereof, if any, includible in computing the

person's federal adjusted gross income for the taxable year; and

     (B) The amount of the person's contribution modification pursuant to subdivision (c)(4)

of this section for the person's taxable year of the withdrawal and the two (2) prior taxable years

less the amount of any nonqualified withdrawal for the two (2) prior taxable years included in

computing the person's Rhode Island income by application of this subsection for those years.

Any amount added to federal adjusted gross income pursuant to this subdivision shall constitute

Rhode Island income for residents, nonresidents and part-year residents; and

     (5) The modification described in § 44-30-25.1(d)(3)(i).

     (6) The amount equal to any unemployment compensation received but not included in

federal adjusted gross income.

     (7) The amount equal to the deduction allowed for sales tax paid for a purchase of a

qualified motor vehicle as defined by the Internal Revenue Code § 164(a)(6).

     (c) Modifications reducing federal adjusted gross income. There shall be subtracted from

federal adjusted gross income:

     (1) Any interest income on obligations of the United States and its possessions to the

extent includible in gross income for federal income tax purposes, and any interest or dividend

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income on obligations, or securities of any authority, commission, or instrumentality of the

United States to the extent includible in gross income for federal income tax purposes but exempt

from state income taxes under the laws of the United States; provided, that the amount to be

subtracted shall in any case be reduced by any interest on indebtedness incurred or continued to

purchase or carry obligations or securities the income of which is exempt from Rhode Island

personal income tax, to the extent the interest has been deducted in determining federal adjusted

gross income or taxable income;

     (2) A modification described in § 44-30-25(f) or § 44-30-1.1(c)(1);

     (3) The amount of any withdrawal or distribution from the "tuition savings program"

referred to in § 16-57-6.1 which is included in federal adjusted gross income, other than a

withdrawal or distribution or portion of a withdrawal or distribution that is a nonqualified

withdrawal;

     (4) Contributions made to an account under the tuition savings program, including the

"contributions carryover" pursuant to paragraph (iv) of this subdivision, if any, subject to the

following limitations, restrictions and qualifications:

     (i) The aggregate subtraction pursuant to this subdivision for any taxable year of the

taxpayer shall not exceed five hundred dollars ($500) or one thousand dollars ($1,000) if a joint

return;

     (ii) The following shall not be considered contributions:

     (A) Contributions made by any person to an account who is not a participant of the

account at the time the contribution is made;

     (B) Transfers or rollovers to an account from any other tuition savings program account

or from any other "qualified tuition program" under section 529 of the Internal Revenue Code, 26

U.S.C. § 529; or

     (C) A change of the beneficiary of the account;

     (iii) The subtraction pursuant to this subdivision shall not reduce the taxpayer's federal

adjusted gross income to less than zero (0);

     (iv) The contributions carryover to a taxable year for purpose of this subdivision is the

excess, if any, of the total amount of contributions actually made by the taxpayer to the tuition

savings program for all preceding taxable years for which this subsection is effective over the

sum of:

     (A) The total of the subtractions under this subdivision allowable to the taxpayer for all

such preceding taxable years; and

     (B) That part of any remaining contribution carryover at the end of the taxable year

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which exceeds the amount of any nonqualified withdrawals during the year and the prior two (2)

taxable years not included in the addition provided for in this subdivision for those years. Any

such part shall be disregarded in computing the contributions carryover for any subsequent

taxable year;

     (v) For any taxable year for which a contributions carryover is applicable, the taxpayer

shall include a computation of the carryover with the taxpayer's Rhode Island personal income

tax return for that year, and if for any taxable year on which the carryover is based the taxpayer

filed a joint Rhode Island personal income tax return but filed a return on a basis other than

jointly for a subsequent taxable year, the computation shall reflect how the carryover is being

allocated between the prior joint filers; and

     (5) The modification described in § 44-30-25.1(d)(1).

     (6) Amounts deemed taxable income to the taxpayer due to payment or provision of

insurance benefits to a dependent, including a domestic partner pursuant to chapter 12 of title 36

or other coverage plan.

     (7) Modification for organ transplantation.

     (i) An individual may subtract up to ten thousand dollars ($10,000) from federal adjusted

gross income if he or she, while living, donates one or more of his or her human organs to another

human being for human organ transplantation, except that for purposes of this subsection, "human

organ" means all or part of a liver, pancreas, kidney, intestine, lung, or bone marrow. A subtract

modification that is claimed hereunder may be claimed in the taxable year in which the human

organ transplantation occurs.

     (ii) An individual may claim that subtract modification hereunder only once, and the

subtract modification may be claimed for only the following unreimbursed expenses that are

incurred by the claimant and related to the claimant's organ donation:

     (A) Travel expenses.

     (B) Lodging expenses.

     (C) Lost wages.

     (iii) The subtract modification hereunder may not be claimed by a part-time resident or a

nonresident of this state.

     (8) Modification for taxable Social Security income or pension income.

     (i) For tax years beginning on or after January 1, 2016:

     (A) For a person who has attained the age used for calculating full or unreduced social

security retirement benefits, to include any individual not qualified to receive social security

benefits and receiving private or public pension income, who files a return as an unmarried

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individual, head of household or married filing separate whose federal adjusted gross income for

such taxable year is less than eighty thousand dollars ($80,000); or

     (B) A married individual filing jointly or individual filing qualifying widow(er) who has

attained the age used for calculating full or unreduced social security retirement benefits, to

include any individual not qualified to receive social security benefits and receiving private or

public pension income, whose joint federal adjusted gross income for such taxable year is less

than one hundred thousand dollars ($100,000), an amount equal to the social security benefits

includable in federal adjusted gross income.

     (ii) Adjustment for inflation. The dollar amount contained in subparagraphs 44-30-

12(c)(8)(i)(A) and 44-30-12(c)(8)(i)(B) shall be increased annually by an amount equal to:

     (A) Such dollar amount contained in subparagraphs 44-30-12(c)(8)(i)(A) and 44-30-

12(c)(8)(i)(B) adjusted for inflation using a base tax year of 2000, multiplied by;

     (B) The cost-of-living adjustment with a base year of 2000.

     (iii) For the purposes of this section the cost-of-living adjustment for any calendar year is

the percentage (if any) by which the consumer price index for the preceding calendar year

exceeds the consumer price index for the base year. The consumer price index for any calendar

year is the average of the consumer price index as of the close of the twelve (12) month period

ending on August 31, of such calendar year.

     (iv) For the purpose of this section the term "consumer price index" means the last

consumer price index for all urban consumers published by the department of labor. For the

purpose of this section the revision of the consumer price index which is most consistent with the

consumer price index for calendar year 1986 shall be used.

     (v) If any increase determined under this section is not a multiple of fifty dollars

($50.00), such increase shall be rounded to the next lower multiple of fifty dollars ($50.00). In the

case of a married individual filing separate return, if any increase determined under this section is

not a multiple of twenty-five dollars ($25.00), such increase shall be rounded to the next lower

multiple of twenty-five dollars ($25.00).

     (9) Alternative modification election Modification for up to fifteen thousand dollars

($15,000) of taxable retirement income from certain pension plans or annuities.

     (i) For tax years beginning on or after January 1, 2017, an alternative election

modification a modification shall be allowed for either the greater of the modification contained

in § 44-30-12(c)(8)(i)(A), if applicable, or up to fifteen thousand dollars ($15,000) of taxable

pension and/or annuity income that is included in federal adjusted gross income for the taxable

year:

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     (A) For a person who has attained the age used for calculating full or unreduced social

security retirement benefits who files a return as an unmarried individual, head of household, or

married filing separate whose federal adjusted gross income for such taxable year is less than the

amount used for the modification contained in § 44-30-12(c)(8)(i)(A) either the greater of the

modification contained in § 44-30-12(c)(8)(i)(A), if applicable, or an amount not to exceed

$15,000 of taxable pension and/or annuity income includable in federal adjusted gross income; or

     (B) For a married individual filing jointly or individual filing qualifying widow(er) who

has attained the age used for calculating full or unreduced social security retirement benefits

whose joint federal adjusted gross income for such taxable year is less than the amount used for

the modification contained in § 44-30-12(c)(8)(i)(B) either the greater of the modification

contained in § 44-30-12(c)(8)(i)(A), if applicable, or an amount not to exceed $15,000 of taxable

pension and/or annuity income includable in federal adjusted gross income.

     (ii) Adjustment for inflation. The dollar amount contained by reference in §§ 44-30-

12(c)(9)(i)(A) and 44-30-12(c)(9)(i)(B) shall be increased annually for tax years beginning on or

after January 1, 2018 by an amount equal to:

     (A) Such dollar amount contained by reference in §§ 44-30-12(c)(9)(i)(A) and 44-30-

12(c)(9)(i)(B) adjusted for inflation using a base tax year of 2000, multiplied by;

     (B) The cost-of-living adjustment with a base year of 2000.

     (iii) For the purposes of this section, the cost-of-living adjustment for any calendar year is

the percentage (if any) by which the consumer price index for the preceding calendar year

exceeds the consumer price index for the base year. The consumer price index for any calendar

year is the average of the consumer price index as of the close of the twelve-month (12) period

ending on August 31, of such calendar year.

     (iv) For the purpose of this section, the term "consumer price index" means the last

consumer price index for all urban consumers published by the department of labor. For the

purpose of this section, the revision of the consumer price index which is most consistent with the

consumer price index for calendar year 1986 shall be used.

     (v) If any increase determined under this section is not a multiple of fifty dollars

($50.00), such increase shall be rounded to the next lower multiple of fifty dollars ($50.00). In the

case of a married individual filing a separate return, if any increase determined under this section

is not a multiple of twenty-five dollars ($25.00), such increase shall be rounded to the next lower

multiple of twenty-five dollars ($25.00).

     (d) Modification for Rhode Island fiduciary adjustment. There shall be added to, or

subtracted from, federal adjusted gross income (as the case may be) the taxpayer's share, as

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beneficiary of an estate or trust, of the Rhode Island fiduciary adjustment determined under § 44-

30-17.

     (e) Partners. The amounts of modifications required to be made under this section by a

partner, which relate to items of income or deduction of a partnership, shall be determined under

§ 44-30-15.

     SECTION 2. This act shall take effect on July 1, 2019, and shall not be applied

retroactively.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO TAXATION -- PERSONAL INCOME TAX

***

     This act provides that individuals who do not qualify for social security benefits and who

receive pension income may exclude the pension income from taxation under the same

circumstances that social security income is excluded from taxation. Alternatively, up to fifteen

thousand dollars ($15,000) in pension income will be excluded from taxation.

     This act would take effect on July 1, 2019, and shall not be applied retroactively.

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