2022 -- H 7171

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LC003925

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2022

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A N   A C T

RELATING TO TAXATION -- BUSINESS CORPORATION TAX

     

     Introduced By: Representatives Baginski, Shekarchi, and Shallcross Smith

     Date Introduced: January 26, 2022

     Referred To: House Finance

     It is enacted by the General Assembly as follows:

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     SECTION 1. Section 44-11-2.3 of the General Laws in Chapter 44-11 entitled "Business

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Corporation Tax" is hereby amended to read as follows:

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     44-11-2.3. Pass-through entities -- Election to pay state income tax at the entity level.

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     (a) Definitions. As used in this section:

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     (1) "Election" means the annual election to be made by the pass-through entity by filing

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the prescribed tax form and remitting the appropriate tax.

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     (2) "Net income" means the net ordinary income, net rental real estate income, other net

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rental income, guaranteed payments, and other business income less specially allocated

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depreciation and deductions allowed pursuant to § 179 of the United States Revenue Code (26

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U.S.C. § 179), all of which would be reported on federal tax form schedules C and E. Net income

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for purposes of this section does not include specially allocated investment income or any other

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types of deductions.

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     (3) "Owner" means an individual who is a any shareholder of an S Corporation; a any

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partner in a general partnership, a limited partnership, or a limited-liability partnership; a any

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member of a limited-liability company, a any beneficiary of a trust; or a sole proprietor excluding

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tax-exempt owners including, but not limited to, nonprofit, IRA, 401(k) plans.

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     (4) "Pass-through entity" means a corporation that for the applicable tax year is treated as

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an S Corporation under I.R.C. 1362(a)(26 U.S.C. § 1362(a)), or a general partnership, limited

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partnership, limited-liability partnership, trust, limited-liability company or unincorporated sole

 

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proprietorship that for the applicable tax year is not taxed as a corporation for federal tax purposes

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under the state's regulations.

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     (5) "State tax credit" means the amount of tax paid by shown on the pass-through entity at

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the entity level entity's Pass-through Entity Election Tax Return that is passed through to an owner

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on a pro rata basis.

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     (b) Elections.

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     (1) For tax years beginning on or after January 1, 2019, a pass-through entity may elect to

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pay the state tax at the entity level at the rate of seven percent (7%) to the extent the pass-through

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entity is owned by a C corporation, and at the rate of five and ninety-nine hundredths percent

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(5.99%) for individuals, S corporations, LLCs, partnerships and trusts.

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     (2) If a pass-through entity elects to pay an entity tax under this subsection, the entity shall

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not have to comply with the provisions of § 44-11-2.2 regarding withholding on non-resident

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owners. In that instance, the entity shall not have to comply with the provisions of § 44-11-2.2

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regarding withholding on non-resident owners.

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     (c) Reporting.

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     (1) The pass-through entity shall report the pro rata share of the state income tax taxes paid

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by the entity shown on the pass-through entity's Pass-through Entity Election Tax Return, which

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sums will be allowed as a state tax credit for an owner on his or her its personal income tax return.

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     (2) The pass-through entity shall add back into its income any amount deducted on the

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federal tax return as a Rhode Island pass-through entity tax also report the pro rata share of the state

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income taxes paid by the entity as an income (addition) modification to be reported by an owner

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on his or her personal income tax returns.

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     (d) State tax credit shall be the amount of tax paid by shown on the pass-through entity, at

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the entity level, entity's Pass-through Entity Election Tax Return, which is passed through to the

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owners, on a pro rata basis.

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     (e) A similar type of tax imposed by another state on the owners' income paid at the state

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entity level shall be deemed to be allowed as a credit for taxes paid to another jurisdiction in

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accordance with the provisions of § 44-30-18.

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     (f) "Combined reporting" as set forth in § 44-11-4.1 shall not apply to reporting under this

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section.

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     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO TAXATION -- BUSINESS CORPORATION TAX

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     This act would provide technical amendments to the existing Pass-through Entity Election

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Tax statute to allow tax practitioners and the Rhode Island Division of Taxation to comply with the

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provisions in practice.

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     This act would take effect upon passage.

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