2024 -- S 2347

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LC004839

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2024

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A N   A C T

RELATING TO TAXATION -- TAX ON GAINS FROM THE SALE OR EXCHANGE OF

REAL PROPERTY

     Introduced By: Senators Euer, Acosta, Bissaillon, Mack, DiMario, Zurier, Gu, Murray,
and Bell

     Date Introduced: February 12, 2024

     Referred To: Senate Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Title 44 of the General Laws entitled "TAXATION" is hereby amended by

adding thereto the following chapter:

CHAPTER 72

TAX ON GAINS FROM THE SALE OR EXCHANGE OF REAL PROPERTY

     44-72-1. Tax imposed.

     There is imposed, in addition to all other taxes imposed by this chapter, a tax on the gains

from the sale or exchange of real property in Rhode Island.

     44-72-2. Property sales excluded.

     The following categories of real property sales are excluded from the tax imposed by this

chapter:

     (1) Property sold by a nonprofit development corporation or nonprofit local development

corporation qualifying under Section 501(c)(3) of the United States Internal Revenue Code

(Internal Revenue Code).

     (2) Property purchased by the State of Rhode Island from organizations qualifying under

Section 501(c)(3) of the Internal Revenue Code.

     (3) Property conveyed pursuant to a court judgment decreeing the disposition of real estate

of the parties to a marriage, to the extent that the property is conveyed to either of the parties.

     (4)(i) Farmland and open-space property sold to organizations qualifying under Section

501(c)(3) of the Internal Revenue Code, as amended, which also meet the "public support" test

under Section 509(a)(2) of the Code, provided one of the stated purposes of the organization is to

acquire property or rights and interests in property in order to preserve agricultural, forestry or

open-space uses; and provided that, the property transferred, or rights and interests in the property,

will be held for agricultural, forestry or open space purposes, and is so held by such organization

for at least six (6) years. As used in this section, "farmland" means land which will be actively

operated or leased as part of a farm enterprise, and "open-space land" means land without structures

thereon.

     (ii) If the property transferred, or rights and interests in the property, is not so held by such

organization for the six (6) year period, the tax which would have been due from the seller or

transferor shall become due from such organization for that portion of the property not so held or

transferred to a governmental entity. In cases coming within this subsection, the tax administrator

may require the seller or transferor to file a property gains tax return at the time of the sale or

exchange, in order to establish the amount of tax which will become the tax liability of such

organization in such case.

     (iii) The exclusion under this subsection shall be disallowed if the tax administrator

determines that the sale was not for a conservation purpose, as defined in Section 170(h) of the

Internal Revenue Code, as amended.

     (5)(i) Property sold to organizations qualifying under Section 501(c)(3) of the Internal

Revenue Code, as amended, which also meet the "public support" test under Section 509(a)(2) of

the Code, provided one of the stated purposes of the organization is to acquire property or rights

and interests in property in order to develop affordable housing, as defined in § 42-128-8.1(d)(i);

and provided that, the property transferred, or rights and interests in the property, will be held for

that purpose by such organization for at least six (6) years.

     (ii) If the property transferred, or rights and interests in the property, is not so held by such

organization for the six (6) year period, the tax which would have been due from the seller or

transferor shall become due from such organization for that portion of the property not so held or

transferred to a governmental entity. In cases coming within this subsection, the tax administrator

may require the seller or transferor to file a property gains tax return at the time of the sale or

exchange, in order to establish the amount of tax which will become the tax liability of such

organization in such case.

     (iii) The exclusion under this subsection shall be disallowed if the tax administrator

determines that the sale was not for an affordable housing purpose, as defined in Section 170(h) of

the Internal Revenue Code, as amended.

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     (6) Property sold by the United States of America, the State of Rhode Island, or any of its

instrumentalities or subdivisions, or by organizations qualifying under Section 501(c)(3) of the

Internal Revenue Code; provided that, the sale is exempt from federal income taxation under the

Internal Revenue Code.

     (7) Agricultural land transferred by a farmer to a member of the farmer's family, when the

land is used by the transferee as agricultural land for a period of time which, when added to the

time the land was used as agricultural land by the transferor, equals or exceeds six (6) years. For

the purpose of this section, the terms "agricultural land" and "farmer" shall have the definitions

provided in §§ 42-82-2 and 44-27-2, and "family" means persons in a relationship to the transferor

of grandparent, parent or stepparent, brother or sister, or natural or adopted child. As used in this

section, property is deemed to be transferred from a farmer to a transferee when the farmer has died

and title vests in the transferee by right of survivorship in a joint tenancy, tenancy by the entirety,

or through intestate succession, or by will, without any intervening transfers, except those to and

from the estate.

     (8) Conservation rights and interests and preservation rights and interests transferred to a

qualified holder are excluded from taxation under the provisions of this chapter.

     44-72-3. Rate of tax.

     (a) The tax imposed pursuant to this chapter shall be based upon the years held at the

following rates on the gain, as gain is determined under § 44-64-6:

      *Gain, as a percentage of basis (tax cost)

     Years property held by transferor 0-99% 100-199% 200% or more

     Less than 4 months 60% 70% 80%

     4 months, but less than 8 35% 52.5% 70%

     8 months but less than 1 year 30% 45% 60%

     1 year, but less than 2 25% 37.5% 50%

     2 years, but less than 3 20% 30% 40%

     3 years, but less than 4 15% 22.5% 30%

     4 years, but less than 5 10% 15% 20%

     5 years, but less than 6 5% 7.5% 10%

     * Gain, as percent of basis, shall be rounded to the next highest whole percentage. A single

flat rate of tax shall apply to all of the gain, and shall be determined by the percentage which the

entire gain is of the basis (tax cost).

     (b) The total amount of tax due on the sale of a property by a transferor shall be reduced

by the federal taxes due from that transferor on the capital gains for that same property for that

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same sale, under the provisions of the Internal Revenue Code.

     44-72-4. Sale or exchange.

     (a) As used in this chapter "sale or exchange of property" means any transfer of title to real

property for a consideration. The transfer of an option for the sale or exchange of property shall be

considered a transfer of title to property for the purposes of this chapter.

     (b) Contracts for the sale of property constitute sales or exchanges of property for all

purposes of this chapter; provided, however, contracts shall not constitute sales or exchanges until

some consideration has passed thereunder to or for the benefit of the seller or exchanger. The sale

or exchange is considered to take place at the time any consideration whatsoever, of whatever

nature, first passes under the contract. If the land has been held by the seller for less than one year,

the entire tax due on the sale then shall become due as provided under this chapter, even if the

transaction between the parties involves an installment sale. A mere promise to purchase, and

amounts paid as earnest money, or amounts paid in deposit or amounts paid in escrow to which the

seller has no immediate right, do not constitute the passing of consideration for the purposes of this

chapter.

     (c) Any sale or exchange of shares in a corporation or other entity, or of comparable rights

or property interests in any other form of organization or legal entity, which effectively entitles the

purchaser to the use or occupancy of property constitutes a sale or exchange of property.

     44-72-5. Basis, gain and holding period.

     (a) The provisions of the Internal Revenue Code shall determine the basis of property sold

or exchanged, except basis for property transferred by a mortgagee who acquired the property by

foreclosure or transfer in lieu of foreclosure shall be the amount of debt due the mortgagee,

increased by the costs of acquisition, and decreased by the amount of any tax benefit due to bad

debt loss on the mortgage debt.

     (b) The amount realized from the sale or exchange shall be the full actual consideration

therefor, paid or to be paid, including the amount of any liens or encumbrances on the property

existing before the sale or exchange and not removed thereby. The amount realized from the sale

or exchange shall be the gross amount thereof, reduced by any reasonable expenses of sale and

commissions. Provided, however, if the seller has owned the property for less than one year, the

amount realized from the sale or exchange shall be the gross amount thereof, reduced by no more

than a total of twelve percent (12%) by any expenses of sale and commissions.

     (c) The taxable gain from the sale or exchange is the amount realized minus the basis of

the property as determined under subsection (a) of this section. No gain shall be recognized in cases

where gain is not recognized under the Internal Revenue Code, as amended, in relation to the sale

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or exchange of capital assets.

     (d) The property sold or exchanged shall be deemed to have been held as determined under

the Internal Revenue Code. If spouses are tenants by the entirety, there may be added to the holding

period the amount of time the land was held by one spouse alone before that spouse created the

tenancy by the entirety. Notwithstanding any provision to the contrary under the Internal Revenue

Code, if a tenancy by the entirety is dissolved by reason of death or divorce, the holding period

during the tenancy by the entirety will be added to the holding period of the spouse subsequently

owning the property in the spouse's own name. For the purposes of this subsection property devised

to or inherited by a surviving spouse or awarded to a spouse upon dissolution of marriage shall be

treated as though it had been held by spouses as tenants by the entirety.

     (e) The taxable gain under this chapter from the sale or exchange of property shall not be

reduced by any losses incurred in other transactions.

     (f) Notwithstanding any other provisions of this section, property acquired from a decedent,

or an estate, or sold by an estate, shall have a holding period commencing as of the date of death

of the decedent, and its basis shall be the fair market value of such property as of the date of death

of the decedent, or alternative valuation date as finally determined under the Internal Revenue Code

for the federal estate tax.

     44-72-6. Liability for tax.

     (a) The person liable for the tax is the transferor (which includes the owner, seller, or other

exchanger) of the property sold or exchanged. Provided, however, whenever in this chapter the

transferor is relieved from liability for the payment of the tax on account of a certification or

statement made by the transferee concerning the use or intended use of the property, and such

certification or statement is, or turns out to be, untrue or incorrect, then the tax otherwise due from

the transferor shall become the liability of, and shall be paid by, the transferee. The transferee's tax

liability shall be a lien upon the land transferred, running with the property, in favor of this state.

     (b) In any such case where the transferor is relieved of tax at the time of transfer on account

of a certification or statement made by the transferee, the transferor shall file at the time of transfer

a property gains tax return in order to establish the amount of the tax liability of the transferee in

the event that the certification or statement made by the transferee is, or turns out to be, untrue or

incorrect.

     44-72-7. Withholding at source -- Payment.

     (a) The buyer or transferee of any property held by the seller or transferor for less than six

(6) years, shall withhold ten percent (10%) of all consideration paid to the seller or transferor for

such land, including ten percent (10%) of all partial payments made pursuant to installment sales

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under § 44-72-8. At the time any payment is made to the seller or transferor, the amounts withheld

shall be remitted to the tax administrator.

     (b) Within thirty (30) days of the sale or exchange of property, for which withholding is

required under this section, the seller or transferor shall file a return with the tax administrator

setting forth the amount of the tax due pursuant to § 44-72-3 and the amount withheld by the buyer

or transferee pursuant to subsection (a) of this section. The seller shall either remit with the return

the balance of the tax due or make claim for a refund. Any refund not made by the administrator

within forty-five (45) days of receipt of a valid claim shall accrue interest at the statutory rate. For

good cause shown and upon conditions set by the administrator, the administrator may extend the

time for filing the return and paying the tax required by this chapter.

     (c) Notwithstanding either subsection (a) or (b) of this section, the seller or transferor may,

in advance of the sale or exchange, pay the tax imposed by this chapter or obtain a written ruling

from the tax administrator that no tax is due under this chapter. In either case, the administrator

shall certify to the seller or transferor that such payment has been made or that no tax is due. Upon

receipt by the buyer or transferee of such certification from the seller or transferor, the buyer or

transferee shall not be required to withhold under subsection (a) of this section.

     (d) All taxes required to be paid or withheld under this chapter shall constitute a personal

debt of the person liable to pay or withhold the same to the State of Rhode Island to be recovered

in an action pursuant to subsection (e) of this section.

     (e) An action may be brought to recover the amount of the taxes to be paid or withheld in

the manner prescribed for recovering amounts owed for taxes under this title. The amount of taxes

to be paid or withheld shall be a lien in favor of the State of Rhode Island upon all property and

rights to property, whether real or personal, belonging to the person liable for the tax or for the

withholding.

     44-72-8. Installment sales.

     (a) For the purpose of this section, "installment sale" means the sale or exchange of

property as defined in § 44-72-4 for which the total tax due under this chapter is greater than two

thousand dollars ($2,000) and in which the parties agree in advance that payments shall be received

by the seller or transferor in more than one installment on a date or dates other than the date of

closing. A sale financed by a mortgage, deed of trust, or other financing arrangement in which the

seller or transferor is paid in full on the date of the sale or exchange shall not be considered an

installment sale. A lease-purchase agreement under which any part of the rental payments constitute

a portion of the purchase price of the land shall be considered an installment sale, and for the

purposes of this chapter, the end of the holding period with respect to the sale or exchange shall be

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determined as of the date of the agreement.

     (b) Notwithstanding any provision of law to the contrary, the tax under this chapter on any

installment sale shall be due within thirty (30) days of the date of payment of each installment paid

to the seller or transferor. Provided, however, except for the first installment, the seller or transferor

may elect to file the return as part of their Rhode Island income tax return for any year in which

subsequent installments are paid or due, and to pay the balance of such tax as part of such income

tax; provided that, if the seller or transferor elects to file annual returns, no interest shall accrue on

any withholding as provided by § 44-72-7.

     (c) In an installment sale, the total amount of taxes due under this chapter shall be the

amount that would have been due had the total purchase price been paid on the date the sale or

exchange took place. The amount of taxes due on each separate installment, including the first

installment, shall bear the same proportion to the total amount of taxes due as the amount of that

installment bears to the total consideration.

     44-72-9. Administration of taxes.

     (a) The tax administrator shall administer and enforce this chapter and this tax and may

issue, amend, and withdraw from time to time, reasonable rules and regulations to assist such

administration and enforcement.

     (b) All the administrative provisions of this title, including those relating to the collection

and enforcement by the administrator of the withholding tax and the income tax shall apply to the

tax imposed by this chapter.

     44-72-10. Criminal penalties.

     (a) Any entity or person who willfully defeats or evades or attempts to defeat or evade the

tax imposed by this chapter shall be imprisoned up to two (2) years or fined not more than ten

thousand dollars ($10,000) or five (5) times the amount of the tax defeated or evaded or attempted

to be defeated or evaded, whichever amount is greater, or may be both imprisoned and fined. A

corporation or other taxable entity not being a natural person shall be subject to the fine provided

by this section.

     (b) Any officer, employee, director, trustee or other responsible person of a corporation or

other taxable entity, and any other person, who counsels, aids, abets, participates in, or conceals

the defeat or evasion of tax, or the attempt there at, shall be subject to the penalties of subsection

(a) of this section.

     (c) The form for the payment of the tax under this chapter shall set forth in large type the

penalties provided by this section.

     44-72-11. Exception.

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     Notwithstanding §§ 44-72-1 and 44-72-3, in the case of a sale or exchange of property to

an organization that qualifies under section 501(c)(3) of the Internal Revenue Code and also meets

the "public support" test of section 509(a)(2) of the Code, if one of the stated purposes of the

organization is to provide affordable housing and if the property will be held for this purpose for at

least six (6) years following the sale, then one-half (1/2) of the tax otherwise imposed under this

chapter shall be due. If the property is not held for affordable housing purposes for at least six (6)

years following the transfer, the tax which would have been due from the seller or transferor shall

become due from such organization for that portion of the property not so held. In cases coming

under this section, the administrator may require the seller or transferor to file a property gains tax

return at the time of the sale or exchange, in order to establish the amount of tax which will become

the tax liability of such organization in such case.

     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 -- TAX ON GAINS FROM THE SALE OR EXCHANGE OF

REAL PROPERTY

***

     This act would create a new tax on gains from the sale or exchange of real property held

for short periods of time, six (6) years or less, establish a comprehensive framework to calculate

and implement its enforcement and provides penalties for imprisonment and/or fines for those who

evade the taxes.

     This act would take effect upon passage.

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