Chapter 06-631

Chapter 631

2006 -- S 2717 SUBSTITUTE B AS AMENDED

Enacted 07/14/06

A N A C T

RELATING TO PUBLIC OFFICERS AND EMPLOYEES

Introduced By: Senators Blais, and Breene

Date Introduced: February 14, 2006

It is enacted by the General Assembly as follows:

SECTION 1. Chapter 36-12 of the General Laws entitled "Insurance Benefits" is hereby

amended by adding thereto the following section:

36-12-15. Domestic partner income loan program. – (a) Legislative findings: The

general assembly hereby finds that:

(1) The department of administration is responsible for the administration of state health

care benefits programs for state employees;

(2) In 2001, the general assembly amended section 36-12-1 to allow for the provisions of

health care benefits for domestic partners of state employees;

(3) The state was only recently advised that said amendment resulted in certain

unanticipated federal tax implications for some state employees;

(4) Under federal tax law, the fair market value of health insurance coverage for domestic

partners of state employees is considered to be imputed income to affected state employees unless

said domestic partner otherwise qualifies under applicable federal laws and regulations as the

state employee's dependent for health care purposes;

(5) Because said tax ramifications were unanticipated, the state did not inform the

affected employees of those ramifications until November 2005;

(6) Under applicable state and federal tax law taxpayers are responsible for paying the

amounts of any underpayments of state and federal income taxes;

(7) Affected employees are required to file their 2005 state and federal income tax returns

on or before April 15, 2006; and

(8) In order to pay the additional income tax owed as a result of the imputed income from

the receipt of health care benefits for their domestic partners, some affected employees may

require financial assistance.

(b) There is hereby created a separate account within the department of administration

which shall be known as the Domestic Partner Income Tax Loan Account (2002-2005),

hereinafter known as the ("Account"). The account is created in order that the state of Rhode

Island, through the department of administration, can develop and implement an interest-free loan

program to loan funds to eligible state employees so that employees can pay the additional federal

and state income taxes incurred for the tax years 2002, 2003, 2004 and 2005, as a result of

income imputed to them equal to the fair market value of the health care benefits extended to

their domestic partners. The state controller is hereby authorized to advance from the general

fund the necessary funds for disbursement of loan amounts to eligible employees as provided

herein.

accordance with the requirements of the Domestic Partner Income Tax Loan Account Program,

hereinafter known as the ("Program"), as follows:

(1) Only one such loan will be extended to an employee;

(2) No loans will be granted after August 15, 2006;

(3) Loans will only be extended to current employees of the state who have signed a

promissory note and have committed to full repayment through payroll deduction;

(4) Loans will not be extended to employees who are on any type of leave if the

employee does not have bi-weekly pay sufficient to cover the necessary payment;

(5) Loans will only be extended to those employees who owe more than a total of five

hundred dollars ($500) in state and federal taxes as a result of the extension of state health care

benefits to an employee's domestic partner for the tax years 2002, 2003, 2004, and 2005;

(6) The maximum amount of each loan shall be six thousand dollars ($6,000) or the total

amount of state and federal taxes owing due to the underreporting of taxable imputed income

from the extension of state health care benefits to domestic partners of state employees during the

tax years 2002, 2003, 2004, and 2005, whichever is less. Provided, however, the maximum loan

amount for the 2005 tax year shall be the 2005 imputed income from the benefits times the

effective tax rate for the filer for 2005, which is calculated as tax liability divided by adjusted

gross income. Provided further, the 2005 loan amount shall be reduced by the total amount of any

2005 federal and state estimated tax refunds.

(7) For payment of federal taxes owing, the state will issue the check payable to the IRS

and the employee. The employee shall be responsible for submission of the check, along with the

amended return, to the IRS;

(8) For payment of state taxes owing, the state will issue the check payable to the Rhode

Island division of taxation and the employee. The employee shall be responsible for submission

of the check, along with the amended return, to the division of taxation;

(9) If after receiving such a loan an employee does not have sufficient funds in his/her bi-

weekly pay to pay the loan payment, the employee will be responsible for repayment to the

Program with repayment made on or before the date the deduction would have been made from

his/her bi-weekly pay. If payment is not promptly remitted, the promissory note will immediately

become due and payable in full;

(10) The loan repayment schedule will consist of the following maximum repayment

periods:

(i) For loan amounts greater than five hundred dollars ($500), and less than or equal to

one thousand dollars ($1,000): the maximum repayment period is one year;

(ii) For loan amounts greater than one thousand dollars, ($1,000), and less than or equal

to two thousand dollars ($2,000): the maximum repayment period is two (2) years;

(iii) For loan amounts greater than two thousand dollars ($2,000), and less than or equal

to three thousand dollars ($3,000): the maximum repayment period is three (3) years;

(iv) For loan amounts greater than three thousand dollars ($3,000), and less than or equal

to six thousand dollars ($6,000): the maximum repayment period is four (4) years.

Notwithstanding the above employees may voluntarily elect a shorter repayment period.

(11) The minimum loan payment amount will be calculated by dividing the qualifying

amount set forth in section (6) above by the number of pay periods in the applicable repayment

period set forth in section (10) above.

Notwithstanding the above employees may voluntarily elect a higher monthly repayment

amount.

(12) If the employee does not remit a payment when due, and the state commences legal

action through suit or otherwise to collect the same or a portion thereof, the state shall be entitled

to collect all reasonable costs and expenses of suit, including, but not limited to, reasonable

attorney's fees;

(13) If an employee leaves state employment, any outstanding loan amount will become

due and payable at the date of termination. Any amount owed for the employee's unused

vacation, sick, and personal time shall be applied toward payoff of the loan.

(14) (i) Additionally, an employee may elect to discharge accrued vacation time in

exchange for the state paying a portion or the entire amount owed to the IRS and/or state division

of taxation. An employee who wishes to exercise this option must inform the state controller in

writing of the number of accrued vacation hours he/she wishes to discharge. The controller will

first deduct the required taxes from the value of the vacation hours, and will then authorize

payment of the remaining funds to the IRS and/or the division of taxation on behalf of the

employee. This option is available through August 15, 2006, and is available only once to an

employee. In the event that an employee discharges such accrued vacation time, the value of such

vacation time shall be deducted from the maximum loan amount in paragraph (6) above.

(ii) In addition, in December 2006 and thereafter each December until the year 2009, and

in order to reduce the outstanding amount of the loan that is owed to the state, an employee with

an outstanding domestic partner loan amount may elect to discharge vacation time accrued by the

employee during that calendar year. An employee who wishes to exercise this option must notify

the state controller in writing by December 1 of the number of accrued vacation hours he/she

wishes to discharge for loan repayment that year. Upon approval the controller will first deduct

the required taxes from the value of the vacation hours accrued, and will then deduct the

remaining amount from the outstanding amount of the loan. Provided, however, this option is

available only to those employees who had discharged the full amount of their accrued vacation

before the inception of their loan.

(d) All amounts repaid under the terms of the program shall be promptly remitted to the

Domestic Partner Income Tax Loan Account in the general fund.

(e) Beginning in January 2007, and in each January thereafter until the loans are repaid

in full, the department of administration shall submit a report to the chairpersons of the house and

senate finance committees which shall describe, as of December 31 of the previous year, the

number of state employees that continued to participate in the program, the number and dollar

amount of loans outstanding, and the total receipts from payroll deductions that have been

transferred to the general fund during the prior twelve (12) month period.

(f) For purposes of the Program, the term "employee(s)" shall include employee(s) of

other state agencies for which the department of administration purchased health care coverage

during the period 2002-2005.

SECTION 2. Section 44-1-7 of the General Laws in Chapter 44-1 entitled "State Tax

Officials" is hereby amended to read as follows:

44-1-7. Interest on delinquent payments. -- (a) Whenever the full amount of any state

tax or any portion or deficiency, as finally determined by the tax administrator, has not been paid

on the date when it is due and payable, whether the time has been extended or not, there shall be

added as part of the tax or portion or deficiency interest at the rate as determined in accordance

with subsection (b) of this section, notwithstanding any general or specific statute to the contrary;

provided, however, no interest or penalties shall be added to any deficiency resulting from

imputed income from domestic partner healthcare benefits for tax years 2002 through 2004

provided the taxpayer files amended returns by August 15, 2006.

(b) Each January 1 the tax administrator shall compute the rate of interest to be in effect

for that calendar year by adding two percent (2%) to the prime rate, which was in effect on

October 1 of the preceding year. The resultant sum is the interest rate referred to in subsection (a)

of this section and in section 44-1-7.1.

rate quoted by commercial banks to large businesses as determined by the board of governors of

the Federal Reserve System. In no event shall the rate of interest exceed twenty-one percent

(21%) per annum nor be less than twelve percent (12%) per annum.

SECTION 3. This act shall take effect upon passage and shall be repealed on August 15,

2010.

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LC01559/SUB B

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