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IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2000

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The above rate table may not be used by a taxpayer who files a federal Schedule D and has taxable income in excess of $5,500.00. Those individuals must file a Rhode Island Schedule D.

(vi) The purpose of the 1993 rate schedules and/or the Rhode Island Schedule D shall be such that a taxpayer's 1993 Rhode Island personal income tax liability shall remain the same as it would have been prior to the enactment of the Federal Omnibus Budget Reconciliation Act of 1993, (OBRA), P.L. 103-66, 107 Stat. 312.

(vii) For the year 1994 through December 31, 1997 the rate shall be twenty-seven and five-tenths percent (27.5%) of the taxpayers entire federal income tax liability.

(viii) For the period January 1, 1998 through December 31, 1998 the rate shall be equal to twenty-seven percent (27%) of the taxpayer's federal income tax liability.

(ix) For the period January 1, 1999 through December 31, 1999 the rate shall be equal to twenty-six and five-tenths (26.5%) of the taxpayer's federal income tax liability.

(x) For the period January 1, 2000 through December 31, 2000 the rate shall be equal to twenty-six percent (26%) of the taxpayer's federal income tax liability.

(xi) For the period January 1, 2001 through December 31, 2001 the rate shall be equal to twenty-five and five-tenths percent (25.5%) of the taxpayer's federal income tax liability.

(xii) For the period January 1, 2002 and thereafter the rate shall be twenty-five percent (25%) of the taxpayer's federal income tax liability.

(2) In the event that the indexing of the federal personal income tax scheduled to take effect on January 1, 1985, as enacted by the Economic Recovery Tax Act of 1981, 26 U.S.C. section 1 et seq., does take effect or is replaced by similar legislation, as the result of an action of the United States congress, then the Rhode Island personal income tax rate as set forth in subdivision (a)(1) of this section above for the period January 1, 1985, and through June 30, 1985 shall be changed and be equal to twenty-three and sixty-five one-hundredths percent (23.65%) of the taxpayer's federal income tax liability.

(3) In the event that the indexing of the federal personal income tax scheduled to take effect on January 1, 1986, as enacted by the Economic Recovery Tax Act of 1981, 26 U.S.C. section 1 et seq., does take effect or is replaced by similar legislation as the result of an action of the United States congress, then the Rhode Island personal income tax rate as set forth in subdivision (a)(1) of this section above for the period January 1, 1986, and thereafter shall be changed and be equal to twenty-two and twenty-one one-hundredths percent (22.21%) of the taxpayer's federal income tax liability.

(b) Federal income tax liability. (1) General provisions. - Federal income tax liability shall be the amount of federal income tax without deduction for any new federal credit(s) enacted after January 1, 1996, (excluding self-employment tax, social security tax or any supplemental medicare premium) or supplemental premium surcharge imposed by the Medicare Catastrophic Coverage Act of 1988 (P.L. 100-360), codified primarily at 42 U.S.C. section 1395 et seq., which the taxpayer would have been liable if the taxpayer had paid federal income tax based on federal taxable income as adjusted by the modifications provided in parts II and III of this chapter and the federal taxable income shall not include modifications which would decrease federal taxable income resulting from the applications of section 15 of chapter 489 of the public laws of 1923 as amended by section 8 of chapter 151 of the public laws of 1963; sections 28-17-3, 36-10-32, 45-21-45, or any other sections of Rhode Island law which would provide or would be construed to provide that any pension, annuity, retirement allowance, benefit, or right shall be exempt from any state tax. Except as provided by section 44-30-98, federal income tax liability shall not be modified by the amount of earned income tax credit which the taxpayer has received or for which the taxpayer is eligible pursuant to 42 U.S.C. Section 32.

(c) Cross references. - For credit in respect of:

(1) Taxes withheld on wages, see section 44-30-73;

(2) Taxes imposed on a resident by other states, see section 44-30-18;

(3) Taxes overpaid for a prior taxable year, see section 44-30-86.

(d) (1) There shall be allowed as a credit against the Rhode Island personal income tax otherwise due for a taxable year, commencing for the tax year 1988, a contribution of five dollars ($5.00), or ten dollars ($10.00) if married and filing a joint return, to the account for the public financing of the electoral system. The first two dollars ($2.00), or four dollars ($4.00) if married and filing a joint return, shall go to a political party as defined in section 17-12.1-12 to be designated by the taxpayer or to a nonpartisan account if so indicated up to a total of two hundred thousand dollars ($200,000) collectively for all parties and the nonpartisan account. The remainder shall be deposited as general revenue.

(2) The credit for the public financing of the electoral system shall appear on the face of the state personal income tax return. The tax administrator shall annually forward by August 1, all contributions to said account to the state general treasurer and the treasurer shall annually remit by September 1, the designated partisan contributions to the chairperson of the appropriate political party and the contributions made to the nonpartisan general account shall be allocated by the state general treasurer to each political party in proportion to the combined number of votes its candidates for governor received in the previous election, after five percent (5%) of the amount in the account is allocated to each party for each general officer elected in the previous statewide election. Each political party may expend moneys received under this provision for all purposes and activities permitted by the laws of Rhode Island and the United States, except that no such moneys shall be utilized for expenditures to be directly made or incurred to support or defeat a candidate in any election within the meaning of chapter 25 of title 17, or in any election for any political party nomination, or for political party office within the meaning of chapter 12 of title 17. The remaining funds shall be allocated for the public financing of campaigns for governor as set forth in sections 17-25-19 -- 17-25-27.

(e) (1) Notwithstanding the provisions of subsection (a) above for taxable years ending after December 31, 1980, in the event that during a period when the general assembly is not in session a change is made in the provisions of the Internal Revenue Code of the United States and amendments thereto, or other provisions of the law of the United States relating to federal income taxes, or the rules and regulations issued under these laws that alters the taxpayer's federal income tax liability, the tax administrator is herewith directed to so change the Rhode Island personal income tax rate of the taxpayer's federal income tax liability as to thereby retain the tax product upon receipt of which state appropriations were predicated.

(2) The rate so set by the tax administrator will be effective until such time as the general assembly shall ratify this rate or set a different rate.

(f) Tax rate on capital gains. Notwithstanding the provisions of subsection (a) of this section, the tax rate applied to net capital gains, from the sale or exchange of capital assets held more than one year, shall be as herein set forth for taxpayers that elect to use the exclusion provided for in section 44-30-12(c)(3) for tax year 2002 and subsequent tax years. For taxpayers using the exclusion provided for in section 44-30-12(c)(3) that have included a net capital gain (as defined in 26 U.S.C. section 1222(1)), from the sale or exchange of a capital asset in the calculation of their federal taxable income, the tax in this state attributable to such gain shall not exceed a tax determined on the basis of the rates set forth below, provided the taxpayer has a holding period of more than one year for such asset. The holding period for all capital assets shall be deemed to begin on December 31, 2001, or the date actually acquired, which ever is later, provided that for incentive stock options (as such term is defined in 26 U.S.C. section 422 or section 423), the date of acquisition shall be deemed to be the date the option is issued, not the date on which the option is exercised. The tax rates applied to net capital gains, from the sale or exchange of capital assets held more than one year, shall be 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 section 44-30-25(g).

(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 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; and (2) the modification described in section 44-30-25(f) or section 44-30-1.1(C)(1). ; and (3) subject to taxation according to the rates established in section 44-30-2 (a) (1), commencing with tax year 2002, net long term capital gains for sale or exchange of capital assets that have been held for more than one (1) year and that the taxpayer elects to be taxed as provided for in section 44-30-2(f).

(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 beneficiary of an estate or trust, of the Rhode Island fiduciary adjustment determined under section 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 section 44-30-15.

SECTION 2. Chapter 44-30 of the General Laws entitled "Personal Income Tax" is hereby amended by adding thereto the following section:

44-30-98. Earned Income Tax Credit. -- If a taxpayer is entitled to an earned income tax credit pursuant to 42 U.S.C. section 32, the Rhode Island income tax liability commencing in tax year 2003 shall be reduced by the amount of the federal earned income tax credit multiplied first, by the applicable income tax rate in section 44-30-2(a) and second, by the percentage set forth in the table below, and the product of this multiplication shall be the Rhode Island earned income tax credit. In the event that the Rhode Island earned income tax credit exceeds the tax owned, the excess amount will be refunded to the taxpayer.

SECTION 3. This act shall be effective July 1, 2000.

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LC03654
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EXPLANATION
BY THE LEGISLATIVE COUNCIL
OF

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This act would phase-out the state personal income tax on long-term capital gains and phase-in an earned income tax credit.

This act would be effective July 1, 2000.