2003 -- S 0365

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LC01708

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2003

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A N A C T

RELATING TO TAXATION -- PERSONAL INCOME TAX

     Introduced By: Senators Roberts, Paiva-Weed, Pichardo, and Sheehan

     Date Introduced: February 12, 2003

     Referred To: Senate Finance

It is enacted by the General Assembly as follows:

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     SECTION 1. Section 44-30-2 of the General Laws in Chapter 44-30 entitled "Personal

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Income Tax" is hereby amended to read as follows:

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     44-30-2. Rate of tax. -- (a) General. - (1)(i) A Rhode Island personal income tax is

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imposed upon the Rhode Island income of residents and nonresidents, including estates and

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trusts, for the period January 1, 1971 through June 30, 1971 equal to twenty percent (20%) of

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one-half ( 1/2) of the taxpayer's federal income tax liability for the taxable year commencing

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January 1, 1971; for the period July 1, 1971 through December 31, 1971 equal to fifteen percent

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(15%) of one-half ( 1/2) of the taxpayer's federal income tax liability for the taxable year

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commencing January 1, 1971; and for each taxable year on and after January 1, 1972, and ending

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on or before December 31, 1974 equal to fifteen percent (15%) of the taxpayer's federal income

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tax liability; for each taxable year on and after January 1, 1975 and ending on or before December

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31, 1977 equal to seventeen percent (17%) of the taxpayer's federal income tax liability; for each

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taxable year ending after December 31, 1977 equal to nineteen percent (19%) of the taxpayer's

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federal income tax liability; for each taxable year ending after December 31, 1980 equal to

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nineteen and twenty-four one-hundredths percent (19.24%) of the taxpayer's federal income tax

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liability; for each taxable year ending after December 31, 1981 equal to twenty-one and nine-

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tenths percent (21.9%) of the taxpayer's federal income tax liability; for the period January 1,

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1983 through June 30, 1983 equal to twenty-seven and five-tenths percent (27.5%) of the

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taxpayer's federal income tax liability; for the period July 1, 1983 and through June 30, 1984

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equal to twenty-six percent (26%) of the taxpayer's federal income tax liability; for the period

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July 1, 1984 and through December 31, 1984 equal to twenty-four and nine-tenths percent

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(24.9%) of the taxpayer's federal income tax liability; in accordance with subsection (2) of this

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section for the period January 1, 1985 through June 30, 1985 equal to twenty-three and sixty-five

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one-hundredths percent (23.65%) of the taxpayer's federal income tax liability; for the period July

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1, 1985 through December 31, 1985, equal to twenty-two and sixty-five one-hundredths percent

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(22.65%) of the taxpayer's federal income tax liability; in accordance with subsection (3) of this

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section for January 1, 1986 and thereafter shall be equal to twenty-two and twenty-one one-

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hundredths percent (22.21%) of the taxpayer's federal income tax liability; in accordance with the

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Tax Reform Act of 1986, codified primarily at 26 U.S.C. section 1 et seq., for the period January

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1, 1987 through June 30, 1987 shall be equal to twenty-three and ninety-six one-hundredths

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percent (23.96%) of the taxpayer's federal income tax liability; for the period July 1, 1987

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through December 31, 1990 shall be equal to twenty-two and ninety-six one-hundredths percent

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(22.96%) of the taxpayer's federal income tax liability; for the period January 1, 1991 through

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June 30, 1992 and for the period January 1, 1994 and thereafter shall be equal to twenty-seven

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and five tenths percent (27.5%) of the taxpayer's federal income tax liability; for the period July

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1, 1992 through December 31, 1992 if the taxpayer's federal income tax liability is fifteen

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thousand dollars ($15,000) or less shall be equal to twenty-seven and five tenths percent (27.5%)

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of the taxpayer's federal income tax liability but if the taxpayer's federal income tax liability is

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greater than fifteen thousand dollars ($15,000) shall be the sum of twenty-seven and five-tenths

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percent (27.5%) of the taxpayer's federal income tax liability up to and including fifteen thousand

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dollars ($15,000) and thirty-two percent (32%) of the taxpayer's federal income tax liability in

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excess of fifteen thousand dollars ($15,000).

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      (ii) The effective rate for the year 1983 shall be equal to twenty-six and seventy-five

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hundredths percent (26.75%) of the taxpayer's federal income tax liability. The effective rate for

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the year 1984 shall be equal to twenty-five and five-tenths percent (25.5%) of the taxpayer's

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federal income tax liability.

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      (iii) The effective rate for the year 1985 shall be equal to twenty-three and fifteen-

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hundredths percent (23.15%) of the taxpayer's federal income tax liability. The effective rate for

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the year 1987 shall be twenty-three and forty-six one-hundredths percent (23.46%) of the

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taxpayer's federal income tax liability.

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      (iv) For the year 1992, if the taxpayer's federal income tax liability for the year is greater

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than fifteen thousand dollars ($15,000), the effective rate on such federal income tax liability in

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excess of fifteen thousand dollars ($15,000) shall be twenty-nine and seventy-five one-hundredths

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percent (29.75%).

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      (v) The personal income tax rate for the year 1993 shall be in accordance with the

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following schedules:

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      SCHEDULE X-RI: Single Individuals

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     FEDERAL INCOME TAX RI INCOME TAX

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     LIABILITY

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      Of The

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     But not % ON Amount

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     Over Over Pay + Excess Over -

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     ----------------------------------------------------------------------

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     $ 0 - $ 15,000 $ 0 27.5% $ 0

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     15,000 - 31,172 4,125 32% 15,000

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     31,172 - 79,772 9,300 27.55% 31,172

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     79,772 22,689 25.05% 79,772

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      The above rate table may not be used by a taxpayer who files a federal Schedule D and

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has taxable income in excess of $115,000.00. Those individuals must file a Rhode Island

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Schedule D.

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      SCHEDULE Y-1-RI: Married Filing Jointly or

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     Qualifying Widow(er)

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      FEDERAL INCOME TAX RI INCOME TAX

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      LIABILITY

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      Of The

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     But not % ON Amount

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     Over Over Pay + Excess Over -

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     ----------------------------------------------------------------------

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     $ 0 - $ 15,000 $ 0 27.5% $ 0

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     15,000 - 35,929 4,125 32% 15,000

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     35,929 - 75,528 10,822 27.55% 35,928

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     75,528 21,732 25.05% 75,528

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      The above rate table may not be used by a taxpayer who files a federal Schedule D and

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has taxable income in excess of $140,000.00. Those individuals must file a Rhode Island

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Schedule D.

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      SCHEDULE Y-2-RI: Married Filing Separately

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      FEDERAL INCOME TAX RI INCOME TAX

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      LIABILITY

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      Of The

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     But not % ON Amount

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     Over Over Pay + Excess Over -

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     ----------------------------------------------------------------------

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      $ 0 - $ 15,000 $ 0 27.5% $ 0

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     15,000 - 17,964 4,125 32% 15,000

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     17,964 - 37,764 5,073 27.55% 17,964

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     37,764 10,528 25.05% 37,764

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      The above rate table may not be used by a taxpayer who files a federal Schedule D and

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has taxable income in excess of $70,000.00. Those individuals must file a Rhode Island Schedule

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D.

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      SCHEDULE Z-RI: Head of Household

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      FEDERAL INCOME TAX RI INCOME TAX

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      LIABILITY

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      Of The

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     But not % ON Amount

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     Over Over Pay + Excess Over -

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     ----------------------------------------------------------------------

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     $ 0 - $ 15,000 $ 0 27.5% $ 0

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     15,000 - 33,385 4,125 32% 15,000

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     33,385 - 77,485 10,008 27.55% 33,385

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     77,485 22,158 25.05% 77,485

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      The above rate table may not be used by a taxpayer who files a federal Schedule D and

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has taxable income in excess of $127,500.00. Those individuals must file a Rhode Island

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Schedule D.

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      RI INCOME TAX RATE SCHEDULES FOR USE BY

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     ESTATES AND TRUSTS

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      FEDERAL INCOME TAX RI INCOME TAX

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      LIABILITY

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      Of The

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     But not % ON Amount

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     Over Over Pay + Excess Over -

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     ----------------------------------------------------------------------

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      $ 0 - $ 1,405 $ 0 27.5% $ 0

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     1,405 - 2,125 386 23.68% 1,405

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     2,125 - 15,000 557 21.53% 2,125

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     15,000 3,329 25.05% 15,000

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      The above rate table may not be used by a taxpayer who files a federal Schedule D and

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has taxable income in excess of $5,500.00. Those individuals must file a Rhode Island Schedule

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D.

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      (vi) The purpose of the 1993 rate schedules and/or the Rhode Island Schedule D shall be

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such that a taxpayer's 1993 Rhode Island personal income tax liability shall remain the same as it

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would have been prior to the enactment of the Federal Omnibus Budget Reconciliation Act of

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1993, (OBRA), P.L. 103-66, 107 Stat. 312.

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      (vii) For the year 1994 through December 31, 1997 the rate shall be twenty-seven and

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five-tenths percent (27.5%) of the taxpayers entire federal income tax liability.

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      (viii) For the period January 1, 1998 through December 31, 1998 the rate shall be equal

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to twenty-seven percent (27%) of the taxpayer's federal income tax liability.

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      (ix) For the period January 1, 1999 through December 31, 1999 the rate shall be equal to

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twenty-six and five-tenths (26.5%) of the taxpayer's federal income tax liability.

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      (x) For the period January 1, 2000 through December 31, 2000 the rate shall be equal to

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twenty-six percent (26%) of the taxpayer's federal income tax liability.

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      (xi) For the period January 1, 2001 through December 31, 2001 the rate shall be equal to

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twenty-five and five-tenths percent (25.5%) of the taxpayer's federal income tax liability.

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      (xii) For the period January 1, 2002 and thereafter the rate shall be twenty-five percent

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(25%) of the taxpayer's federal income tax liability.

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      (2) In the event that the indexing of the federal personal income tax scheduled to take

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effect on January 1, 1985, as enacted by the Economic Recovery Tax Act of 1981, 26 U.S.C.

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section 1 et seq., does take effect or is replaced by similar legislation, as the result of an action of

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the United States congress, then the Rhode Island personal income tax rate as set forth in

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subdivision (a)(1) of this section above for the period January 1, 1985, and through June 30, 1985

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shall be changed and be equal to twenty-three and sixty-five one-hundredths percent (23.65%) of

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the taxpayer's federal income tax liability.

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      (3) In the event that the indexing of the federal personal income tax scheduled to take

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effect on January 1, 1986, as enacted by the Economic Recovery Tax Act of 1981, 26 U.S.C.

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section 1 et seq., does take effect or is replaced by similar legislation as the result of an action of

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the United States congress, then the Rhode Island personal income tax rate as set forth in

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subdivision (a)(1) of this section above for the period January 1, 1986, and thereafter shall be

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changed and be equal to twenty-two and twenty-one one-hundredths percent (22.21%) of the

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taxpayer's federal income tax liability.

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      (b) Federal income tax liability. - Federal income tax liability shall be the amount of

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federal income tax without deduction for any new federal credit(s) enacted after January 1, 1996,

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(excluding self-employment tax, social security tax or any supplemental medicare premium) or

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supplemental premium surcharge imposed by the Medicare Catastrophic Coverage Act of 1988

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(P.L. 100-360), codified primarily at 42 U.S.C. section 1395 et seq., which the taxpayer would

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have been liable if the taxpayer had paid federal income tax based on federal taxable income as

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adjusted by the modifications provided in parts II and III of this chapter and the federal taxable

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income shall not include modifications which would decrease federal taxable income resulting

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from the applications of section 15 of chapter 489 of the public laws of 1923 as amended by

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section 8 of chapter 151 of the public laws of 1963; sections 28-17-3, 36-10-32, 45-21-45, or any

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other sections of Rhode Island law which would provide or would be construed to provide that

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any pension, annuity, retirement allowance, benefit, or right shall be exempt from any state tax.

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Except as provided by section 44-30-98, federal income tax liability shall not be modified by the

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amount of earned income credit which the taxpayer has received or for which the taxpayer is

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eligible pursuant to 42 U.S.C. section 32.

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

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

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

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

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      (d) (1) There shall be allowed as a credit against the Rhode Island personal income tax

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otherwise due for a taxable year, commencing for the tax year 1988, a contribution of five dollars

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($5.00), or ten dollars ($10.00) if married and filing a joint return, to the account for the public

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financing of the electoral system. The first two dollars ($2.00), or four dollars ($4.00) if married

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and filing a joint return, shall go to a political party as defined in section 17-12.1-12 to be

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designated by the taxpayer or to a nonpartisan account if so indicated up to a total of two hundred

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thousand dollars ($200,000) collectively for all parties and the nonpartisan account. The

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remainder shall be deposited as general revenue.

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      (2) The credit for the public financing of the electoral system shall appear on the face of

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the state personal income tax return. The tax administrator shall annually forward by August 1, all

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contributions to said account to the state general treasurer and the treasurer shall annually remit

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by September 1, the designated partisan contributions to the chairperson of the appropriate

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political party and the contributions made to the nonpartisan general account shall be allocated by

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the state general treasurer to each political party in proportion to the combined number of votes

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its candidates for governor received in the previous election, after five percent (5%) of the

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amount in the account is allocated to each party for each general officer elected in the previous

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statewide election. Each political party may expend moneys received under this provision for all

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purposes and activities permitted by the laws of Rhode Island and the United States, except that

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no such moneys shall be utilized for expenditures to be directly made or incurred to support or

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defeat a candidate in any election within the meaning of chapter 25 of title 17, or in any election

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for any political party nomination, or for political party office within the meaning of chapter 12 of

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title 17. The remaining funds shall be allocated for the public financing of campaigns for

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governor as set forth in sections 17-25-19 -- 17-25-27.

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      (e) (1) Notwithstanding the provisions of subsection (a) above for taxable years ending

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after December 31, 1980, in the event that during a period when the general assembly is not in

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session a change is made in the provisions of the Internal Revenue Code of the United States and

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amendments thereto, or other provisions of the law of the United States relating to federal income

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taxes, or the rules and regulations issued under these laws that alters the taxpayer's federal income

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tax liability, the tax administrator is herewith directed to so change the Rhode Island personal

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income tax rate of the taxpayer's federal income tax liability as to thereby retain the tax product

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upon receipt of which state appropriations were predicated.

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      (2) The rate so set by the tax administrator will be effective until such time as the general

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assembly shall ratify this rate or set a different rate.

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     SECTION 2. Chapter 44-30 of the General Laws entitled "Personal Income Tax" is

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hereby amended by adding thereto the following section:

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     44-30-98. Earned income credit. – (a) A taxpayer shall be allowed a credit as provided

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herein equal to the applicable percentage of the earned income credit allowed under section 32 of

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the internal revenue code for the same taxable year.

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     (b) The applicable percentage shall be: (1) five percent (5%) for taxable years beginning

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in 2003; (2) seven and one-half percent (7.5%) for taxable years beginning in 2004; and (3) ten

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percent (10%) for taxable years beginning in 2005 and thereafter.

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     (c) Provided, however, that if the reversion event, as defined in this paragraph, occurs,

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the applicable percentage shall be twenty percent (20%) for taxable years ending on or after the

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date on which the reversion event occurred. The reversion event shall be deemed to have

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occurred on the date on which federal action, including, but not limited to, administrative,

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statutory or regulatory changes, materially reduces or eliminates Rhode Island's allocation of the

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federal temporary assistance for needy families block grant fund for the earned income credit or

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to apply state general fund spending on the earned income credit toward the temporary assistance

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for needy families block grant maintenance of effort requirement.

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     SECTION 3. This act shall take effect upon passage.

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LC01708

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO TAXATION -- PERSONAL INCOME TAX

***

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     This act would provide for a tax credit on an individual's personal income tax, of an

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amount equal to the applicable percentage of the earned income credit allowed under section 32

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of the internal revenue code. This credit would be phased-in over a three (3) year period.

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     This act would take effect upon passage.

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LC01708

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