2006 -- H 7679 SUBSTITUTE A AS AMENDED

=======

LC01560/SUB A/2

=======

STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2006

____________

A N A C T

RELATING TO PUBLIC OFFICERS AND EMPLOYEES

     Introduced By: Representative Robert A. Watson

     Date Introduced: February 16, 2006

     Referred To: House Finance

It is enacted by the General Assembly as follows:

1-1

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

1-2

amended by adding thereto the following section:

1-3

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

1-4

general assembly hereby finds that:

1-5

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

1-6

care benefits programs for state employees;

1-7

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

1-8

health care benefits for domestic partners of state employees;

1-9

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

1-10

unanticipated federal tax implications for some state employees;

1-11

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

1-12

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

1-13

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

1-14

state employee's dependent for health care purposes;

1-15

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

1-16

affected employees of those ramifications until November 2005;

1-17

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

1-18

amounts of any underpayments of state and federal income taxes;

1-19

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

2-1

on or before April 15, 2006; and

2-2

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

2-3

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

2-4

require financial assistance.

2-5

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

2-6

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

2-7

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

2-8

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

2-9

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

2-10

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

2-11

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

2-12

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

2-13

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

2-14

herein.

2-15

     (c) Such loans shall be repaid by the affected employees through payroll deductions in

2-16

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

2-17

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

2-18

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

2-19

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

2-20

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

2-21

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

2-22

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

2-23

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

2-24

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

2-25

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

2-26

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

2-27

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

2-28

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

2-29

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

2-30

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

2-31

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

2-32

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

2-33

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

2-34

2005 federal and state estimated tax refunds.

3-1

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

3-2

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

3-3

amended return, to the IRS;

3-4

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

3-5

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

3-6

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

3-7

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

3-8

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

3-9

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

3-10

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

3-11

become due and payable in full;

3-12

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

3-13

periods:

3-14

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

3-15

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

3-16

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

3-17

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

3-18

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

3-19

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

3-20

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

3-21

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

3-22

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

3-23

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

3-24

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

3-25

period set forth in section (10) above.

3-26

     Notwithstanding the above employees may voluntarily elect a higher monthly repayment

3-27

amount.

3-28

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

3-29

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

3-30

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

3-31

attorney's fees;

3-32

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

3-33

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

3-34

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

4-1

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

4-2

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

4-3

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

4-4

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

4-5

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

4-6

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

4-7

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

4-8

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

4-9

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

4-10

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

4-11

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

4-12

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

4-13

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

4-14

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

4-15

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

4-16

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

4-17

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

4-18

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

4-19

before the inception of their loan.

4-20

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

4-21

Domestic Partner Income Tax Loan Account in the general fund.

4-22

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

4-23

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

4-24

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

4-25

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

4-26

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

4-27

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

4-28

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

4-29

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

4-30

during the period 2002-2005.

4-31

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

4-32

Officials" is hereby amended to read as follows:

4-33

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

4-34

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

5-1

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

5-2

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

5-3

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

5-4

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

5-5

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

5-6

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

5-7

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

5-8

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

5-9

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

5-10

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

5-11

      (c) "Prime rate" as used in subsection (b) of this section means the predominant prime

5-12

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

5-13

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

5-14

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

5-15

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

5-16

2010.

=======

LC01560/SUB A/2

========

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO PUBLIC OFFICERS AND EMPLOYEES

***

6-1

     This act would implement a loan program for those state employees affected by the

6-2

additional income tax liability due to the extension of health insurance coverage to a non-

6-3

dependent domestic partner.

6-4

     This act would take effect on passage and would be repealed on August 15, 2010.

=======

LC01560/SUB A/

=======