2009 -- H 5716

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LC01915

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2009

____________

A N A C T

RELATING TO TAXATION -- PERSONAL INCOME TAX

     Introduced By: Representatives Handy, Segal, Guthrie, Almeida, and Diaz

     Date Introduced: February 26, 2009

     Referred To: House Finance

It is enacted by the General Assembly as follows:

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     SECTION 1. Section 44-30-2.6 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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     44-30-2.6. Rhode Island taxable income -- Rate of tax. -- (a) "Rhode Island taxable

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income" means federal taxable income as determined under the Internal Revenue Code, 26 U.S.C.

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section 1 et seq., not including the increase in the basic standard deduction amount for married

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couples filing joint returns as provided in the Jobs and Growth Tax Relief Reconciliation Act of

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2003 and the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), and as

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modified by the modifications in section 44-30-12.

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     (b) Notwithstanding the provisions of sections 44-30-1 and 44-30-2, for tax years

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beginning on or after January 1, 2001, a Rhode Island personal income tax is imposed upon the

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Rhode Island taxable income of residents and nonresidents, including estates and trusts, at the rate

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of twenty-five and one-half percent (25.5%) for tax year 2001, and twenty-five percent (25%) for

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tax year 2002 and thereafter of the federal income tax rates, including capital gains rates and any

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other special rates for other types of income, except as provided in section 44-30-2.7, which were

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in effect immediately prior to enactment of the Economic Growth and Tax Relief Reconciliation

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Act of 2001 (EGTRRA); provided, rate schedules shall be adjusted for inflation by the tax

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administrator beginning in taxable year 2002 and thereafter in the manner prescribed for

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adjustment by the commissioner of Internal Revenue in 26 U.S.C. section 1(f). However, for tax

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years beginning on or after January 1, 2006, a taxpayer may elect to use the alternative flat tax

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rate provided in section 44-30-2.10 to calculate his or her personal income tax liability.

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     (c) For tax years beginning on or after January 1, 2001, if a taxpayer has an alternative

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minimum tax for federal tax purposes, the taxpayer shall determine if he or she has a Rhode

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Island alternative minimum tax. The Rhode Island alternative minimum tax shall be computed by

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multiplying the federal tentative minimum tax without allowing for the increased exemptions

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under the Jobs and Growth Tax Relief Reconciliation Act of 2003 (as redetermined on federal

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form 6251 Alternative Minimum Tax-Individuals) by twenty-five and one-half percent (25.5%)

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for tax year 2001, and twenty-five percent (25%) for tax year 2002 and thereafter, and comparing

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the product to the Rhode Island tax as computed otherwise under this section. The excess shall be

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the taxpayer's Rhode Island alternative minimum tax.

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     (1) For tax years beginning on or after January 1, 2005 and thereafter the exemption

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amount for alternative minimum tax, for Rhode Island purposes, shall be adjusted for inflation by

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the tax administrator in the manner prescribed for adjustment by the commissioner of Internal

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Revenue in 26 U.S.C. section 1(f).

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     (2) For the period January 1, 2007 through December 31, 2007, and thereafter, Rhode

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Island taxable income shall be determined by deducting from federal adjusted gross income as

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defined in 26 U.S.C. section 62 as modified by the modifications in section 44-30-12 the Rhode

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Island itemized deduction amount and the Rhode Island exemption amount as determined in this

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section.

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     (A) Tax imposed.

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     (1) There is hereby imposed on the taxable income of married individuals filing joint

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returns and surviving spouses a tax determined in accordance with the following table:

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     If taxable income is: The tax is:

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     Not over $53,150 3.75% of taxable income

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     Over $53,150 but not over $128,500 $1,993.13 plus 7.00% of the excess over

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$53,150

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     Over $128,500 but not over $195,850 $7,267.63 plus 7.75% of the excess over

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$128,500

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     Over $195,850 but not over $349,700 $12,487.25 plus 9.00% of the excess over

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$195,850

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     Over $349,700 $26,333.75 plus 9.90% of the excess over

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$349,700

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      (2) There is hereby imposed on the taxable income of every head of household a tax

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determined in accordance with the following table:

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     If taxable income is: The tax is:

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     Not over $42,650 3.75% of taxable income

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     Over $42,650 but not over $110,100 $1,599.38 plus 7.00% of the excess over

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$42,650

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     Over $110,100 but not over $178,350 $6,320.88 plus 7.75% of the excess over

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$110,100

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     Over $178,350 but not over $349,700 $11,610.25 plus 9.00% of the excess over

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$178,350

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     Over $349,700 $27,031.75 plus 9.90% of the excess over

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$349,700

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      (3) There is hereby imposed on the taxable income of unmarried individuals (other than

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surviving spouses and heads of households) a tax determined in accordance with the following

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table:

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     If taxable income is: The tax is:

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     Not over $31,850 3.75% of taxable income

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     Over $31,850 but not over $77,100 $1,194.38 plus 7.00% of the excess over

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$31,850

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     Over $77,100 but not over $160,850 $4,361.88 plus 7.75% of the excess over

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$77,100

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     Over $160,850 but not over $349,700 $10,852.50 plus 9.00% of the excess over

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$160,850

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     Over $349,700 $27,849.00 plus 9.90% of the excess over

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$349,700

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      (4) There is hereby imposed on the taxable income of married individuals filing separate

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returns and bankruptcy estates a tax determined in accordance with the following table:

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     If taxable income is: The tax is:

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     Not over $26,575 3.75% of taxable income

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     Over $26,575 but not over $64,250 $996.56 plus 7.00% of the excess over $26,575

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     Over $64,250 but not over $97,925 $3,633.81 plus 7.75% of the excess over

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$64,250

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     Over $97,925 but not over $174,850 $6,243.63 plus 9.00% of the excess over

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$97,925

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     Over $174,850 $13,166.88 plus 9.90% of the excess over

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$174,850

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      (5) There is hereby imposed a taxable income of an estate or trust a tax determined in

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accordance with the following table:

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     If taxable income is: The tax is:

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     Not over $2,150 3.75% of taxable income

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     Over $2,150 but not over $5,000 $80.63 plus 7.00% of the excess over $2,150

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     Over $5,000 but not over $7,650 $280.13 plus 7.75% of the excess over $5,000

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     Over $7,650 but not over $10,450 $485.50 plus 9.00% of the excess over $7,650

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     Over $10,450 $737.50 plus 9.90% of the excess over $10,450

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      (6) Adjustments for inflation. The dollars amount contained in paragraph (A) shall be

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increased by an amount equal to:

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     (a) Such dollar amount contained in paragraph (A) in the year 1993, multiplied by;

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     (b) The cost-of-living adjustment determined under section (J) with a base year of 1993;

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     (c) The cost-of-living adjustment referred to in subparagraph (a) and (b) used in making

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adjustments to the nine percent (9%) and nine and nine tenths percent (9.9%) dollar amounts shall

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be determined under section (J) by substituting "1994" for "1993."

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     (B) Maximum capital gains rates

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     (1) In general

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     If a taxpayer has a net capital gain for any taxable year, the tax imposed by this section

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for such taxable year shall not exceed the sum of:

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     (a) 2.5 % of the net capital gain as reported for federal income tax purposes under section

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26 U.S.C. 1(h)(1)(a) and 26 U.S.C. 1(h)(1)(b).

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     (b) 5% of the net capital gain as reported for federal income tax purposes under 26 U.S.C.

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1(h)(1)(c).

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     (c) 6.25% of the net capital gain as reported for federal income tax purposes under 26

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U.S.C. 1(h)(1)(d).

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     (d) 7% of the net capital gain as reported for federal income tax purposes under 26 U.S.C.

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1(h)(1)(e).

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     (C) Itemized deductions.

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     (1) In general

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     For the purposes of section (2) "itemized deductions" means the amount of federal

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itemized deductions as modified by the modifications in section 44-30-12.

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     (2) Individuals who do not itemize their deductions

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     In the case of an individual who does not elect to itemize his deductions for the taxable

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year, they may elect to take a standard deduction.

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     (3) Basic standard deduction. The Rhode Island standard deduction shall be allowed in

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accordance with the following table:

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     Filing status Amount

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     Single $5,350

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     Married filing jointly or qualifying widow(er) $8,900

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     Married filing separately $4,450

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     Head of Household $7,850

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     (4) Additional standard deduction for the aged and blind. An additional standard

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deduction shall be allowed for individuals age sixty-five (65) or older or blind in the amount of

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$1,300 for individuals who are not married and $1,050 for individuals who are married.

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     (5) Limitation on basic standard deduction in the case of certain dependents. In the case

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of an individual to whom a deduction under section (E) is allowable to another taxpayer, the basic

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standard deduction applicable to such individual shall not exceed the greater of:

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     (a) $850;

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     (b) The sum of $300 and such individual's earned income;

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     (6) Certain individuals not eligible for standard deduction.

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     In the case of:

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     (a) A married individual filing a separate return where either spouse itemizes deductions;

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     (b) Nonresident alien individual;

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     (c) An estate or trust;

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     The standard deduction shall be zero.

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     (7) Adjustments for inflation.

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     Each dollars amount contained in paragraphs (3), (4) and (5) shall be increased by an

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amount equal to:

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     (a) Such dollar amount contained in paragraphs (3), (4) and (5) in the year 1988,

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multiplied by

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     (b) The cost-of-living adjustment determined under section (J) with a base year of 1988.

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     (D) Overall Limitation on Itemized Deductions

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     (1) General rule.

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     In the case of an individual whose adjusted gross income as modified by section 44-30-12

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exceeds the applicable amount, the amount of the itemized deductions otherwise allowable for the

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taxable year shall be reduced by the lesser of:

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     (a) Three percent (3%) of the excess of adjusted gross income as modified by section 44-

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30-12 over the applicable amount; or

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     (b) Eighty percent (80%) of the amount of the itemized deductions otherwise allowable

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for such taxable year.

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     (2) Applicable amount.

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     (a) In general.

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     For purposes of this section, the term "applicable amount" means $156,400 ($78,200 in

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the case of a separate return by a married individual)

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     (b) Adjustments for inflation.

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     Each dollar amount contained in paragraph (a) shall be increased by an amount equal to:

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     (i) Such dollar amount contained in paragraph (a) in the year 1991, multiplied by

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     (ii) The cost-of-living adjustment determined under section (J) with a base year of 1991.

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     (3) Phase-out of Limitation.

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     (a) In general.

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     In the case of taxable year beginning after December 31, 2005, and before January 1,

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2010, the reduction under section (1) shall be equal to the applicable fraction of the amount which

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would be the amount of such reduction.

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     (b) Applicable fraction.

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     For purposes of paragraph (a), the applicable fraction shall be determined in accordance

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with the following table:

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     For taxable years beginning in calendar year The applicable fraction is

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     2006 and 2007 2/3

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     2008 and 2009 1/3

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      (E) Exemption Amount

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     (1) In general.

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     Except as otherwise provided in this subsection, the term "exemption amount" mean

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$3,400.

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     (2) Exemption amount disallowed in case of certain dependents. In the case of an

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individual with respect to whom a deduction under this section is allowable to another taxpayer

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for the same taxable year, the exemption amount applicable to such individual for such

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individual's taxable year shall be zero.

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     (3) Adjustments for inflation.

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     The dollar amount contained in paragraph (1) shall be increased by an amount equal to:

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     (a) Such dollar amount contained in paragraph (1) in the year 1989, multiplied by

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     (b) The cost-of-living adjustment determined under section (J) with a base year of 1989.

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     (4) Limitation.

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     (a) In general.

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     In the case of any taxpayer whose adjusted gross income as modified for the taxable year

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exceeds the threshold amount shall be reduced by the applicable percentage.

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     (b) Applicable percentage.

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      In the case of any taxpayer whose adjusted gross income for the taxable year exceeds the

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threshold amount, the exemption amount shall be reduced by two (2) percentage points for each

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$2,500 (or fraction thereof) by which the taxpayer's adjusted gross income for the taxable year

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exceeds the threshold amount. In the case of a married individual filing a separate return, the

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preceding sentence shall be applied by substituting "$1,250" for "$2,500." In no event shall the

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applicable percentage exceed one hundred percent (100%).

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     (c) Threshold Amount.

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     For the purposes of this paragraph, the term "threshold amount" shall be determined with

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the following table:

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     Filing status Amount

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     Single $156,400

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     Married filing jointly of qualifying widow(er) $234,600

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     Married filing separately $117,300

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     Head of Household $195,500

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      (d) Adjustments for inflation.

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     Each dollars amount contain in paragraph (b) shall be increased by an amount equal to:

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     (i) Such dollar amount contained in paragraph (b) in the year 1991, multiplied by

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     (ii) The cost-of-living adjustment determined under section (J) with a base year of 1991.

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     (5) Phase-out of Limitation.

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     (a) In general.

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     In the case of taxable years beginning after December 31, 2005, and before January 1,

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2010, the reduction under section 4 shall be equal to the applicable fraction of the amount which

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would be the amount of such reduction.

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     (b) Applicable fraction.

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     For the purposes of paragraph (a), the applicable fraction shall be determined in

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accordance with the following table:

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     For taxable years beginning in calendar year The applicable fraction is

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     2006 and 2007 2/3

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     2008 and 2009 1/3

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     (F) Alternative Minimum Tax

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     (1) General rule. - There is hereby imposed (in addition to any other tax imposed by this

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subtitle) a tax equal to the excess (if any) of:

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     (a) The tentative minimum tax for the taxable year, over

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     (b) The regular tax for the taxable year.

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     (2) The tentative minimum tax for the taxable year is the sum of:

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     (a) 6.5 percent of so much of the taxable excess as does not exceed $175,000, plus

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     (b) 7.0 percent of so much of the taxable excess above $175,000.

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     (3) The amount determined under the preceding sentence shall be reduced by the

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alternative minimum tax foreign tax credit for the taxable year.

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     (4) Taxable excess. - For the purposes of this subsection the term "taxable excess" means

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so much of the federal alternative minimum taxable income as modified by the modifications in

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section 44-30-12 as exceeds the exemption amount.

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     (5) In the case of a married individual filing a separate return, subparagraph (2) shall be

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applied by substituting "$87,500" for $175,000 each place it appears.

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     (6) Exemption amount. For purposes of this section "exemption amount" means:

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     Filing status Amount

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     Single $39,150

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     Married filing jointly or qualifying widow(er) $53,700

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     Married filing separately $26,850

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     Head of Household $39,150

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     Estate or trust $24,650

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     (7) Treatment of unearned income of minor children

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     (a) In general.

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     In the case of a minor child, the exemption amount for purposes of section (6) shall not

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exceed the sum of:

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     (i) Such child's earned income, plus

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     (ii) $6,000.

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     (8) Adjustments for inflation.

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     The dollar amount contained in paragraphs (6) and (7) shall be increased by an amount

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equal to:

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     (a) Such dollar amount contained in paragraphs (6) and (7) in the year 2004, multiplied

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by

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     (b) The cost-of-living adjustment determined under section (J) with a base year of 2004.

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     (9) Phase-out.

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     (a) In general.

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     The exemption amount of any taxpayer shall be reduced (but not below zero) by an

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amount equal to twenty-five percent (25%) of the amount by which alternative minimum taxable

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income of the taxpayer exceeds the threshold amount.

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     (b) Threshold amount.

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     For purposes of this paragraph, the term "threshold amount" shall be determined with the

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following table:

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     Filing status Amount

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     Single $123,250

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     Married filing jointly or qualifying widow(er) $164,350

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     Married filing separately $82,175

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     Head of Household $123,250

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     Estate or Trust $82,150

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      (c) Adjustments for inflation

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     Each dollar amount contained in paragraph (9) shall be increased by an amount equal to:

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     (i) Such dollar amount contained in paragraph (9) in the year 2004, multiplied by

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     (ii) The cost-of-living adjustment determined under section (J) with a base year of 2004.

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     (G) Other Rhode Island Taxes

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     (1) General rule. - There is hereby imposed (in addition to any other tax imposed by this

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subtitle) a tax equal to twenty-five percent (25%) of:

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     (a) The Federal income tax on lump-sum distributions.

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     (b) The Federal income tax on parents' election to report child's interest and dividends.

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     (c) The recapture of Federal tax credits that were previously claimed on Rhode Island

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return.

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     (H) Tax for children under 18 with investment income

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     (1) General rule. - There is hereby imposed a tax equal to twenty-five percent (25%) of:

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     (a) The Federal tax for children under the age of 18 with investment income.

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     (I) Averaging of farm income

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     (1) General rule. - At the election of an individual engaged in a farming business or

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fishing business, the tax imposed in section 2 shall be equal to twenty-five percent (25%) of:

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     (a) The Federal averaging of farm income as determined in IRC section 1301.

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     (J) Cost-of-Living Adjustment

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     (1) In general. The cost-of-living adjustment for any calendar year is the percentage (if

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any) by which:

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     (a) The CPI for the preceding calendar year exceeds

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     (b) The CPI for the base year.

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     (2) CPI for any calendar year. For purposes of paragraph (1), the CPI for any calendar

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year is the average of the Consumer Price Index as of the close of the twelve (12) month period

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ending on August 31 of such calendar year.

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     (3) Consumer Price Index

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     For purposes of paragraph (2), the term "consumer price index" means the last consumer

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price index for all urban consumers published by the department of labor. For purposes of the

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preceding sentence, the revision of the consumer price index which is most consistent with the

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consumer price index for calendar year 1986 shall be used.

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     (4) Rounding.

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     (a) In general.

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     If any increase determined under paragraph (1) is not a multiple of $50, such increase

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shall be rounded to the next lowest multiple of $50.

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     (b) In the case of a married individual filing a separate return, subparagraph (a) shall be

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applied by substituting "$25" for $50 each place it appears.

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     (K) Credits against tax. - For tax years beginning on or after January 1, 2001, a taxpayer

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entitled to any of the following federal credits enacted prior to January 1, 1996 shall be entitled to

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a credit against the Rhode Island tax imposed under this section:

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     (1) [Deleted by P.L. 2007, ch. 73, art. 7, section 5.

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     (2) Child and dependent care credit;

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     (3) General business credits;

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     (4) Credit for elderly or the disabled;

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     (5) Credit for prior year minimum tax;

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     (6) Mortgage interest credit;

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     (7) Empowerment zone employment credit;

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     (8) Qualified electric vehicle credit.

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     (L) Credit Against Tax for Adoption. - For tax years beginning on or after January 1,

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2006, a taxpayer entitled to the federal adoption credit shall be entitled to a credit against the

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Rhode Island tax imposed under this section if the adopted child was under the care, custody, or

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supervision of the Rhode Island department of children, youth and families prior to the adoption.

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     (M) The credit shall be twenty-five percent (25%) of the aforementioned federal credits

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provided there shall be no deduction based on any federal credits enacted after January 1, 1996,

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including the rate reduction credit provided by the federal Economic Growth and Tax

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Reconciliation Act of 2001 (EGTRRA). In no event shall the tax imposed under this section be

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reduced to less than zero. A taxpayer required to recapture any of the above credits for federal tax

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purposes shall determine the Rhode Island amount to be recaptured in the same manner as

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prescribed in this subsection.

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     (N) Rhode Island Earned Income Credit

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     (1) In general. A taxpayer entitled to a federal earned income credit shall be allowed a

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Rhode Island earned income credit equal to twenty-five percent (25%) of the federal earned

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income credit. Such credit shall not exceed the amount of the Rhode Island income tax.

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     (2) Refundable portion. In the event the Rhode Island earned income credit allowed

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under section (J) exceeds the amount of Rhode Island income tax, a refundable earned income

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credit shall be allowed.

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     (a) For purposes of paragraph (2) refundable earned income credit means fifteen percent

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(15%) of the amount by which the Rhode Island earned income credit exceeds the Rhode Island

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income tax.

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     (O) The tax administrator shall recalculate and submit necessary revisions to paragraphs

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(A) through (J) to the general assembly no later than February 1, 2010 and every three (3) years

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thereafter for inclusion in the statute.

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     (P) In addition to the taxes levied under this chapter, for tax years beginning January 1,

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2009 and ending before January 1, 2012, taxpayers reporting annual taxable income, as modified

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by section 44-30-12 for resident taxpayers and by section 44-30-32 for nonresident taxpayers, of

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more than five hundred thousand dollars ($500,000) shall pay an additional tax of three percent

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(3%) on that part of their income which exceeds five hundred thousand dollars ($500,000).

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     SECTION 2. This act shall take effect upon passage and shall apply for tax years

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beginning January 1, 2009 and ending before January 1, 2012.

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LC01915

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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 that for tax years beginning January 1, 2009 and ending before

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January 1, 2012, taxpayers with taxable income of more than five hundred thousand dollars

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($500,000) would pay an additional tax of three percent (3%) on that part of their income which

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exceeds five hundred thousand dollars ($500,000).

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     This act would take effect upon passage and would apply for tax years beginning January

12-6

1, 2009 and ending before January 1, 2012.

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LC01915

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