2012 -- H 7913

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LC02081

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2012

____________

A N A C T

RELATING TO TAXATION - PERSONAL INCOME TAX - DEDUCTIONS

     Introduced By: Representatives Guthrie, DaSilva, Cimini, Lima, and Azzinaro

     Date Introduced: March 07, 2012

     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. [Effective January 1, 2011.] --

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(a) "Rhode Island taxable income" means federal taxable income as determined under the

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Internal Revenue Code, 26 U.S.C. section 1 et seq., not including the increase in the basic

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standard deduction amount for married couples filing joint returns as provided in the Jobs and

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Growth Tax Relief Reconciliation Act of 2003 and the Economic Growth and Tax Relief

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Reconciliation Act of 2001 (EGTRRA), and as modified by the modifications in section 44-30-

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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

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excess over $53,150

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

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excess over $128,500

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

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excess over $195,850

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

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excess over $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

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excess over $42,650

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

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excess over $110,100

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

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excess over $178,350

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

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excess over $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

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excess over $31,850

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

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excess over $77,100

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

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excess over $160,850

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

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excess over $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

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excess over $26,575

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

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excess over $64,250

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

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excess over $97,925

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

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excess over $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

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over $2,150

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

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excess over $5,000

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

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excess over $7,650

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

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excess over $10,450

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      (6) Adjustments for inflation.

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     The dollars amount contained in paragraph (A) shall be 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 tax years ending prior to January 1, 2010, the tax

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imposed by this section 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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     (2) For tax years beginning on or after January 1, 2010 the tax imposed on net capital

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gain shall be determined under subdivision 44-30-2.6(c)(2)(A).

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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.

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     The Rhode Island standard deduction shall be allowed in accordance with the following

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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.

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     An additional standard deduction shall be allowed for individuals age sixty-five (65) or

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older or blind in the amount of $1,300 for individuals who are not married and $1,050 for

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individuals who are married.

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

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     In the case of an individual to whom a deduction under section (E) is allowable to another

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taxpayer, the basic standard deduction applicable to such individual shall not exceed the greater

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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 The applicable fraction is

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calendar year

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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 The applicable fraction is

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calendar year

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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.

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     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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     (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.

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     The cost-of-living adjustment for any calendar year is the percentage (if 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, 2006,

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a taxpayer entitled to the federal adoption credit shall be entitled to a credit against the Rhode

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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.

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     A taxpayer entitled to a federal earned income credit shall be allowed a Rhode Island

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

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

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     (2) Refundable portion.

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     In the event the Rhode Island earned income credit allowed under section (J) exceeds the

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amount of Rhode Island income tax, a refundable earned income 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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     (3) For the period January 1, 2011 through December 31, 2011, and thereafter, "Rhode

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Island taxable income" means federal adjusted gross income as determined under the Internal

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Revenue Code, 26 U.S.C. 1 et seq., and as modified for Rhode Island purposes pursuant to

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section 44-30-12 less the amount of Rhode Island Basic Standard Deduction allowed pursuant to

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subparagraph 44-30-2.6(c)(3)(B), and less the amount of personal exemption allowed pursuant of

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subparagraph 44-30-2.6(c)(3)(C).

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     (A) Tax imposed.

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

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returns, qualifying widow(er), every head of household, unmarried individuals, married

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individuals filing separate returns and bankruptcy estates, a tax determined in accordance with the

12-7

following table:

12-8

     RI Taxable Income RI Income Tax

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     Over But not over Pay + % on Excess on the amount

12-10

      over

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     $ 0 - $ 55,000 $ 0 + 3.75% $ 0

12-12

     55,000 - 125,000 2,063 + 4.75% 55,000

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     125,000 - 5,388 + 5.99% 125,000

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      (II) There is hereby imposed on the taxable income of an estate or trust a tax determined

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in accordance with the following table:

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     RI Taxable Income RI Income Tax

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     Over But not over Pay + % Over - Excess on the amount

12-18

      over

12-19

     $ 0 - $ 2,230 $ 0 + 3.75% $ 0

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     2,230 - 7,022 84 + 4.75% 2,230

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     7,022 - 312 + 5.99% 7,022

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      (B) Deductions:

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     (I) Rhode Island Basic Standard Deduction. Only the Rhode Island standard deduction

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shall be allowed in accordance with the following table:

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     Filing status: Amount

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     Single $7,500

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     Married filing jointly or qualifying widow(er) $15,000

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     Married filing separately $7,500

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     Head of Household $11,250

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      (II) Nonresident alien individuals, estates and trusts are not eligible for standard

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deductions.

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     (III) In the case of any taxpayer whose adjusted gross income, as modified for Rhode

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Island purposes pursuant to section 44-30-12, for the taxable year exceeds one hundred seventy-

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five thousand dollars ($175,000), the standard deduction amount shall be reduced by the

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applicable percentage. The term "applicable percentage" means twenty (20) percentage points for

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each five thousand dollars ($5,000) (or fraction thereof) by which the taxpayer's adjusted gross

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income for the taxable year exceeds one hundred seventy-five thousand dollars ($175,000).

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     (C) Exemption Amount:

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     (I) The term "exemption amount" means three thousand five hundred dollars ($3,500)

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multiplied by the number of exemptions allowed for the taxable year for federal income tax

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purposes.

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     (II) 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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     (D) In the case of any taxpayer whose adjusted gross income, as modified for Rhode

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Island purposes pursuant to section 33-30-12, for the taxable year exceeds one hundred seventy-

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five thousand dollars ($175,000), the exemption amount shall be reduced by the applicable

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percentage. The term "applicable percentage" means twenty (20) percentage points for each five

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thousand dollars ($5,000) (or fraction thereof) by which the taxpayer's adjusted gross income for

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the taxable year exceeds one hundred seventy-five thousand dollars ($175,000).

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     (E) Adjustment for inflation. - The dollar amount contained in subparagraphs 44-30-

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2.6(c)(3)(A), 44-30-2.6(c)(3)(B) and 44-30-2.6(c)(3)(C) shall be increased annually by an amount

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equal to:

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     (I) Such dollar amount contained in subparagraphs 44-30-2.6(c)(3)(A), 44-30-

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2.6(c)(3)(B) and 44-30-2.6(c)(3)(C) adjusted for inflation using a base tax year of 2000,

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multiplied by;

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     (II) The cost-of-living adjustment with a base year of 2000.

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     (III) For the purposes of this section the cost-of-living adjustment for any calendar year is

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the percentage (if any) by which the consumer price index for the preceding calendar year

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exceeds the consumer price index for the base year. The consumer price index 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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     (IV) For the purpose of this section the term "consumer price index" means the last

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

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purpose of this section 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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     (V) If any increase determined under this section is not a multiple of fifty dollars

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($50.00), such increase shall be rounded to the next lower multiple of fifty dollars ($50.00). In the

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case of a married individual filing separate return, if any increase determined under this section is

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not a multiple of twenty-five dollars ($25.00), such increase shall be rounded to the next lower

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multiple of twenty-five dollars ($25.00).

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     (E) Credits against tax.

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     (I) Notwithstanding any other provisions of Rhode Island Law, for tax years beginning on

14-41

or after January 1, 2011, the only credits allowed against a tax imposed under this chapter shall be

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as follows:

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     (a) Rhode Island Earned Income Credit: Credit shall be allowed for earned income credit

14-44

pursuant to subparagraph 44-30-2.6(c)(2)(N).

14-45

     (b) Property Tax Relief Credit: Credit shall be allowed for property tax relief as provided

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in section 44-33-1 et seq.

14-47

     (c) Lead Paint Credit: Credit shall be allowed for residential lead abatement income tax

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credit as provided in section 44-30.3-1 et seq.

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     (d) Credit for income taxes of other states. - Credit shall be allowed for income tax paid

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to other states pursuant to section 44-30-74.

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     (e) Historic Structures Tax Credit: Credit shall be allowed for historic structures tax

14-52

credit as provided in section 44-33.2-1 et seq.

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     (f) Motion Picture Productions Tax Credit: Credit shall be allowed for motion picture

14-54

production tax credit as provided in section 44-31.2-1 et seq.

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     (g) Child and Dependent Care: Credit shall be allowed for twenty-five percent (25%) of

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the federal child and dependent care credit allowable for the taxable year for federal purposes;

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provided, however, such credit shall not exceed the Rhode Island tax liability.

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     (h) Tax credits for contributions to Scholarship Organizations: Credit shall be allowed for

14-59

contributions to scholarship organizations as provided in section 44-62 et seq.

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     (i) Credit for tax withheld. - Wages upon which tax is required to be withheld shall be

14-61

taxable as if no withholding were required, but any amount of Rhode Island personal income tax

14-62

actually deducted and withheld in any calendar year shall be deemed to have been paid to the tax

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administrator on behalf of the person from whom withheld, and the person shall be credited with

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having paid that amount of tax for the taxable year beginning in that calendar year. For a taxable

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year of less than twelve (12) months, the credit shall be made under regulations of the tax

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administrator.

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     (2) Except as provided in section 1 above, no other state and federal tax credit shall be

14-68

available to the taxpayers in computing tax liability under this chapter.

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     SECTION 2. Section 44-30-2.10 of the General Laws in Chapter 44-30 entitled "Personal

15-2

Income Tax" is hereby amended to read as follows:

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     44-30-2.10. Alternative flat tax rate. -- (a) For tax years beginning on or after January

15-4

1, 2006 and ending prior to January 1, 2011, a taxpayer may elect to compute his or her Rhode

15-5

Island personal income tax liability as provided in this section. If no election is made, the

15-6

taxpayer's personal income tax liability shall be computed as otherwise provided in this chapter.

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      (b) For purposes of this section, "alternative Rhode Island taxable income" shall mean

15-8

federal adjusted gross income as determined for federal income tax purposes as modified by

15-9

sections 44-30-12 and 44-30-32 for residents and nonresidents, respectively. No other state or

15-10

federal deductions or adjustments to income shall be available to the taxpayer.

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      (c) For purposes of this section, the "alternative tax rate" shall be eight percent (8.0%)

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for the tax year 2006; seven and one-half percent (7.5%) for tax year 2007; seven percent (7%)

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for tax year 2008; six and one-half percent (6.5%) for tax year 2009; and six percent (6%) for tax

15-14

year 2010 and five and one half percent (5.5%) for tax years 2011 and thereafter;

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     (d) The alternative personal income tax shall be determined by multiplying the taxpayer's

15-16

alternative Rhode Island taxable income by the alternative tax rate, less the following credits:

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      (1) Credit for income taxes paid to other states as provided for in section 44-30-18;

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      (2) Credit for Rhode Island personal income tax withheld as provided in section 44-30-

15-19

74;

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      (3) Credit for Rhode Island payments of estimated tax as provided in section 44-30-56(e)

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and RI Reg. Sec. PIT 90-17;

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      (4) Credit for Rhode Island overpayment of taxes as provided in section 44-30-86(a); and

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      (5) Credit for Rhode Island amount remitted by a limited liability company on behalf of

15-24

a nonresident member as provided in section 7-16-73(4).

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      No other state or federal tax credits shall be available to the taxpayer in computing the

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alternative personal income tax liability.

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      (e) The provisions of this section may apply regardless of the taxpayer's filing status.

15-28

     SECTION 3. Section 44-33-3 of the General Laws in Chapter 44-33 entitled "Property

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Tax Relief" is hereby amended to read as follows:

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     44-33-3. Definitions. -- As used in this chapter:

15-31

      (1) "Claimant" means a homeowner or renter, who has filed a claim under this chapter

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and was domiciled in this state for the entire calendar year for which he or she files a claim for

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relief under this chapter. In the case of claim for rent constituting property taxes accrued, the

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claimant shall have rented property during the preceding year for which he or she files for relief

16-1

under this chapter. Claimant shall not mean or include any person claimed as a dependent by any

16-2

taxpayer under the Internal Revenue Code of the United States, 26 U.S.C. section 1 et seq. When

16-3

two (2) individuals of a household are able to meet the qualifications for a claimant, they may

16-4

determine between themselves as to who the claimant is. If they are unable to agree, the matter is

16-5

referred to the tax administrator and his or her decision is final. If a homestead is occupied by two

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(2) or more individuals, and more than one individual is able to qualify as a claimant, and some or

16-7

all of the qualified individuals are not related, the individuals may determine among themselves

16-8

as to who the claimant is. If they are unable to agree, the matter is referred to the tax

16-9

administrator, and his or her decision is final.

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      (2) "Disabled" means those persons who are receiving a social security disability benefit.

16-11

      (3) "Gross rent" means rental paid in cash or its equivalent solely for the right of

16-12

occupancy of a homestead, exclusive of charges for any utilities, services, furniture, furnishings,

16-13

or personal property appliances furnished by the landlord as a part of the rental agreement. If the

16-14

landlord and tenant have not dealt with each other at arm's length, and the tax administrator is

16-15

satisfied that the gross rent charged was excessive, he or she may adjust the gross rent to a

16-16

reasonable amount for purposes of this chapter. "Gross rent" includes the rental of space paid to a

16-17

landlord for parking of a mobile home, or docking or mooring a houseboat, exclusive of any

16-18

charges for utilities, services, furniture, furnishings, or personal appliances furnished by the

16-19

landlord as a part of the rental. Twenty percent (20%) of the annual gross rental plus the space

16-20

rental fees paid during the year are the annual "property taxes accrued."

16-21

      (4) "Homestead" means the dwelling, whether owned or rented, and so much of the land

16-22

surrounding it, not exceeding one acre, as is reasonably necessary for use of the dwelling as a

16-23

home, and may consist of a part of the multi-dwelling or multi-purpose building and a part of the

16-24

land upon which it is built ("owned" includes a vendee in possession under a land contract and

16-25

one or more joint tenants or tenants in common). It does not include personal property such as

16-26

furniture, furnishings, or appliances, but a mobile home or a houseboat may be a homestead.

16-27

      (5) "Household" means one or more persons occupying a dwelling unit and living as a

16-28

single nonprofit housekeeping unit. "Household" shall not include bona fide lessees, tenants, or

16-29

roomers, and boarders on contract.

16-30

      (6) "Household income" means all income received by all persons of a household in a

16-31

calendar year while members of the household.

16-32

      (7) "Income" means the sum of federal adjusted gross income as defined in the Internal

16-33

Revenue Code of the United States, 26 U.S.C. section 1 et seq., and all non-taxable income

16-34

including, but not limited to, the amount of capital gains excluded from adjusted gross income,

17-1

alimony, support money, non-taxable strike benefits, cash public assistance and relief (not

17-2

including relief granted under this chapter), the gross amount of any pension or annuity

17-3

(including Railroad Retirement Act (see 45 U.S.C. section 231 et seq.) benefits, all payments

17-4

received under the federal Social Security Act, 42 U.S.C. section 301 et seq., state unemployment

17-5

insurance laws, and veterans' disability pensions (see 38 U.S.C. section 301 et seq.), non-taxable

17-6

interest received from the federal government or any of its instrumentalities, workers'

17-7

compensation, and the gross amount of "loss of time" insurance. It shall not include gifts from

17-8

nongovernmental sources, or surplus foods or other relief in kind supplied by a public or private

17-9

agency. For the purpose of this chapter, the calculation of "income" shall not include any

17-10

deductions for rental losses, business losses, capital losses, exclusion for foreign income, and any

17-11

losses received from pass-through entities.

17-12

      (8) "Property taxes accrued" means property taxes (exclusive of special assessments,

17-13

delinquent interest, and charges for service) levied on a claimant's homestead in this state in 1977

17-14

or any calendar year thereafter. If a homestead is owned by two (2) or more persons or entities as

17-15

joint tenants or tenants in common, and one or more persons or entities are not a member of

17-16

claimant's household, "property taxes accrued" is that part of property taxes levied on the

17-17

homestead which reflects the ownership percentage of the claimant and his or her household. For

17-18

purposes of this subdivision, property taxes are "levied" when the tax roll is certified by the city

17-19

or town assessor. When a homestead is sold during the calendar year of the levy, the "property

17-20

taxes accrued" for the seller and buyer is the amount of the tax levy prorated to each in the

17-21

closing agreement pertaining to the sale of the homestead or, if not provided for in the closing

17-22

agreement, the tax levy is prorated between seller and buyer based upon the delivery date of the

17-23

deed of conveyance. When a household owns and occupies two (2) or more homesteads in the

17-24

same calendar year, "property taxes accrued" is the sum of the prorated taxes attributable to the

17-25

household for each of the homesteads. If the household owns and occupies the homestead for the

17-26

part of the calendar year and rents a household for part of the calendar year, it may include both

17-27

the proration of taxes on the homestead owned and "rent constituting property taxes accrued"

17-28

with respect to the months the homestead is rented, in computing the amount of the claim. All

17-29

prorations are made on the basis of the gross tax levy after all exemptions. If a homestead is an

17-30

integral part of a larger unit such as a farm, or a multi-purpose or multi-dwelling building,

17-31

property taxes accrued is that percentage of the total property taxes accrued as the value of the

17-32

homestead is of the total value. For the purposes of this subdivision, "unit" refers to the parcel of

17-33

property covered by a single tax statement of which the homestead is a part.

18-34

      (9) "Rent constituting property taxes accrued" means twenty percent (20%) of the gross

18-35

rent actually paid in cash or its equivalent in any calendar year by a claimant and his or her

18-36

household solely for the right of occupancy of their Rhode Island homestead in the calendar year,

18-37

and which rent constitutes the basis, in the succeeding calendar year, of a claim for relief under

18-38

this chapter by the claimant, but shall not include any part of the rent paid for occupancy of

18-39

premises which are legally exempt from the payment of property taxes.

18-40

     SECTION 4. This act shall take effect upon passage.

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LC02081

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO TAXATION - PERSONAL INCOME TAX - DEDUCTIONS

***

19-1

     This act would restore the ability of a Rhode Island taxpayer to use, in calculating

19-2

personal income tax, the federal deductions. It repeals changes made in 2010.

19-3

     This act would take effect upon passage.

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LC02081

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