2024 -- S 2170

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LC003418

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2024

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A N   A C T

RELATING TO TAXATION -- INVESTMENT TAX CREDIT

     Introduced By: Senators Zurier, DiPalma, Ciccone, Sosnowski, Cano, and Acosta

     Date Introduced: January 24, 2024

     Referred To: Senate Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Section 44-31-1 of the General Laws in Chapter 44-31 entitled "Investment

Tax Credit" is hereby amended to read as follows:

     44-31-1. Investment tax credit.

     (a) A taxpayer shall be allowed a credit, to be computed as provided in this chapter, against

the tax imposed by chapters 11, 14, 17, and 30 of this title. The amount of the credit shall be two

percent (2%) of the cost or other basis for federal income tax purposes of tangible personal property

and other tangible property, including buildings and structural components of buildings, described

in subsection (b) of this section, acquired, constructed, reconstructed, or erected after December

31, 1973. Provided, that the amount of the credit shall be four percent (4%) of the: (i) cost or other

basis for federal income tax purposes of tangible personal property and other tangible property,

including buildings and structural components of buildings, described in subdivision (b)(1) of this

section, acquired, constructed, reconstructed or erected after December 31, 1993; and (ii) qualified

amounts for leased assets of tangible personal property and other tangible property described in

subdivision (b)(1) of this section, acquired, constructed, reconstructed, or erected after January 1,

1998, and the amount of the credit shall be ten percent (10%) of the cost or other basis for federal

income tax purposes, and the qualified amounts for leased assets, of tangible personal property and

other tangible property described in subdivision (b)(3) of this section, acquired, constructed,

reconstructed, or erected after January 1, 1998, and with respect to buildings and structural

components which are acquired, constructed, reconstructed or erected after July 1, 2001, as

described in subdivision (b)(3) of this section.

     (b)(1) A credit shall be allowed under this section with respect to tangible personal property

and other tangible property, including buildings and structural components of buildings, which are

depreciable pursuant to 26 U.S.C. § 167, have a useful life of four (4) years or more, are acquired

by purchase as defined in 26 U.S.C. § 179(d) or are acquired by lease as prescribed in paragraph

(3)(iv) of this subsection, have a situs in this state and are principally used by the taxpayer in the

production of goods by manufacturing, process, or assembling. The credit shall be allowable in the

year the property is first placed in service by the taxpayer, which is the year in which, under the

taxpayer’s depreciation practice, the period for depreciation with respect to the property begins, or

the year in which the property is placed in a condition or state of readiness and availability for a

specifically assigned function, whichever is earlier. For purposes of this paragraph,

“manufacturing” means the process of working raw materials into wares suitable for use or which

gives new shapes, new quality or new combinations to matter that already has gone through some

artificial process by the use of machinery, tools, appliances, and other similar equipment. Property

used in the production of goods includes machinery, equipment, or other tangible property which

is principally used in the repair and service of other machinery, equipment, or other tangible

property used principally in the production of goods and includes all facilities used in the

production operation, including storage of material to be used in production and of the products

that are produced.

     (2) Within the meaning of subdivision (1) of this subsection, the term “manufacturing”

means the activities of a “manufacturer” as defined in § 44-3-3(20)(iii) and (iv).

     (3)(i) A credit shall be allowed under this section with respect to tangible personal property

and other tangible property, (excluding motor vehicles, furniture, buildings and structural

components of buildings, except as provided in this section), which are depreciable pursuant to 26

U.S.C. § 167, have a useful life of four (4) years or more, are acquired by purchase as defined in

26 U.S.C. § 179(d) or acquired by lease as prescribed in paragraph (iv) of this subdivision, have a

situs in this state and to the extent the property is used by a qualified taxpayer, as that term is

defined in paragraph (v) of this subdivision, and that is engaged exclusively in manufacturing

activities as defined in §44-3-3(20)(iii) and (iv) and in any of the businesses described in major

groups 20 through 39, 50 and 51, 60 through 67, 73, 76, 80 through 82, 87 and 89 in the standard

industrial classification manual prepared by the technical committee on industrial classification,

office of the statistical standards, executive office of the president, United States Bureau of the

Budget, as revised from time to time (“SIC Code”) and/or any of the businesses described in the

three (3) digit SIC Code 781.

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     (ii) A credit shall be allowed under this section with respect to buildings and structural

components that are acquired, constructed, reconstructed, or erected after July 1, 2001, which are

depreciable pursuant to 26 U.S.C. § 167, have a useful life of four (4) years or more, are acquired

by purchase as defined in 26 U.S.C. § 179(d) or acquired by lease for a term of twenty (20) years

or more, excluding renewal periods, have a situs in this state and to the extent the property is used

by a high performance manufacturer. The term “high performance manufacturer” means a taxpayer:

(A) engaged in any of the businesses described in the major groups 28, 30, 34, to 36, and 38 of the

SIC Codes, (B) that pays its full-time equivalent employees a median annual wage above the

average annual wage paid by all taxpayers in the state which share the same two-digit SIC Code,

unless the high performance manufacturer is the only high performance manufacturer in the state

conducting business in that two-digit SIC Code, in which case this requirement shall not apply, and

(C)(I) whose expenses for training or retraining its employees exceeds two percent (2%) of its total

payroll costs, or (II) that pays its full-time equivalent employees a median annual wage equal to or

greater than one hundred twenty-five percent (125%) of the average annual wage paid in this state

by employers to employees, or (III) that pays its full-time equivalent employees classified as

production workers by the Rhode Island department of labor and training an average annual wage

above the average annual wage paid to the production workers of all taxpayers in the state which

share the same two-digit SIC Code.

     (iii) To the extent allowable, the credit allowed under this section is allowed for computers,

software and telecommunications hardware used by a taxpayer even if the property has a useful life

of less than four (4) years;

     (iv) The credit for property acquired by lease is based on the fair market value of the

property at the inception of the lease times the portion of the depreciable life of the property

represented by the term of the lease, excluding renewal options. The credit described in this

subdivision for high performance manufacturers that lease buildings and their structural

components for a term of twenty (20) years or more, excluding renewal periods, shall be calculated

in the same manner as for property acquired by purchase; and

     (v) For purposes of this subsection, a “qualified taxpayer” means a taxpayer that is engaged

exclusively in manufacturing activities as defined in §44-3-3(20)(iii) and (iv) and in any of the

businesses described in major groups 20 through 39, 50 and 51, 60 through 67, 73, 76, 80 through

82, 87 and 89 of the SIC Code, and/or any of the businesses described in the three (3) digit SIC

Code 781, and which meet the following criteria:

     (A) The median annual wage paid to a qualified taxpayer’s full-time equivalent employees

must be above the average annual wage paid by all taxpayers in the state which share the same two-

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digit SIC Code, unless that qualified taxpayer is the only qualified taxpayer in the state conducting

business in that two-digit SIC Code, in which case this requirement does not apply; and

     (B) With respect to major groups 50 and 51, 60 through 67, 73, 76, 80 through 82, 87 and

89 and/or the three (3) digit SIC Code 781(except for those qualified taxpayers whose businesses

are described in any of the four (4) digit SIC Codes 7371, 7372 and 7373) only:

     (I) More than one-half (½) of its gross revenues are a result of sales to customers outside

of the state; or

     (II) More than one-half (½) of its gross revenues are a result of sales to the federal

government; or

     (III) More than one-half (½) of its gross revenues are a result of a combination of sales

described in items (I) and (II) of this subparagraph.

     (4) For purposes of this section, “sales to customers outside the state” means sales to

individuals, businesses and other entities, as well as divisions and/or branches of businesses and

other entities, residing or located outside of the state. The requirement of subparagraph (v)(A) of

this subdivision does not apply to any qualified taxpayer: (i) whose expenses for training or

retraining its employees exceeds two percent (2%) of these qualified taxpayer’s total payroll costs;

or (ii) whose median annual wage paid to its full-time equivalent employees is equal to or greater

than one hundred twenty-five percent (125%) of the average annual wage paid in this state by

employers to employees; or (iii), with respect to major groups 20 through 39 only, the average

annual wage paid to these qualified taxpayer’s full-time equivalent employees, classified as

production workers by the Rhode Island department of labor and training, is above the average

annual wage paid to the production workers of all these taxpayers in the state which share the same

two-digit SIC Code. At the election of a taxpayer, which is made at any time and in any manner

that may be determined by the tax administrator, the taxpayer’s ability in a particular fiscal year to

qualify as a qualified taxpayer may be based on the expenses and gross receipts of the taxpayer for

either the prior fiscal year or the immediately proceeding fiscal year rather than on the expenses

and gross receipts for that fiscal year. For purposes of this chapter, the director of the Rhode Island

human resource investment council shall certify as to legitimate training and retraining expenses in

accordance with the guidelines established in chapter 64.6 of title 42, and any rules and regulations

promulgated under this chapter. For purposes of this subsection, a “full-time equivalent employee”

means an employee who works a minimum of thirty (30) hours per week within the state or two

(2) part-time employees who together work a minimum of thirty (30) hours per week within the

state. For purposes of this subsection, the director of the Rhode Island department of labor and

training, upon receipt of an application from a qualified taxpayer, shall certify whether this

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qualified taxpayer meets the requirement in subparagraph (v)(A) of this subdivision or is exempt

from this requirement because the median annual wage it pays its full-time equivalent employees

is equal to or greater than one hundred twenty-five (125%) percent of the average annual wage paid

in this state by employers to employees or, with respect to major groups 20 through 39 only, the

average annual wage paid to this qualified taxpayer’s full-time equivalent employees, classified as

production workers by the Rhode Island department of labor and training, is above the average

annual wage paid to the production workers of all these taxpayers in the state which share the same

two-digit SIC Code. The director of the Rhode Island department of labor and training shall

promulgate rules and regulations as required for the implementation of this requirement.

     (5) To the extent otherwise allowable, the credit provided by paragraphs (3)(i) and (ii) of

this subsection are also allowed for the property having a situs in Rhode Island and used, however

acquired, by a property and casualty insurance company.

     (c) Subject to the provisions of subdivision (b)(3) of this section, a taxpayer is not allowed

a credit under subsection (a) of this section with respect to tangible personal property and other

tangible property, including buildings and structural components of buildings, which it leases to

any other person or corporation and is not allowed a credit under subsection (a) of this section with

respect to buildings and structural components of buildings it leases from any other person or

corporation. For the purposes of the preceding sentence, any contract or agreement to lease or rent

or for a license to use the property is considered a lease, unless a contract or agreement is treated

for federal income tax purposes as an installment purchase rather than a lease.

     (d) The credit allowed under this section for any taxable year does not reduce the tax due

for the year by more than fifty percent (50%) of the tax liability that would be payable, and further

in the case of corporations, to less than the minimum tax as prescribed in § 44-11-2(e); provided,

that in the case of the credit allowed to high performance manufacturers under subdivision (b)(3)

of this section, the fifty percent (50%) limitation shall not apply. If the amount of credit allowable

under this section for any taxable year is less than the amount of credit available to the taxpayer,

any amount of credit not deductible in the taxable year may be carried over to the following year

or years (not to exceed seven (7) years) and may be deducted from the taxpayer’s tax for the year

or years.

     (e) At the option of the taxpayer, air or water pollution control facilities which qualify for

elective amortization deduction may be treated as property principally used by the taxpayer in the

production of goods by manufacturing, processing, or assembling; provided, that if the property

qualifies under subsection (b) of this section, in which event, an amortization deduction is not

allowed.

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     (f) With respect to property which is disposed of or ceases to be in qualified use prior to

the end of the taxable year in which the credit is to be taken, the amount of the credit shall be that

portion of the credit provided for in subsection (a) of this section, which represents the ratio which

the months of qualified use bear to the months of useful life. If property on which credit has been

taken is disposed of or ceases to be in qualified use prior to the end of its useful life, the difference

between the credit taken and the credit allowed for actual use must be added back in the year of

disposition. If this property is disposed of or ceases to be in qualified use after it has been in

qualified use for more than twelve (12) consecutive years, it is not necessary to add back the credit

as provided in this subsection. A credit allowed to a qualified taxpayer is not recaptured merely

because the taxpayer subsequently fails to retain the classification as a qualified taxpayer. The

amount of credit allowed for actual use shall be determined by multiplying the original credit by

the ratio, which the months of qualified use bear to the months of useful life. For purposes of this

subsection, “useful life of property” is the same as the taxpayer (or in the case of property acquired

by lease, the owner of the property) uses for depreciation purposes when computing his or her

federal income tax liability. Comparable rules are used in the case of property acquired by lease to

determine the amount of credit, if any, that will be recaptured if the lease terminates prematurely

or if the property covered by the lease otherwise fails to be in qualified use.

     (g) The credit allowed under this section is only allowed against the tax of that corporation

included in a consolidated return that qualifies for the credit and not against the tax of other

corporations that may join in the filing of a consolidated tax return.

     SECTION 2. Section 44-31-2 of the General Laws in Chapter 44-31 entitled "Investment

Tax Credit" is hereby repealed.

     44-31-2. Specialized investment tax credit.

     (a) A certified building owner, as provided in chapter 64.7 of title 42, may be allowed a

specialized investment tax credit against the tax imposed by chapters 11, 14, 17 and 30 of this title.

     (b) The taxpayer may claim credit for the rehabilitation and reconstruction costs of a

certified building, which has been substantially rehabilitated. Once substantial rehabilitation is

established by the taxpayer, the taxpayer may claim credit for all rehabilitation and reconstruction

costs incurred with respect to the certified building within five (5) years from the date of final

designation of the certified building by the council pursuant to § 42-64.7-6.

     (c) The credit shall be ten percent (10%) of the rehabilitation and reconstruction costs of

the certified building. The credit shall be allowable in the year the substantially rehabilitated

certified building is first placed into service, which is the year in which, under the taxpayer’s

depreciation practice, the period for depreciation with respect to such property begins, or the year

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in which the property is placed in a condition or state of readiness and availability for its specifically

assigned function, whichever is earlier.

     (d) The credit shall not offset any tax liability in taxable years other than the year or years

in which the taxpayer qualifies for the credit. The credit shall not reduce the tax below the

minimum. Amounts of unused credit for this taxpayer may be carried over and offset against this

taxpayer’s tax for a period not to exceed the following seven (7) taxable years.

     (e) In the case of a corporation, this credit is only allowed against the tax of that of a

corporation included in a consolidated return that qualifies for the credit and not against the tax of

other corporations that may join in the filing of a consolidated tax return.

     SECTION 3. Section 44-48.2-5 of the General Laws in Chapter 44-48.2 entitled "Rhode

Island Economic Development Tax Incentives Evaluation Act of 2013" is hereby amended to read

as follows:

     44-48.2-5. Economic development tax incentive evaluations — Analysis.

     (a) The additional analysis as required by § 44-48.2-4 shall include, but not be limited to:

     (1) A baseline assessment of the tax incentive, including, if applicable, the number of

aggregate jobs associated with the taxpayers receiving such tax incentive and the aggregate annual

revenue that such taxpayers generate for the state through the direct taxes applied to them and

through taxes applied to their employees;

     (2) The statutory and programmatic goals and intent of the tax incentive, if said goals and

intentions are included in the incentive’s enabling statute or legislation;

     (3) The number of taxpayers granted the tax incentive during the previous twelve-month

(12) period;

     (4) The value of the tax incentive granted, and ultimately claimed, listed by the North

American Industrial Classification System (NAICS) Code associated with the taxpayers receiving

such benefit, if such NAICS Code is available;

     (5) An assessment and five-year (5) projection of the potential impact on the state’s revenue

stream from carry forwards allowed under such tax incentive;

     (6) An estimate of the economic impact of the tax incentive including, but not limited to:

     (i) A cost-benefit comparison of the revenue foregone by allowing the tax incentive

compared to tax revenue generated by the taxpayer receiving the credit, including direct taxes

applied to them and taxes applied to their employees; and

     (ii) An estimate of the number of jobs that were the direct result of the incentive;

     (iii) [Deleted by P.L. 2023, ch. 294, § 7 and P.L. 2023, ch. 295, § 7.]

     (7) The estimated cost to the state to administer the tax incentive if such information is

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available;

     (8) An estimate of the extent to which benefits of the tax incentive remained in state or

flowed outside the state, if such information is available;

     (9) In the case of economic development tax incentives where measuring the economic

impact is significantly limited due to data constraints, whether any changes in statute would

facilitate data collection in a way that would allow for better analysis;

     (10) Whether the effectiveness of the tax incentive could be determined more definitively

if the general assembly were to clarify or modify the tax incentive’s goals and intended purpose;

     (11) A recommendation as to whether the tax incentive should be continued, modified, or

terminated; the basis for such recommendation; and the expected impact of such recommendation

on the state’s economy;

     (12) The methodology and assumptions used in carrying out the assessments, projections,

and analyses required pursuant to subsections (a)(1) through (a)(8) of this section.;

     (13) The determination of the economic goals, objective and effectiveness of the

investment tax credit; and

     (14) Enhanced data reporting from the recipients of the investment tax credit as required

by the division of taxation's tax credit and incentive report.

     (b) All departments, offices, boards, and agencies of the state shall cooperate with the chief

of the office of revenue analysis and shall provide to the office of revenue analysis any records,

information (documentary and otherwise), data, and data analysis as may be necessary to complete

the report required pursuant to this section.

     SECTION 4. This act shall take effect upon passage and shall expire and sunset on

December 31, 2028.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO TAXATION -- INVESTMENT TAX CREDIT

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     This act would limit the investment tax credit to manufacturers as defined in the general

laws and federal SIC Code. This act would also require the determination of the economic

effectiveness of the credit and require enhanced data reporting as determined by the division of

taxation. This act would also repeal the specialized investment tax credit.

     This act would take effect upon passage and shall expire and sunset on December 31, 2028.

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