2026 -- H 8187

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LC005766

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2026

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A N   A C T

RELATING TO TAXATION -- BUSINESS CORPORATION TAX

     Introduced By: Representatives Shallcross Smith, and Casey

     Date Introduced: February 27, 2026

     Referred To: House Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Section 44-11-2.3 of the General Laws in Chapter 44-11 entitled "Business

Corporation Tax" is hereby amended to read as follows:

     44-11-2.3. Pass-through entities — Election to pay state income tax at the entity level.

     (a) Definitions. As used in this section:

     (1) “Election” means the annual election to be made by the pass-through entity by filing

the prescribed tax form and remitting the appropriate tax.

     (2) “Net income” means the net ordinary income, net rental real estate income, other net

rental income, guaranteed payments, and other business income less specially allocated

depreciation and deductions allowed pursuant to § 179 of the United States Revenue Code (26

U.S.C. § 179), all of which would be reported on federal tax form schedules C and E. Net income

for purposes of this section does not include specially allocated investment income or any other

types of deductions.

     (3) “Owner” means an individual who is a shareholder of an S Corporation; a partner in a

general partnership, a limited partnership, or a limited liability partnership; a member of a limited

liability company, a beneficiary of a trust; or a sole proprietor.

     (4) “Pass-through entity” means a corporation that for the applicable tax year is treated as

an S Corporation under I.R.C. 1362(a) (26 U.S.C. § 1362(a)), or a general partnership, limited

partnership, limited liability partnership, trust, limited liability company or unincorporated sole

proprietorship that for the applicable tax year is not taxed as a corporation for federal tax purposes

under the state’s regulations.

     (5) “State tax credit” means the amount of tax paid by the pass-through entity at the entity

level that is passed through to an owner on a pro rata basis. For tax years beginning on or after

January 1, 2025, “state tax credit” means ninety percent (90%) of the amount of tax paid by the

pass-through entity at the entity level that is passed through to an owner on a pro rata basis.

     (b) Elections.

     (1) For tax years beginning on or after January 1, 2019, a pass-through entity may elect to

pay the state tax at the entity level at the rate of five and ninety-nine hundredths percent (5.99%).

     (2) If a pass-through entity elects to pay an entity tax under this subsection, the entity shall

not have to comply with the provisions of § 44-11-2.2 regarding withholding on non-resident

owners. In that instance, the entity shall not have to comply with the provisions of § 44-11-2.2

regarding withholding on non-resident owners.

     (c) Reporting.

     (1) The pass-through entity shall report the pro rata share of the state income taxes paid by

the entity which sums will be allowed as a state tax credit for an owner on his or her personal

income tax return.

     (2) The pass-through entity shall also report the pro rata share of the state income taxes

paid by the entity as an income (addition) modification to be reported by an owner on his or her

personal income tax returns

     (d) State tax credit shall be the amount of tax paid by the pass-through entity, at the entity

level, which is passed through to the owners, on a pro rata basis. For tax years beginning on or after

January 1, 2025, the state tax credit shall be ninety percent (90%) of the amount of tax paid by the

pass-through entity, at the entity level, which is passed through to the owners, on a pro rata basis.

     (e) A similar type of tax imposed by another state on the owners’ income paid at the state

entity level shall be deemed to be allowed as a credit for taxes paid to another jurisdiction in

accordance with the provisions of § 44-30-18.

     (f) “Combined reporting” as set forth in § 44-11-4.1 shall not apply to reporting under this

section.

     (g) For purposes of this section, the member credit shall be refundable, and shall be allowed

in full against Rhode Island individual income tax liability for the taxable year in which the entity-

level tax was paid. Any portion of the credit that exceeds the member's Rhode Island tax liability

shall be refunded to the member.

     (h) This section shall sunset and no longer apply to taxable years beginning after December

31 of the year in which the federal limitation on state and local tax deductions under § 164(b)(6) of

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the Internal Revenue Code is repealed, unless further amended by the general assembly.

     (i) The commissioner of revenue may promulgate rules and regulations to implement this

section, including rules governing elections, allocations, reporting, and the calculation of the

refundable credit.

     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO TAXATION -- BUSINESS CORPORATION TAX

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     This act would provide that credits issued pursuant to § 44-11-2.3 relating to pass through

entities would be refundable.

     This act would take effect upon passage.

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LC005766

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