2012 -- H 7153

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LC00641

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2012

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A N A C T

RELATING TO TAXATION -- BUSINESS CORPORATION TAX

     Introduced By: Representatives Petrarca, Winfield, Brien, Carnevale, and Silva

     Date Introduced: January 18, 2012

     Referred To: House Corporations

It is enacted by the General Assembly as follows:

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

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Corporation Tax" is hereby amended to read as follows:

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     44-11-1. Definitions. -- For the purpose of this chapter:

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      (1) (a) "Captive REIT" means a corporation, trust or association:

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      (i) That is considered a real estate investment trust for the taxable year under section 856

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of the Internal Revenue Code;

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      (ii) That is not regularly traded on an established securities market; and

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      (iii) More than fifty percent (50%) of the voting power or value of the beneficial interests

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or shares of which at any time during the last half of the taxable year, is owned or controlled,

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directly or indirectly, by a single entity that is subject to the provisions of Subchapter C of

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Chapter 1 of the Internal Revenue Code; and

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      (b) "Captive REIT" does not include:

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      (i) A corporation, trust or association more than fifty percent (50%) of the voting power

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or value of the beneficial interests or shares of which, at any time during which the corporation,

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trust or association satisfies item (1)(iii) of this subsection, is owned or controlled, directly or

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indirectly, by:

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      (A) A real estate investment trust other than a real estate investment trust described in

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item (i) of this subsection; or

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      (B) A person exempt from taxation under section 501(a) of the Internal Revenue Code;

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or

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      (C) A listed Australian Property Trust; and

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      (ii) Subject to regulations that the tax administrator adopts, a real estate investment trust

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that is intended to become regularly traded on an established securities market and that satisfies

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the requirements of section 865(A)(5) and (6) of the Internal Revenue Code by reason of section

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856(h)(2) of the Internal Revenue Code; and

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      (c) For purposes of this section, the constructive ownership rules prescribed under

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section 318(a) of the Internal Revenue Code, as modified by section 856(d)(5) of the Internal

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Revenue Code, shall apply in determining the ownership of stock, assets or net profits of any

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person.

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      (2) "Corporation" means every corporation, joint-stock company, or association,

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wherever incorporated, a real estate investment trust, a regulated investment company, a personal

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holding company registered under the Federal Investment Company Act of 1940, 15 U.S.C.

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section 80a-1 et seq., and also a trustee or trustees conducting a business where interest or

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ownership is evidenced by certificates or other written instruments, deriving any income from

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sources within this state or engaging in any activities or transactions within this state for the

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purpose of profit or gain, whether or not an office or place of business is maintained in this state,

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or whether or not the income, activities, or transactions are connected with intrastate, interstate, or

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foreign commerce, except:

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      (i) State banks, mutual savings banks, federal savings banks, trust companies, national

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banking associations, building and loan associations, credit unions, and loan and investment

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companies;

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      (ii) Public service corporations included in chapter 13 of this title, except as otherwise

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provided in section 44-13-2.2;

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      (iii) Insurance and surety companies;

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      (iv)(A) Corporations specified in section 7-6-4, incorporated hospitals, schools, colleges,

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and other institutions of learning not organized for business purposes and not doing business for

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profit and no part of the net earnings of which inures to the benefit of any private stockholder or

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individual, whether incorporated under any general law of this state or by any special act of the

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general assembly of this state;. Any corporation organized for educational purposes and claiming

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exemption under this paragraph is not exempt with respect to its unrelated business taxable

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income. Each corporation organized for educational purposes and claiming this exemption must

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comply with the following:

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     (I) Provide proof of exemption from federal income tax by providing a letter of

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determination from the internal revenue service.

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     (II) Provide proof of filing an internal revenue service form 990 in all circumstances.

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     (III) Provide proof of filing an internal revenue service form 990T in all circumstances.

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     (B) If the unrelated business taxable income is greater than zero, these filings shall serve

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as explicit proof that the corporation is not using the associated personal property exclusively for

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educational purposes in accordance with subdivision 44-3-3(7);

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      (v) Fraternal beneficiary societies as set forth in section 27-25-1;

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      (vi) Any corporation expressly exempt from taxation by charter;

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      (vii) Corporations which together with all corporations under direct or indirect common

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ownership that satisfies the other requirements of this paragraph employ not less than five (5)

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full-time equivalent employees in the state; which maintain an office in the state; and activities

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within the state which are confined to the maintenance and management of their intangible

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investments or of the intangible investments of corporations or business trusts registered as

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investment companies under the Investment Company Act of 1940, 15 U.S.C. section 80a-1 et

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seq., and the collection and distribution of the income from those investments or from tangible

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property physically located outside the state. For purposes of this paragraph, "intangible

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investments" includes, without limitation, investments in stocks, bonds, notes, and other debt

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obligations, including debt obligations of affiliated corporations, patents, patent applications,

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trademarks, trade names, copyrights, and similar types of intangible assets.

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      (3) "Fiscal year" means an accounting period of twelve (12) months ending on the last

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day of any month other than December.

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      (4) "Place of business" means a regular place of business, which, in turn, means any

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bona fide office, other than a statutory office, factory, warehouse, or other space which is

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regularly used by the taxpayer in carrying on its business. Where, as a regular course of business,

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property of the taxpayer is stored by it in a public warehouse until it is shipped to customers, the

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warehouse is considered a regular place of business of the taxpayer and, where as a regular course

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of business, raw material or partially furnished goods of a taxpayer are delivered to an

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independent contractor to be converted, processed, finished, or improved and the finished goods

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remain in the possession of the independent contractor until shipped to customers, the plant of the

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independent contractor is considered a regular place of business of the taxpayer. The mere

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consignment of goods by the taxpayer to an independent factor outside this state for sale at the

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consignee's discretion does not constitute the taxpayer as having a regular place of business

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outside this state.

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      (5) "Taxable year" means the calendar year or the fiscal year ending during the calendar

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year upon the basis of which the net income is computed under this chapter. "Taxable year"

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means, in the case of a return made for a fractional part of a year under the provisions of this

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chapter or under regulations prescribed by the tax administrator, the period for which the return is

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made.

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      (6) "Taxpayer" means and includes any corporation subject to the provisions of this

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chapter.

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     SECTION 2. Section 44-30-1 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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     44-30-1. Persons subject to tax. -- (a) Imposition of tax. - A Rhode Island personal

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income tax determined in accordance with the rates set forth in section 44-30-2 is imposed for

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each taxable year (which shall be the same as the taxable year for federal income tax purposes) on

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the Rhode Island income of every individual, estate, and trust.

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      (b) Partners and partnerships. - A partnership as such shall not be subject to the Rhode

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Island personal income tax. Persons carrying on business as partners shall be liable for the Rhode

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Island personal income tax only in their separate or individual capacities.

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      (c) Associations taxable as corporations. - An association, trust, or other unincorporated

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organization, which is taxable as a corporation under the provisions of chapter 11 of this title,

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shall not be subject to the Rhode Island personal income tax.

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      (d)(1) Exempt trusts and organizations. - A trust or other unincorporated organization,

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which by reason of its purposes or activities is exempt from federal income tax, shall be exempt

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from the Rhode Island personal income tax, except with respect to its unrelated business taxable

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income. Each trust or unincorporated organization operated primarily with an educational purpose

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must comply with this provision by providing the following:

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     (i) Proof of exemption from federal income tax due to purposes or activities must be

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evidenced by providing a letter of determination from the internal revenue service.

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     (ii) A trust or unincorporated organization claiming exemption from the Rhode Island

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personal income tax must provide proof of filing an internal revenue service form 990 in all

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circumstances.

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     (iii) A trust or unincorporated organization claiming exemption from the Rhode Island

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personal income tax must provide proof of filing an internal revenue service form 990T in all

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circumstances.

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     (2) If the unrelated business taxable income is greater than zero, these filings shall serve

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as explicit proof that the trust or unincorporated organization is not using the associated personal

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property exclusively for educational purposes in accordance with subdivision 44-3-3(7).

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      (e) Cross references. - For definitions of Rhode Island income of:

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      (1) Resident individuals, see section 44-30-12.

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      (2) Resident estate or trust, see section 44-30-16.

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      (3) Nonresident individual, see section 44-30-32.

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      (4) Nonresident estate or trust, see section 44-30-35.

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     SECTION 3. Section 7-6-4 of the General Laws in Chapter 7-6 entitled "Rhode Island

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Nonprofit Corporation Act" is hereby amended to read as follows:

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     7-6-4. Purposes. – (a) Corporations may be organized under this chapter for any lawful

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purpose or purposes subject to the condition that no part of the net income or profit of any

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corporation will be distributable to its members, directors, or officers. Subject to that condition,

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the purpose or purposes for which corporations may be organized under this chapter include, but

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are not limited to, any one or more of the following purposes or activities:

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      (1) Charitable; benevolent; eleemosynary; educational; civic; patriotic; political;

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religious; social; recreational; fraternal; literary; cultural; athletic; scientific; agricultural;

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horticultural; animal husbandry; health services; and professional, commercial, industrial, or trade

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association;

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      (2) Libraries; and fire engine companies;

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      (3) Constructing, acquiring, leasing, fostering, encouraging and assisting the physical

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location, settlement or resettlement of industrial, manufacturing, commercial, or recreational

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facilities or enterprises within the state;

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      (4) Planning, constructing, erecting, maintaining, operating, and managing land,

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buildings, and improvements in projects undertaken pursuant to chapters 31 -- 33 of title 45;

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      (5) Engaging in municipal projects authorized by the governing body of the

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municipality; and

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      (6) Providing housing and related facilities and services for elderly persons.

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     (b) Corporations organized pursuant to this chapter with an educational purpose and

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claiming or utilizing an exemption under chapter 44-11 shall not be exempt from taxation with

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respect to its unrelated business taxable income. Each corporation claiming an exemption under

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chapter 44-11 shall:

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     (1) Provide proof of exemption from federal income tax by providing a letter of

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determination from the internal revenue service.

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     (2) Provide proof of filing an internal revenue service form 990 in all circumstances.

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     (3) Provide proof of filing an internal revenue service form 990T in all circumstances.

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     (i) If the unrelated business taxable income for corporations specified under subsection 7-

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6-4(b) is greater than zero, these filings shall serve as explicit proof that the trust or

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unincorporated organization is not using the associated personal property exclusively for

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educational purposes in accordance with subdivision 44-3-3(7).

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     SECTION 4. This act shall take effect upon passage.

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LC00641

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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 require certain corporations claiming an exemption as a nonprofit to

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provide internal revenue service filings as proof that the corporation is using its associated

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personal property exclusively for educational purposes.

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     This act would take effect upon passage.

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LC00641

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