2012 -- S 2106

=======

LC00383

=======

STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2012

____________

A N A C T

RELATING TO TAXATION -- BUSINESS CORPORATION TAX

     Introduced By: Senators Tassoni, and Doyle

     Date Introduced: January 18, 2012

     Referred To: Senate Finance

It is enacted by the General Assembly as follows:

1-1

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

1-2

Corporation Tax" is hereby amended to read as follows:

1-3

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

1-4

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

1-5

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

1-6

of the Internal Revenue Code;

1-7

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

1-8

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

1-9

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

1-10

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

1-11

Chapter 1 of the Internal Revenue Code; and

1-12

      (b) "Captive REIT" does not include:

1-13

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

1-14

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

1-15

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

1-16

indirectly, by:

1-17

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

1-18

item (i) of this subsection; or

1-19

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

1-20

or

2-1

      (C) A listed Australian Property Trust; and

2-2

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

2-3

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

2-4

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

2-5

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

2-6

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

2-7

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

2-8

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

2-9

person.

2-10

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

2-11

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

2-12

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

2-13

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

2-14

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

2-15

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

2-16

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

2-17

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

2-18

foreign commerce, except:

2-19

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

2-20

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

2-21

companies;

2-22

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

2-23

provided in section 44-13-2.2;

2-24

      (iii) Insurance and surety companies;

2-25

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

2-26

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

2-27

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

2-28

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

2-29

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

2-30

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

2-31

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

2-32

comply with the following:

2-33

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

2-34

determination from the internal revenue service.

3-1

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

3-2

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

3-3

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

3-4

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

3-5

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

3-6

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

3-7

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

3-8

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

3-9

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

3-10

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

3-11

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

3-12

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

3-13

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

3-14

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

3-15

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

3-16

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

3-17

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

3-18

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

3-19

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

3-20

day of any month other than December.

3-21

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

3-22

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

3-23

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

3-24

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

3-25

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

3-26

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

3-27

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

3-28

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

3-29

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

3-30

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

3-31

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

3-32

outside this state.

3-33

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

3-34

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

4-1

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

4-2

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

4-3

made.

4-4

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

4-5

chapter.

4-6

     SECTION 2. Section 44-30-1 of the General Laws in Chapter 44-30 entitled "Personal

4-7

Income Tax" is hereby amended to read as follows:

4-8

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

4-9

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

4-10

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

4-11

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

4-12

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

4-13

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

4-14

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

4-15

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

4-16

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

4-17

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

4-18

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

4-19

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

4-20

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

4-21

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

4-22

must comply with this provision by providing the following:

4-23

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

4-24

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

4-25

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

4-26

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

4-27

circumstances.

4-28

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

4-29

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

4-30

circumstances.

4-31

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

4-32

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

4-33

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

5-34

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

5-35

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

5-36

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

5-37

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

5-38

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

5-39

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

5-40

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

5-41

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

5-42

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

5-43

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

5-44

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

5-45

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

5-46

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

5-47

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

5-48

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

5-49

association;

5-50

      (2) Libraries; and fire engine companies;

5-51

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

5-52

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

5-53

facilities or enterprises within the state;

5-54

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

5-55

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

5-56

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

5-57

municipality; and

5-58

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

5-59

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

5-60

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

5-61

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

5-62

chapter 44-11 shall:

5-63

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

5-64

determination from the internal revenue service.

5-65

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

5-66

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

5-67

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

5-68

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

6-1

unincorporated organization is not using the associated personal property exclusively for

6-2

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

6-3

     SECTION 4. This act shall take effect upon passage.

=======

LC00383

========

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO TAXATION -- BUSINESS CORPORATION TAX

***

7-1

     This act would require certain corporations claiming an exemption as a nonprofit to

7-2

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

7-3

personal property exclusively for educational purposes.

7-4

     This act would take effect upon passage.

=======

LC00383

=======