2014 -- H 7237

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LC003686

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2014

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A N   A C T

RELATING TO TAXATION - PERSONAL INCOME TAX

     Introduced By: Representatives Carnevale, Costantino, Lombardi, Palumbo, and Trillo

     Date Introduced: January 30, 2014

     Referred To: House Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Section 44-30-12 of the General Laws in Chapter 44-30 entitled "Personal

Income Tax" is hereby amended to read as follows:

     44-30-12. Rhode Island income of a resident individual. -- (a) General. - The Rhode

Island income of a resident individual means his or her adjusted gross income for federal income

tax purposes, with the modifications specified in this section.

      (b) Modifications increasing federal adjusted gross income. - There shall be added to

federal adjusted gross income:

      (1) Interest income on obligations of any state, or its political subdivisions, other than

Rhode Island or its political subdivisions;

      (2) Interest or dividend income on obligations or securities of any authority, commission,

or instrumentality of the United States, but not of Rhode Island or its political subdivisions, to the

extent exempted by the laws of the United States from federal income tax but not from state

income taxes;

      (3) The modification described in section 44-30-25(g);

      (4) (i) The amount defined below of a nonqualified withdrawal made from an account in

the tuition savings program pursuant to section 16-57-6.1. For purposes of this section, a

nonqualified withdrawal is:

      (A) A transfer or rollover to a qualified tuition program under Section 529 of the Internal

Revenue Code, 26 U.S.C. section 529, other than to the tuition savings program referred to in

section 16-57-6.1; and

      (B) A withdrawal or distribution which is:

      (I) Not applied on a timely basis to pay "qualified higher education expenses" as defined

in section 16-57-3(12) of the beneficiary of the account from which the withdrawal is made;

      (II) Not made for a reason referred to in section 16-57-6.1(e); or

      (III) Not made in other circumstances for which an exclusion from tax made applicable

by Section 529 of the Internal Revenue Code, 26 U.S.C. section 529, pertains if the transfer,

rollover, withdrawal or distribution is made within two (2) taxable years following the taxable

year for which a contributions modification pursuant to subdivision (c)(4) of this section is taken

based on contributions to any tuition savings program account by the person who is the

participant of the account at the time of the contribution, whether or not the person is the

participant of the account at the time of the transfer, rollover, withdrawal or distribution;

      (ii) In the event of a nonqualified withdrawal under subparagraphs (i)(A) or (i)(B) of this

subdivision, there shall be added to the federal adjusted gross income of that person for the

taxable year of the withdrawal an amount equal to the lesser of:

      (A) The amount equal to the nonqualified withdrawal reduced by the sum of any

administrative fee or penalty imposed under the tuition savings program in connection with the

nonqualified withdrawal plus the earnings portion thereof, if any, includible in computing the

person's federal adjusted gross income for the taxable year; and

      (B) The amount of the person's contribution modification pursuant to subdivision (c)(4)

of this section for the person's taxable year of the withdrawal and the two (2) prior taxable years

less the amount of any nonqualified withdrawal for the two (2) prior taxable years included in

computing the person's Rhode Island income by application of this subsection for those years.

Any amount added to federal adjusted gross income pursuant to this subdivision shall constitute

Rhode Island income for residents, nonresidents and part-year residents; and

      (5) The modification described in section 44-30-25.1(d)(3)(i).

      (6) The amount equal to any unemployment compensation received but not included in

federal adjusted gross income.

      (7) The amount equal to the deduction allowed for sales tax paid for a purchase of a

qualified motor vehicle as defined by the Internal Revenue Code section 164(a)(6).

      (c) Modifications reducing federal adjusted gross income. - There shall be subtracted

from federal adjusted gross income:

      (1) Any interest income on obligations of the United States and its possessions to the

extent includible in gross income for federal income tax purposes, and any interest or dividend

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income on obligations, or securities of any authority, commission, or instrumentality of the

United States to the extent includible in gross income for federal income tax purposes but exempt

from state income taxes under the laws of the United States; provided, that the amount to be

subtracted shall in any case be reduced by any interest on indebtedness incurred or continued to

purchase or carry obligations or securities the income of which is exempt from Rhode Island

personal income tax, to the extent the interest has been deducted in determining federal adjusted

gross income or taxable income;

      (2) A modification described in section 44-30-25(f) or section 44-30-1.1(c)(1);

      (3) The amount of any withdrawal or distribution from the "tuition savings program"

referred to in section 16-57-6.1 which is included in federal adjusted gross income, other than a

withdrawal or distribution or portion of a withdrawal or distribution that is a nonqualified

withdrawal;

      (4) Contributions made to an account under the tuition savings program, including the

"contributions carryover" pursuant to paragraph (iv) of this subdivision, if any, subject to the

following limitations, restrictions and qualifications:

      (i) The aggregate subtraction pursuant to this subdivision for any taxable year of the

taxpayer shall not exceed five hundred dollars ($500) or one thousand dollars ($1,000) if a joint

return;

      (ii) The following shall not be considered contributions:

      (A) Contributions made by any person to an account who is not a participant of the

account at the time the contribution is made;

      (B) Transfers or rollovers to an account from any other tuition savings program account

or from any other "qualified tuition program" under section 529 of the Internal Revenue Code, 26

U.S.C. section 529; or

      (C) A change of the beneficiary of the account;

      (iii) The subtraction pursuant to this subdivision shall not reduce the taxpayer's federal

adjusted gross income to less than zero (0);

      (iv) The contributions carryover to a taxable year for purpose of this subdivision is the

excess, if any, of the total amount of contributions actually made by the taxpayer to the tuition

savings program for all preceding taxable years for which this subsection is effective over the

sum of:

      (A) The total of the subtractions under this subdivision allowable to the taxpayer for all

such preceding taxable years; and

      (B) That part of any remaining contribution carryover at the end of the taxable year

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which exceeds the amount of any nonqualified withdrawals during the year and the prior two (2)

taxable years not included in the addition provided for in this subdivision for those years. Any

such part shall be disregarded in computing the contributions carryover for any subsequent

taxable year;

      (v) For any taxable year for which a contributions carryover is applicable, the taxpayer

shall include a computation of the carryover with the taxpayer's Rhode Island personal income

tax return for that year, and if for any taxable year on which the carryover is based the taxpayer

filed a joint Rhode Island personal income tax return but filed a return on a basis other than

jointly for a subsequent taxable year, the computation shall reflect how the carryover is being

allocated between the prior joint filers; and

      (5) The modification described in section 44-30-25.1(d)(1).

      (6) Amounts deemed taxable income to the taxpayer due to payment or provision of

insurance benefits to a dependent, including a domestic partner pursuant to chapter 12 of title 36

or other coverage plan.

      (7) Modification for organ transplantation. - (i) An individual may subtract up to ten

thousand dollars ($10,000) from federal adjusted gross income if he or she, while living, donates

one or more of his or her human organs to another human being for human organ transplantation,

except that for purposes of this subsection, "human organ" means all or part of a liver, pancreas,

kidney, intestine, lung, or bone marrow. A subtract modification that is claimed hereunder may be

claimed in the taxable year in which the human organ transplantation occurs.

      (ii) An individual may claim that subtract modification hereunder only once, and the

subtract modification may be claimed for only the following unreimbursed expenses that are

incurred by the claimant and related to the claimant's organ donation:

      (A) Travel expenses.

      (B) Lodging expenses.

      (C) Lost wages.

      (iii) The subtract modification hereunder may not be claimed by a part-time resident or a

nonresident of this state.

     (8) Losses from wagering transactions shall be allowed only to the extent of the gains

from such transactions.

      (d) Modification for Rhode Island fiduciary adjustment. - There shall be added to or

subtracted from federal adjusted gross income (as the case may be) the taxpayer's share, as

beneficiary of an estate or trust, of the Rhode Island fiduciary adjustment determined under

section 44-30-17.

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     (e) Partners. - The amounts of modifications required to be made under this section by a

partner, which relate to items of income or deduction of a partnership, shall be determined under

section 44-30-15.

     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 - PERSONAL INCOME TAX

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     This act would provide that any modification reducing federal adjusted gross income for

losses from wagering transactions be limited to the extent of the gains from such transactions.

     This act would take effect upon passage.

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