2022 -- H 7171

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2022

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A N   A C T

RELATING TO TAXATION -- BUSINESS CORPORATION TAX

     Introduced By: Representatives Baginski, Shekarchi, and Shallcross Smith

     Date Introduced: January 26, 2022

     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 any shareholder of an S Corporation; a any

partner in a general partnership, a limited partnership, or a limited-liability partnership; a any

member of a limited-liability company, a any beneficiary of a trust; or a sole proprietor excluding

tax-exempt owners including, but not limited to, nonprofit, IRA, 401(k) plans.

     (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 shown on the pass-through entity at

the entity level entity's Pass-through Entity Election Tax Return 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 seven percent (7%) to the extent the pass-through

entity is owned by a C corporation, and at the rate of five and ninety-nine hundredths percent

(5.99%) for individuals, S corporations, LLCs, partnerships and trusts.

     (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 tax taxes paid

by the entity shown on the pass-through entity's Pass-through Entity Election Tax Return, which

sums will be allowed as a state tax credit for an owner on his or her its personal income tax return.

     (2) The pass-through entity shall add back into its income any amount deducted on the

federal tax return as a Rhode Island pass-through entity tax 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 shown on the pass-through entity, at

the entity level, entity's Pass-through Entity Election Tax Return, 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.

     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 technical amendments to the existing Pass-through Entity Election

Tax statute to allow tax practitioners and the Rhode Island Division of Taxation to comply with the

provisions in practice.

     This act would take effect upon passage.

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