§ 44-32-1. Elective deduction against allocated entire net income.
(a) General. Except as provided in subsection (c) of this section, at the election of a taxpayer who is subject to the income tax imposed by chapters 11 or 30 of this title, there shall be deducted from the portion of its entire net income allocated within the state the items prescribed in subsection (b) of this section, in lieu of depreciation or investment tax credit.
(b) One-year write-off of new research and development facilities.
(1) Expenditures paid or incurred during the taxable year for the construction, reconstruction, erection or acquisition of any new, not used, property as described in subsection (c) of this section, which is used or to be used for purposes of research and development in the experimental or laboratory sense. The purposes are not deemed to include the ordinary testing or inspection of materials or products for quality control, efficiency surveys, management studies, consumer surveys, advertising, promotion, or research in connection with literary, historical, or similar projects. The deduction shall be allowed only on condition that the entire net income for the taxable year and all succeeding taxable years is computed without the deduction of any expenditures and without any deduction for depreciation of the property, except to the extent that its basis may be attributable to factors other than the expenditures, (expenditures and depreciation deducted for federal income tax purposes shall be added to the entire net income allocated to Rhode Island), or in case a deduction is allowable pursuant to this subdivision for only a part of the expenditures, on condition that any deduction allowed for federal income tax purposes on account of the expenditures or on account of depreciation of the property is proportionately reduced in computing the entire net income for the taxable year and all succeeding taxable years. Concerning property that is used or to be used for research and development only in part, or during only part of its useful life, a proportionate part of the expenditures shall be deductible. If all or part of the expenditures concerning any property has been deducted as provided in this section, and the property is used for purposes other than research and development to a greater extent than originally reported, the taxpayer shall report the use in its report for the first taxable year during which it occurs, and the tax administrator may recompute the tax for the year or years for which the deduction was allowed, and may assess any additional tax resulting from the recomputation as a current tax, within three (3) years of the reporting of the change to the tax administrator. Any change in use of the property in whole or in part from that, which originally qualified the property for the deduction, requires a recomputation. The tax administrator has the authority to promulgate regulations to prevent the avoidance of tax liability.
(2) The deduction shall be allowed only where an election for amortization of air or water pollution control facilities has not been exercised in respect to the same property.
(3) The tax as a result of recomputation of a prior year’s deduction is due as an additional tax for the year the property ceases to qualify.
(c) Property covered by deductions. The deductions shall be allowed only with respect to tangible property which is new, not used, is depreciable pursuant to 26 U.S.C. § 167, was acquired by purchase as defined in 26 U.S.C. § 179(d), has a situs in this state, and is used in the taxpayer’s trade or business. For the taxable years beginning on or after July 1, 1974, a taxpayer is not allowed a deduction under this section with respect to tangible property leased by it to any other person or corporation or leased from any other person or corporation. For purposes of the preceding sentence, any contract or agreement to lease or rent or for a license to use the property is considered a lease, unless the contract or agreement is treated for federal income tax purposes as an installment purchase rather than a lease. With respect to property that the taxpayer uses itself for purposes other than leasing for part of a taxable year and leases for a part of a taxable year, the taxpayer shall be allowed a deduction under this section in proportion to the part of the year it uses the property.
(d) Entire net income. “Entire net income”, as used in this section, means net income allocated to this state.
(e) Carry-over of excess deductions. If the deductions allowable for any taxable year pursuant to this section exceed the portion of the taxpayer’s entire net income allocated to this state for that year, the excess may be carried over to the following taxable year or years, not to exceed three (3) years, and may be deducted from the portion of the taxpayer’s entire net income allocated to this state for that year or years.
(f) Gain or loss on sale or disposition of property. In any taxable year when property is sold or disposed of before the end of its useful life, with respect to which a deduction has been allowed pursuant to subsection (b) of this section, the gain or loss on this entering into the computation of federal taxable income is disregarded in computing the entire net income, and there is added to or subtracted from the portion of the entire net income allocated within the state the gain or loss upon the sale or other disposition. In computing the gain or loss, the basis of the property sold or disposed of is adjusted to reflect the deduction allowed with respect to the property pursuant to subsection (b) of this section; provided, that no loss is recognized for the purpose of this subsection with respect to a sale or other disposition of property to a person whose acquisition of this property is not a purchase as defined in 26 U.S.C. § 179(d).
(g) Investment credit not allowed on research and development property. No investment credit under chapter 31 of this title shall be allowed on the research and development property for which accelerated write-off is adopted under this section.
(h) Consolidated returns. The research and development deduction shall only be allowed against the entire net income of the corporation included in a consolidated return and shall not be allowed against the entire net income of other corporations that may join in the filing of a consolidated state tax return.
History of Section.
P.L. 1974, ch. 200, art. 5, § 1; P.L. 1975, ch. 188, art. 3, § 1.