Rhode Island’s budget bill makes numerous changes to the corporate and personal income tax laws, including (1) conforming to the asset expense deduction under IRC §179, (2) decoupling from the IRC §199 domestic production activities deduction, (3) creating a historic rehabilitation credit, (4) allowing additional penalties for tax preparers under certain circumstances, and (5) expanding the credit for contributions to scholarship organizations. Provisions covering sales and use taxes and miscellaneous taxes are reported separately.
Asset Expense Deduction
Effective January 1, 2014, corporate and personal income taxpayers may expense assets in the same manner as provided for in IRC §179. Any remaining basis of assets purchased is depreciated as provided for under IRC §§167 and 168, excluding bonus depreciation under IRC §168(k). This is applicable to assets placed in service after 2013. Previously, the asset expense deduction was limited to $25,000.
Domestic Production Activities Deduction
Effective July 3, 2013, corporations doing business in the state are required to add back any amount deducted under IRC §199, the domestic production activities deduction. This is applicable to tax years beginning after 2013. Previously, corporations were not required to add back IRC §199 deductions.
Historic Rehabilitation Credit
Effective July 3, 2013, taxpayers may claim a historic rehabilitation credit against the corporate and personal income taxes, the franchise tax, the banks tax, the public service corporations tax, and the gross insurance premiums tax. Taxpayers (excluding social clubs) incurring qualified rehabilitation expenditures for the substantial rehabilitation of a certified historic structure may claim a credit in the amount of 20% of the expenses, or 25% of the expenses if at least 25% of the total rentable area is made available for trade or business or the entire rentable area located on the first floor is made available for trade or business. The credit is capped at $5 million for any project and may be carried forward for 10 years. The credit cannot be reserved on or after June 30, 2016, or on the exhaustion of the maximum aggregate credits, whichever is first. Certain properties may not qualify for the credit, and a nonrefundable fee of 3% of the qualified rehabilitation expenses must be paid.
Tax Preparer Penalties
Effective July 3, 2013, if a tax return preparer fails to comply with the due diligence requirements with respect to determining eligibility for, or the amount of, either the earned income tax credit or the property tax relief credit, the preparer must pay a penalty of $500 per return. If a tax return preparer willfully prepared a return with the intent to wrongfully obtain the property tax relief credit or with the intent to evade or reduce a tax obligation, the preparer is liable for the greater penalty of $1,000 or $500 per return filed during the calendar year. Tax return preparers may also be subject to criminal penalties under certain circumstances.
Contributions to Scholarship Organizations Credit
Effective July 3, 2013, the total credits for contributions to scholarship organizations that may be claimed against the corporate income tax and gross insurance premiums tax are increased to $1.5 million per fiscal year from $1 million.
