Rhode Island Legislative Changes for 2018September 07, 2018
Michelle Berkovitz, CPA, MST
Tax year 2018 seems to be the year for changes. As businesses and taxpayers continue to digest big changes happening on the federal level, Rhode Island is responding with a few changes of its own. Some of these statewide changes are in response to the new federal law and how Rhode Island will implement those changes on the state level; others are not influenced by the federal government at all. Most of the changes will affect businesses more than individual taxpayers. However, the following change will affect individuals.
Rhode Island has decided to decouple from the federal law with regard to personal and dependency exemptions. Previously, the number of exemptions allowed for Rhode Island taxpayers was directly tied to the number of exemptions taken on a taxpayer’s federal return. If Rhode Island did not change the language in its statute, Rhode Island taxpayers would lose this deduction on their Rhode Island personal income tax returns. To accomplish this, Rhode Island has modified its tax code to refer to the federal law prior to the enactment of the Federal Tax Cuts and Jobs Act. There will be no deduction allowed, however, for any individual whose taxpayer identification number has not been provided on their federal or Rhode Island tax returns. The exemptions will continue to be adjusted for inflation each year. For 2018 the exemption is $4,000 per individual – up from $3,900 in 2017.
The remaining changes discussed below will affect businesses in a variety of tax areas, particularly sales tax, employer tax, corporate tax and tax credits.
Rhode Island’s Response to the U.S. Supreme Court Decision in Wayfair
Rhode Island recently issued Publication 2018-06, stating that remote retailers are not affected by the Wayfair U.S. Supreme Court decision. Rhode Island previously notified non-collecting retailers with two options in August 2017 that officially took effect January 1, 2018. These options require non-collecting retailers to either 1) register with the Division of Taxation and begin collecting and remitting sales tax, or 2) provide notices to customers as to their Rhode Island sales/use tax obligations. Retailers who do not comply with either of these options are subject to penalties described in the General Laws of Rhode Island. Those penalties are $10 per failure of notification, but not more than $10,000 per calendar year. With the notification process requiring at least three notifications per transaction, those penalties could result in significant monetary penalties for noncompliant businesses.
There are revised FAQs available on the Rhode Island Division of Taxation’s website for further clarification of these rules. You can review them by clicking here.
Sales Tax Changes
Investigative, guard and armored car services:
Effective July 1, 2018, investigative, guard, and armored car services are now subject to a 7% sales tax. Some of the services that fall within this category include: background checks, bodyguard services, parking security, fingerprint services, guard dog services, patrol services, missing person tracing services, security patrol services, and private detective services. Any provider of these services must register with the State of Rhode Island to obtain a sales tax permit and pay the annual $10 permit fee. They will also be required to collect and remit the sales taxes on these transactions. (RI General Law 44-18-7.3)
Software as a Service:
Effective October 1, 2018, Software as a Service (SaaS) will be subject to sales tax. Previously, Rhode Island had taken the position that pre-written software that did not require a download to one’s own computer was not considered tangible personal property subject to sales tax. Now, these vendor-hosted, pre-written software products will be subject to the 7% sales tax.
The new law clarifies that the tax will apply whether access to the software is considered temporary or permanent. Generally, this type of software is licensed on a subscription basis and is hosted at a central location. Examples of SaaS include software for accounting and invoicing, human resource functions, payroll, and performance monitoring. (RI General Law 44-18-7.1(g)(vi))
Miscellaneous sales tax changes:
The new law also adds keg and barrel containers, regardless of whether or not returnable, to the list of exemptions to sales and use tax. These items will be exempt only when sold to alcoholic beverage producers who place the alcoholic beverages in the containers. (RI General Law 44-18-30)
Clarification was made for prizes, including payoffs received, being exempt from sales tax. These are, however, still subject to income tax. These items fall within the category of Video-Lottery Games, Table Games and Sports Wagering. (RI General Law 42-61.2-10)
Employer Tax Changes
A new enacted law has authorized, under certain conditions, an increase in the Job Development Assessment (JDA), which funds the Job Development Fund (JDF). The JDA is part of the overall unemployment insurance tax paid by employers to the Division of Taxation. The JDF is used to provide job-training services, stimulate the economic development within the State of Rhode Island, and boost competitiveness of Rhode Island businesses.
Under the new law, the rate will vary depending on the health of the state unemployment insurance trust fund (trust fund) and how much interest it has generated. The Division of Taxation says any increase will not increase the average employer tax per employee, but only reallocate the amounts allocated to the JDF versus the trust fund. Therefore, any increase in the JDA will have a corresponding decrease in the state unemployment insurance tax.
Corporate Tax Changes
Responding to the federal Tax Cuts and Jobs Act, Rhode Island has published in its recently quarterly newsletter that it will continue to decouple from the federal treatment of bonus depreciation. Rhode Island does not allow the accelerated bonus depreciation allowed by the federal law. Taxpayers must calculate depreciation for Rhode Island as though bonuses were not taken and requires a modification for the difference calculated. The State has continued to allow the enhanced Section 179 deduction increase from $500,000 to $1,000,000.
Rhode Island has also recently adopted a regulation providing guidance related to the state’s corporate tax treatment of previously untaxed foreign income repatriated to the United States under Internal Revenue Code §965. Under this proposed regulation, C corporations would include as Rhode Island income the amount of the federal income required by the new law. It also provides definitions of terms; the purpose of the regulations; how to apportion the income recognized; and the application of certain deductions allowed, including the dividends received deduction and elimination for intercompany transactions.
Hospital Licensing Fee
The hospital licensing fee is increasing from 5.826% to 6.0% of net patient services revenues based on the hospital’s first fiscal year ending on or after January 1, 2017. The fee must be paid by July 10, 2019. There is a 37% discount for those hospitals located in Washington County.
Several changes were enacted related to film credits in Rhode Island. The film tax credit was set at 30% of state-certified costs per production up to $7 million per production, and there is a cap on the overall program annually of $15 million. Plus, the new law allows the Tax Administrator to waive the $7 million per production up to the remaining credits available under the program for that year.
The law further clarifies that the program is under the Rhode Island Film and Television Office and not the Department of Administration. As such, the director of the Rhode Island Council on the Arts, consulting with the Tax Administrator as needed, will promulgate the rules and regulations regarding the certification of any production costs and related tax credits.
Finally, bad news for aspiring reality TV directors: The new law bans any production considered “Reality Television” from qualifying for the film tax credit program.
New Sunset Dates:
Sunset dates—in other words, the date on which no other credits for a tax program will be awarded—have been revised for several tax credits. The Jobs Training Credits program enacted in 1996 has a sunset date retroactively to January 1, 2018. No other credits for this program will be awarded after this date. The sunset date of December 31, 2018 has been changed to June 30, 2020 for the following credits and programs: Rebuild Rhode Island Tax Credit; Rhode Island Tax Increment Financing; Tax Stabilization Incentive; First Wave Closing Fund; I-195 Redevelopment Project Fund; Small Business Assistance Program; Stay Invested in RI Wavemaker Fellowship; Main Street Rhode Island Streetscape Improvement Fund; Innovation Initiative; Industry Cluster Grants; High School, College, and Employer Partnerships program; and Rhode Island New Qualified Jobs Incentive Act of 2015.
Rhode Island recently issued a notice reminding entities of the annual disclosure requirements of certain information for specific credits received. A separate annual report is required for each different incentive. The credits subject to disclosure include: Jobs Development Act, Incentives for Innovation and Growth, Rhode Island Economic Development Corporation Project Status, Distressed Areas Economic Revitalization Act, Historic Preservation Tax Credits, and Motion Pictures Productions Tax Credits. Form TC-100 should be filed no later than August 15, 2018 and the Annual Employee Report is due no later than September 1, 2018.
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Should you have any questions related to the new Rhode Island laws or how they may affect you or your business, please contact Michelle Berkovitz at 401.330.2712 or firstname.lastname@example.org.