(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 shareholder of an S Corporation; a partner in a general partnership, a limited partnership, or a limited-liability partnership; a member of a limited-liability company, a beneficiary of a trust; or a sole proprietor.

(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 the pass-through entity at the entity level that is passed through to an owner on a pro rata basis.

Terms Used In Rhode Island General Laws 44-11-2.3

  • Beneficiary: A person who is entitled to receive the benefits or proceeds of a will, trust, insurance policy, retirement plan, annuity, or other contract. Source: OCC
  • Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
  • Jurisdiction: (1) The legal authority of a court to hear and decide a case. Concurrent jurisdiction exists when two courts have simultaneous responsibility for the same case. (2) The geographic area over which the court has authority to decide cases.
  • Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
  • real estate: may be construed to include lands, tenements, and hereditaments and rights thereto and interests therein. See Rhode Island General Laws 43-3-10
  • United States: include the several states and the territories of the United States. See Rhode Island General Laws 43-3-8

(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 five and ninety-nine hundredths percent (5.99%).

(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 taxes paid by the entity which sums will be allowed as a state tax credit for an owner on his or her personal income tax return.

(2)  The pass-through entity shall 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 the pass-through entity, at the entity level, 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.

History of Section.
P.L. 2019, ch. 88, art. 5, § 8.