High performance manufacturers may include nonresident employees who pay personal income taxes to the state, whether newly hired or transferred from out of state, as enterprise job employees for purposes of calculating the enterprise zone tax incentives.
Resident business owner tax modifications:
In computing his or her personal income tax, a resident of an enterprise zone who owns and operates a qualified business facility in that zone may deduct $50,000 per year as a modification reducing federal adjusted gross income during the first three years of operation; and $25,000 during the fourth and fifth years. A resident business owner may elect this modification or the business tax credit (above), but not both.
Historic preservation investment tax credit:
Rhode Island's state tax credit is for owners who fix up historic income-producing buildings. The state tax credits may be combined with federal tax credits for historic preservation and housing. This 30 percent commercial historic tax credit, effective January 1, 2002, is for qualified rehabilitated buildings and certified historic structures representing investments of at least 50 percent of a property's value. However, as of 2008, wrestling with the difficult budget, the RI General Assembly has limited the programs to projects already in the pipeline.
Small business capital investment tax incentives:
Deductions, modifications, capital gain exclusions, and wage credits are permitted only to business entities or venture capital partnerships certified by the Rhode Island Economic Development Corporation. The certification number must be shown on all incentive claims.
Incentives under provisions include:
• Deductions or modifications: A deduction or modification equal to the taxpayer's qualifying investment in a certified venture capital partnership or equal to the entrepreneur's investment in a qualifying business entity. Restrictions prohibit the deduction of modification from reducing the business corporation tax, public service corporation tax, or bank excise tax to less than the minimum tax. Personal income tax or gross premiums tax may not be reduced to less than $0. The amount of unused deductions or modifications may not be carried over to following years.
• Capital gains exclusion: Business corporation tax, public service corporation tax, bank excise tax, or personal income tax may exclude long-term capital gains from sale or exchange of an interest in a qualifying business entity or certified venture capital partnership. Taxpayers seeking exclusion of capital gains must provide proof of the date and amount of the investment in the qualifying business entity or certified venture capital partnership. The Rhode Island Economic Development Corporation must certify the business entity or partnership.
• Wage credit: A wage credit is available against an entrepreneur's personal income tax for a qualifying business entity for 3 percent of wages paid to employees for the calendar year in excess of $50,000. The following are excluded: wages paid to owners, wages paid more than five years after the start or purchase of the business, and wages paid to employees who are not principally employed in Rhode Island. Unused credit may be carried over to the following year. The credit ceases in the taxable year following the taxable year in which the annual gross revenue of the business equals or exceeds $1.5 million.
Disabled access credit for small business:
The expenses must be made to enable the small business to comply with federal or state laws protecting the rights of persons with disabilities. The credit is equal to 10 percent of the total amount expended during the tax year in Rhode Island up to a maximum of $1,000.
Telecommunication sales tax exemption:
Regulated investment companies with at least 500 full-time equivalent employees are exempt from the sales and use tax imposed on toll-free terminating telecommunication service. An eligible company is a regulated investment company or a corporation to the extent such service is provided, directly or indirectly, to or on behalf of a regulated investment company, and employee benefit plan, a retirement plan, or a pension plan.
Intangible personal property sales tax exemption:
Sales or transfers of intangible personal property such as stocks, bonds, accounts receivable, money, or insurance policies are exempt from the sales tax.
Rebuilding after a natural disaster:
Manufacturers who have lost 60 percent or more of their facilities due to a natural disaster resulting in the inability of active employees to continue production may qualify for corporate income tax rate reductions under the Jobs Development Act for jobs retained or added. Damaged businesses may also qualify for a sales tax exemption on reconstruction materials that are not reimbursed by insurance.
Incentives for employers to hire unemployed or low-income Rhode Island residents:
A tax credit of 40 percent of an eligible employee's first year wages up to a maximum of $2,400 is available to businesses and individuals that employ and retain previously unemployed or low-income Rhode Island residents. Each eligible employee must meet certain criteria and be certified by the Department of Labor and Training.
Bonus Program private participation:
An employer who participates in the Bonus Program, which provides job training for former AFDC recipients, shall be entitled to a $250 tax credit per participant.
Child and adult daycare tax credit:
A taxpayer that purchases or provides for adult or child daycare services for adult family members or dependent children of the taxpayer's employees or to employees of its commercial tenants in Rhode Island is allowed a tax credit in the amount of 30 percent of the total amount expended during the taxable year for services purchased and 30 percent of the total amount expended during the taxable year for the establishment and/or operation of a daycare facility by the taxpayer alone or in conjunction with others. The maximum credit allowed is $30,000 and the amount of unused credit may not be carried forward. Credits for child daycare require confirmation that the facility agrees to accept children for whom the services are paid by Rhode Department of Human Services.
Industrial fuels and raw materials:
Sales of tangible personal property, computer software, and public utility services when the property or service becomes a component part of a manufactured product for resale, or when the property or service is used in the process of manufacturing or processing products for resale are exempt.
Scientific equipment used in research and development is exempt from the state sales tax.
Pollution-control property and supplies are exempt from the state sales tax.
Professional services such as those provided by physicians, attorneys, accountants, engineers, and others are exempt. However, the tax applies to any tangible personal property that may be sold at retail by such professionals (e.g., opera glasses, field glasses, etc.).
Intangible personal property:
Sales or transfers of intangible personal property such as stocks, bonds, accounts receivable, money, or insurance policies are exempt from sales tax.
Aircraft and fuel used for propulsion of airplanes:
Effective January 1, 2005, Rhode Island exempts the sale, storage, use or other consumption of new or used aircraft and aircraft parts from taxation. Labor charges continue to be exempt where labor charges are separately stated by the seller. Fuel used for propulsion of aircraft (i) gasoline and other products taxed under chapter 36 of title 31, and (ii) fuels used for the propulsion of airplanes is exempt.
Property tax abatement:
Local governments may exempt real estate used by manufacturing and commercial firms from property taxes or the tax rate may be stabilized for 10 years.
Manufacturers' machinery and equipment:
Manufacturers' machinery and equipment used in the manufacturing process is exempt from local property tax.
Manufacturers' inventory is also exempt from local property tax.
Certified pollution-control equipment and equipment that generates hydroelectric power is exempt from local property tax.
Cities and towns have the option of exempting office equipment such as computers and communications equipment from local property tax.
Wholesale and retail inventories:
Cities and towns have the option of exempting wholesale and retail inventories from local property tax. The local property tax on wholesale and retail inventories is being phased out over 10 years beginning in 1999. The tax will be eliminated in 2009.
Rhode Island State Contact:
Rhode Island Economic Development Corporation
315 Iron Horse Way, Ste. 101
Providence, RI 02908
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.