Rhode Island Budget Bill Enacts Potentially-Unconstitutional Amazon Clause and Eliminates Favorable Treatment of Capital Gains
| Rhode Island Budget Bill Enacts Potentially-Unconstitutional Amazon Clause and Eliminates Favorable Treatment of Capital Gains |
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In Rhode Island's state budget bill for fiscal year 2010, signed by Governor Donald L. Carcieri on June 30, 2009, Rhode Island has adopted an “Amazon clause,” similar to the provision currently in effect in New York, requiring out-of-state online retailers to collect tax on purchases made through Rhode Island-based websites. In addition, the lower capital gains rate is eliminated for personal income tax purposes, the estate tax exemption amount is increased, and the motor fuel tax rate is increased by 2¢. Rhode Island has also decoupled its calculation of the corporation business tax, the bank tax, and the personal income tax from the federal provision deferring the recognition of income from the discharge of business indebtedness. Further, the Health Care Provider Assessment Act is repealed, the hospital licensing fee is increased, and electronic filing requirements are set forth for withheld taxes and for sales and use taxes. Finally, a penalty is imposed on employers for failing to pay employer's withholding for personal income tax purposes, the Division of Taxation is authorized to offset a debtor's personal income tax refund for medical assistance benefit overpayments or medical assistance cost share arrearages owed to the Department of Human Services, and key terms and reporting requirements are set forth regarding the rate reduction for creating new jobs in Rhode Island under the Jobs Development Act. ( L. 2009, H5983, eff. 06/30/2009, unless otherwise stated .) Online retailers. The definition of a “retailer” has been expanded to include every person making sales of tangible personal property through an independent contractor or other representative, if the retailer enters into an agreement with a resident of Rhode Island, under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet website or otherwise, to the retailer, provided the cumulative gross receipts from sales by the retailer to customers in Rhode Island who are referred to the retailer by all residents with this type of an agreement with the retailer, is in excess of $5,000 during the preceding four quarterly periods ending on the last day of March, June, September and December. Such retailer will be presumed to be soliciting business through such independent contractor or other representative, which presumption may be rebutted by proof that the resident with whom the retailer has an agreement did not engage in any solicitation in the state on behalf of the retailer that would satisfy the nexus requirement of the U.S. Constitution during such four quarterly periods. So far, Amazon.com, Overstock.com and BlueNile.com have severed their ties with all Rhode Island associates. Check out our blog for more news on the immediate impact of this potentially-unconstitutional provision. Capital gains. For tax years beginning on or after January 1, 2010, the lower capital gain tax rate for personal income tax is eliminated. Capital gains will be treated as ordinary income. As a result, some capital gains in Rhode Island that could have been taxed at rates as low as 1.67% will now be taxed at rates up to 9.9% Estate tax. The exemption amount for the estate tax for decedents whose death occurs on or after January 1, 2010 is increased from $675,000 to $850,000. In addition, beginning on January 1, 2011 and each January 1 thereafter, the exemption amount is adjusted for inflation. Any scheduled increase in the unified credit in effect on January 1, 2003, or thereafter, will not apply. Tax on fuel distributors. Effective July 1, 2009, the rate of tax imposed on the distributor on each gallon of fuel sold or used in Rhode Island is increased to 32¢ from 30¢. Recognition of income from discharge of business indebtedness. For purposes of Rhode Island taxable income under the business corporation tax, bank tax, and personal income tax, the recognition of income from the discharge of business indebtedness deferred under the American Recovery and Reinvestment Act of 2009 for federal tax purposes, must be reported as a modification increasing federal income for Rhode Island tax purposes in the year it occurred. When claimed as income on a future federal tax return it may be reported as a modification decreasing federal income for Rhode Island tax purposes to the extent it had been added back. The American Recovery and Reinvestment Act of 2009 provided, for federal tax purposes, for payments of the tax over a 5-year period. This change to Rhode Island law does not allow such an installment payment. Health care provider assessment. Applicable to provider tax assessment of gross patient revenues related to services provided after June 30, 2009, but not applicable to assessment of gross patient revenue due and payable to Rhode Island for services provided prior to July 1, 2009, the health care provider assessment is eliminated. Previously, an assessment was imposed on the gross patient revenue received by every provider for the provision of residential services in each month beginning April 1, 2003, at a rate of 25%. Hospital licensing fee. Applicable to hospitals that are duly licensed on July 1, 2009, the amount of the hospital licensing fee imposed on the net patient services revenue of every hospital for the hospital's first fiscal year ending on or after January 1, 2008 is 5.237%. In addition, the licensing fee imposed for the hospital's first fiscal year ending on or after January 1, 2007 has been increased from 4.78% to 5.473%. Electronic filing of withheld taxes. Effective January 1, 2010, any person required to withhold and remit tax from wages with 10 or more employees must make the payments by electronic funds transfer or other electronic means defined by the Tax Administrator. The Tax Administrator must adopt rules necessary to administer a program of electronic funds transfer or other electronic filing system. In the case of a person failing to make the required deposit of taxes by electronic funds transfer or other electronic means defined by the Tax Administrator, unless it is shown that such failure is due to reasonable cause and not due to willful neglect, an addition to tax equal to the lesser of 5% of the amount or $500 per required payment is imposed. The Tax Administrator is authorized to waive the electronic filing requirement in a given year for persons who can show that filing electronically will cause undue hardship. Electronic filing of sales tax. Beginning on January 1, 2010, any person required to collect and remit sales and use tax to the state of Rhode Island who had an average monthly sales and use tax liability of $200 or more per month for the previous calendar year, must remit such payments by electronic funds transfer or other electronic means defined by the Tax Administrator. The Tax Administrator must adopt rules necessary to administer a program of electronic funds transfer or other electronic filing system. Failure to remit such taxes by electronic funds transfer or other electronic means defined by the Tax Administrator results in an addition to tax equal to the lesser of 5% of the amount that was not transferred or $500, unless there was reasonable cause for the failure and such failure was not due to negligence or willful neglect. The Tax Administrator is authorized to waive the electronic filing requirement in a given year for a person who can show that filing electronically will cause undue hardship. Failure to pay employer's withholding. Employers who fail to pay the tax shown on the employer's withheld tax return on or before the prescribed date for payment of the tax must add to the amount shown as tax the amount of 0.5% of the amount of the tax if the failure is for not more than one month, with an additional 0.5% for each additional month or fraction thereof during which the failure continues, not exceeding 25% in the aggregate. Setoff of personal income tax refund. The Division of Taxation is authorized to offset a debtor's personal income tax refund for medical assistance benefit overpayments or medical assistance cost share arrearages owed to the Department of Human Services. For purposes of the setoff of personal income tax refunds, the definition of “cash assistance benefit overpayments” has been broadened to include the overpayment of benefits under the provisions of the Rhode Island Works Program. Jobs Development Act. Full-time equivalent active employee: For eligible companies qualifying on or after July 1, 2009 for a rate reduction for creating new jobs in Rhode Island under the Jobs Development Act, the term “full-time equivalent active employee” means any employee of an eligible company who: works a minimum of 30 hours per week within the state; earns health care insurance benefits and retirement benefits; and earns no less than 250% of the hourly minimum wage prescribed by Rhode Island law at the later of: the time the employee was first treated as a full-time equivalent active employee during a tax year that the eligible company qualified for a rate reduction; or the time the employee first earned at least 250% of the hourly minimum wage prescribed by Rhode Island law as an employee of the eligible company. For eligible companies qualifying before July 1, 2009 for a rate reduction, any new “full-time equivalent active employee” who replaces an existing “full-time equivalent active employee” must meet the following standards to remain eligible: works a minimum of 30 hours per week within Rhode Island; earns health care insurance benefits and retirement benefits; and earns no less than 250% of the hourly minimum wage prescribed by Rhode Island law at the later of: the time the employee was first treated as a full-time equivalent active employee during a tax year that the eligible company qualified for a rate reduction; or the time the employee first earned at least 250% of the hourly minimum wage prescribed by Rhode Island law as an employee of the eligible company. Reporting requirements: Reporting requirements have been set forth such that on or before September 1, 2009, and every September 1 thereafter, all eligible companies qualifying for a rate reduction for creating new jobs in Rhode Island under the Jobs Development Act must file an annual report with the Tax Administrator. Such report must contain each full time equivalent active employee's name, social security number, date of hire, and hourly wage as of the immediately preceding July 1 and such other information as deemed necessary by the Tax Administrator. The report must be filed on a form and in a manner prescribed by the Tax Administrator. |
