Section 280-RICR-20-20-1.3 - Qualified Taxpayer(s)A. Generally 1. A "qualified taxpayer" shall be allowed a credit computed in accordance with R.I. Gen. Laws § 44-31-1 against the tax imposed by R.I. Gen. Laws Chapters 44-11, 44-14, 44-17 and 44-30. The amount of the credit shall be ten percent (10%) of the cost or other basis for Federal income tax purposes, and the qualified amounts for leased assets of tangible personal property and other tangible property acquired, constructed, reconstructed or erected on or after January 1, 1998.2. A "qualified taxpayer" means a taxpayer in any of the businesses described in the major groups 20 through 39, 50 and 51, 60 through 67, 73, 76, 80 through 82, 87 and 89 of the SIC Code (or the corresponding industry sectors of the North American Industry Classification System ["NAICS"]) and/or any of the businesses described in the three (3) digit SIC Code 781 (or the corresponding industry sector of the NAICS) which meet certain wage criteria and with respect to the major groups set forth in R.I. Gen. Laws § 44-31-1(b)(3)(d)(2) the additional requirement relating to gross revenues.3. A credit is allowed with respect to buildings and structural components that are acquired, constructed, reconstructed, or erected after July 1, 2001, which are depreciable pursuant to 26 U.S.C. § 167, have a useful life of four (4) years or more, are acquired by purchase as defined in 26 U.S.C. § 179(d) or acquired by lease after July 1, 2001 for a term of twenty (20) years or more, excluding renewal periods, have a situs in this state and to the extent the property is used by a high performance manufacturer. The term "high performance manufacturer" means a taxpayer engaged in any of the businesses described in the major groups 28, 30, 34 to 36, and 38 of the SIC codes, that pays its full-time equivalent employees a median annual wage above the average annual wage paid by all taxpayers in the state which share the same two-digit SIC Code, unless the high performance manufacturer is the only high performance manufacturer in the state conducting business in that two-digit SIC Code, in which case this requirement does not apply and whose expenses for training or retraining its employees exceeds two percent (2%) of its total payroll costs, or that pays its full-time equivalent employees a median annual wage equal to or greater than one hundred twenty-five percent (125%) of the average annual wage paid in this state by employers to employees, or that pays its full-time equivalent employees classified as production workers by the Rhode Island Department of Labor and Training an average annual wage above the average annual wage paid to the production workers of all taxpayers in the state which share the same two-digit SIC Code.B. Leased Property 1. Property leased to the "qualified taxpayer"2. To the extent otherwise allowable, the credit shall be allowed for computers, software and telecommunications hardware used by a "qualified taxpayer" even if the property has a useful life of less than four (4) years.3. The credit for property acquired by lease shall be based on the fair market value of the property at the inception of the lease times the portion of the depreciable life of the property represented by the term of the lease excluding renewal options. a. Example: Taxpayer X leased a computer from a lessor for a two (2) year period with a useful life of four (4) years. The resulting qualified cost would be a fraction which represents the two (2) year lease divided by the four (4) year life resulting in a fifty percent (50%) qualified cost. Lease Period = 2 years = 50% x $20,000 = $10,000 Life of Asset 4 years (Cost) (Basis) |
4. Property leased from the "qualified taxpayer" by othersa. Property leased (subleased or rented) from the "qualified taxpayer" to others does not qualify for the credit.5. Property leased to a "high performance manufacturer" a. The credit for high performance manufacturers that are lessees of buildings and their structural components for a term of twenty (20) years or more, excluding renewal periods, shall be calculated in the same manner as for property acquired by purchase.C. Limitation of Credit 1. The credit allowed under this subdivision of any taxable year shall not reduce the tax for the year by more than fifty percent (50%) of the tax liability that would otherwise be payable, and further cannot reduce the tax to less than the minimum tax as applicable; provided, however, that in the case of the credit allowed to high performance manufacturers, the fifty percent (50%) limitation shall not apply. However, if the amount of credit allowable under this subdivision of any taxable year is less than the amount of credit available to the taxpayer any amount of credit not deductible in the taxable year may be carried over to the following year or years (not to exceed seven (7) years) and may be deducted from the taxpayer's tax for the year or years.2. The "tax liability that would otherwise be payable" is defined as tax after any other credits are applied unless such credits' laws or regulations mandate otherwise.3. An example depicting the limitation of fifty percent (50%) of the tax liability is shown below: a. A "qualified taxpayer", XYZ Corporation purchases equipment with qualifying costs of $100,000 on February 1, 1998; has investment tax credit of $10,000 (10% of $100,000); and a normal tax year of December 31, 1998. The tax before credits as reported on Form RI-1120C is $30,000. The taxpayer has other credits for enterprise zone wages of $25,000 and a credit for daycare assistance of $3,000. b. What is the maximum amount of credit that can be taken for ITC? Tax | $30,000 |
Enterprise Zone Wage Credit | (25,000) |
Daycare Assistance Credit | (3,000) |
Tax "Otherwise Payable" | $2,000 |
Maximum Investment Credit |
50% Tax "Otherwise Payable" |
50% x $2,000 | $1,000 |
Tax Due | $1,000 |
c. The amount of ITC carryforward is $100,000 x 10% = $10,000 less the amount used of $1,000, leaving a balance of $9,000 to be carried forward to 1999.4. Only the investment credit allowed and claimed at the ten percent (10%) rate (effective on or after January 1, 1998) is limited to fifty percent (50%) of the tax liability.5. Taxpayers are allowed to use one hundred percent (100%) of the credit carried forward from years prior to January 1, 1998 and one hundred percent (100%) of the credit claimed at the four percent (4%) rate on or after January 1, 1998 to the extent of the tax or minimum filing fee.6. Example 1: ABC Jewelry is a "C Corporation"; files and pays business corporation tax (R.I. Gen. Laws §44-11); and, for calendar year 1998, has a tax of $2,750. ABC Jewelry also has an investment credit carry forward of $4,000 from 1996. Because ABC's investment credit is carried forward from a year prior to January 1, 1998, it can use $2,500 of the credit to reduce its tax to the minimum filing fee. This is calculated as: Tax Minimum Fee Credit used | $2,750 $250 $2,500 |
a. ABC Jewelry then has a carry forward available for 1999 of $1,500 and may use one hundred percent (100%) of that credit because it was carried forward from a year prior to January 1, 1998.7. Example 2: Sam and Joanne Taxpayer have a Rhode Island personal income tax of $1,000 for 1998 and an investment credit carryforward from 1997 of $700. Because the credit has been carried forward from a year before January 1, 1998, the taxpayers can reduce their tax by all of the $700 leaving a balance due of $300 as follows: Tax | $1,000 |
Investment Credit | 700 |
Credit used | $300 |
8. Example 3: Gina's Pearl Company added qualifying assets during the calendar year 1998 which generated an investment credit of $13,000 at the four percent (4%) rate and for 1998 the corporation (a "C" corporation) has a tax of $11,000. Because the investment credit is at the four percent (4%) rate on or after January 1, 1998 the company will use $10,750 of the credit to reduce its tax to the minimum filing fee calculated as follows: Tax | $11,000 |
Investment Credit | 250 |
Credit used | $10,750 |
a. The company will have investment credit carried forward to 1999 of $2,250 and, depending upon its 1999 tax, the company can use one hundred percent (100%) of the credit in 1999 because, although it came from 1998, it was calculated at the four percent (4%) rate.9. Example 4: Steven and Jennifer Smith are shareholders in a subchapter "S" corporation which claimed investment credit for the calendar year 1998 using the four percent (4%) rate and Steven and Jennifer received $500 of investment credit. Since the investment credit passed through to them was calculated at the four percent (4%) rate they can use their $500 investment credit to reduce their 1998 personal income tax to zero (0) but not below.D. Property and Casualty Insurance Company1. Effective June 30, 1999 and to the extent otherwise allowable, the credit shall also apply to property having a situs in Rhode Island and used by a property and casualty insurance company, however acquired. The term "however acquired" shall include acquisition by merger so long as the property had a situs in this state at the time of merger.E. Recapture of Investment Tax Credit by a Qualified Taxpayer1. The rules for recapture on qualified taxpayer acquisitions are the same as those cited in the law as it pertains to manufacturing companies based upon acquisitions prior to the enactment of this legislation and also set out in § 1.2 of this Part. In addition to those requirements, comparable rules shall be used in the case of property acquired by lease to determine the amount of credit, if any, that will be recaptured if the lease terminates prematurely or if the property covered by the lease otherwise fails to be in qualified use.2. Recapture does not occur when the taxpayer subsequently fails to meet the classification as a "qualified taxpayer".280 R.I. Code R. 280-RICR-20-20-1.3