rhode island tax news - Rhode Island Division of Taxation - RI.gov

A NEWSLETTER FOR TAXPAYERS AND PRACTITIONERSPAGE 3WHAT’S NEW FOR 2012 TAX YEAR (CONTINUED FROM PAGE 2)The Tax Division has alsoadjusted upward the incomeranges in the 4.75 percentand 5.99 percent brackets.Had all the figures remainedconstant, you might bebumped into a higher bracket– and pay more in tax – solelybecause of an annual wageincrease that was intended tohelp you keep pace with inflation,an outcome known asFIDUCIARY bracket creep. UPDATE:To help offset the effects ofbracket creep, the GeneralAssembly included in RhodeIsland tax law a provision thatrequires the tax brackets (aswell as standard deductionand personal and dependencyexemption amounts, and thephase-out range) to be adjustedannually with inflation.(Click here for more about inflationadjustments made by the TaxDivision for 2012.)Tax on LPs, LLPsNew for 2012, some businessentities will each have topay an annual tax – a filing fee– of $500.It’s an amount that’s equalRhode Island personal income tax:rate schedule for 2012Over But not over Pay+ percenton excessto Rhode Island’s annualcorporate minimum tax.The annual tax, whichalready generally appliesto many limited liabilitycompanies, S corporations,and others, willexpand its scope in taxyear 2012 to include LPsof the amountover$ 0 $ 57,150 $ ---- 3.75% $ 057,150 129,900 2,143.13 4.75% 57,150129,900 ---- 5,598.75 5.99% 129,900MAXIMUM TDI TAX IS REDUCED BY 5.2% FOR 2012The maximum amount ofRhode Island TemporaryDisability Insurance (TDI)tax will be lower for 2012,the result of changes to keyfigures in the TDI tax formula.As a consequence,some workers will see a 5.2percent drop this year inthe total amount of TDI taxwithheld from their paychecks.The TDI tax has two maincomponents: the tax rateitself, and the amount ofyour wages to which thattax rate applies (the taxablewage base). For 2012, thetaxable wage base will increaseby $1,600, or 2.7percent, to $60,000. Butthe tax rate will drop, to1.2 percent from 1.3 percent.As a result, the maximumTDI tax for 2012 will dropto $720 (the tax rate of 1.2percent applied to $60,000of wages.) For 2011, themaximum TDI tax was$759.20 (the tax rate of 1.3percent applied to $58,400of wages). Whether theamount of your TDI taxgoes up or down will generallydepend on how muchyou earn.TDI tax is paid exclusivelyby workers. The TDI pro-and LLPs.The law also makes itclear that any limitedliability company (LLC)that is not taxed as a corporationfor federal andRhode Island tax purposesmust pay the annual$500 tax.gram is administered by theRhode Island Department ofLabor and Training. TDI taxis collected by the Rhode IslandDivision of Taxation. In2011, about 391,500 workerscontributed to the TDI fund.In general, TDI benefits arefor those out of work becauseof injury or illness unrelatedto work.(For more news about TDI,please see page 13.)TDI at a glance 2007 2008 2009 2010 2011 2012Tax rate: 1.3% 1.3% 1.5% 1.2% 1.3% 1.2%Taxable wage base: $ 52,100 $ 54,400 $ 56,000 $ 57,900 $ 58,400 $ 60,000Maximum annual tax: $ 677.30 $ 707.20 $ 840.00 $ 694.80 $ 759.20 $ 720.00

A NEWSLETTER FOR TAXPAYERS AND PRACTITIONERSPAGE 5TAX DIVISION MAILS FORM 1099-G, 1099-INThe Rhode Island Divisionof Taxation in TJanuary finished mailing theForm 1099-G and the Form1099-INT. The forms arehelpful to taxpayers – andtax professionals – as theyprepare returns this season.Form 1099-GIn general, the Form 1099-G shows how much of aRhode Island income taxrefund a taxpayer received in2011. The amount is shownin the form’s Box 2, “State orLocal Income Tax Refunds,Credits, or Offsets.” Altogether,the Tax Divisionended up sending out187,805 Forms 1099-G. (Partof a standard Form 1099-G isreproduced below.)Form 1099-INTAlso in January, the TaxDivision finished mailing theForm 1099-INT. It showshow much interest a taxpayerreceived in 2011 ontheir Rhode Island incometaxrefunds. Overall, theagency ended up sendingout 4,157 Forms 1099-INT.If you received either orboth forms in the mail,keep in mind that neither isa bill. They’re simply documentsto use in preparingyour returns. See Tax DivisionFAQs for more details.Tax TipCheck out the RhodeIsland Division of Taxation’swebsite to learnmore about two offersfor preparing and filingyour federal and statetax returns online at nocharge.ESTIMATED TAX COUPONS SET FOR MAILING FOR 2012The Tax Division has finalizedthe form many taxpayersuse to make quarterly estimatedpayments of personalincome tax.Thus, in early 2012, theagency plans to mail about40,000 copies of the 2012Form RI-1040ES, “RhodeIsland Resident and NonresidentEstimated Payment Coupons.”Taxpayers use the couponsto make quarterly estimatedpayments, and the couponsserve as a handy reminder.A helpful toolWhat’s more, each couponpacket also has a table onwhich you can keep a recordof your payments. That canbe a helpful tool when itcomes time to filing yourannual income tax return.After all, it may not be easy inApril to recall with precisionthe payments you madenearly a year before.Download copyIf you haven’t received yourcopy of the coupons yet, anddon’t want to wait, you maydownload a copy from theTax Division website.

PAGE 6RHODE ISLAND TAX NEWSTAX ADMINISTRATOR WINS AWARDhode Island TaxR Administrator DavidM. Sullivan has been chosenwinner of the RhodeIsland Public ExpenditureCouncil’s Gary S. Sasseaward.The award, given fordistinguished public service,was formally bestowedupon Sullivan duringa ceremony beforemore than 500 businessand government leaders ata meeting at the RhodeIsland Convention Centerin Providence in November.Presenting the award wasJohn C. Simmons, who isexecutive director ofRIPEC, a nonprofit publicpolicy research organization.“In his time at theDivision of Taxation,David consistently demonstratesa clear command ofthe issues at hand, and heis able to provide creative,insightful and forwardlookinganalyses of themajor taxation issues facingthe state,” Simmonssaid in his speech. “DavidAward winnerRhode Island Tax Administrator David M. Sullivan (above) was presented with the GaryS. Sasse award by the Rhode Island Public Expenditure Council (RIPEC) at a recent ceremonyat the Rhode Island Convention Center in Providence.has also cultivated longstandingrelationships with members ofboth the private and public sector,enabling him to build consensusaround complex issues. Theserelationships are a testament toboth his leadership skills and hissensitivity to the economic issuesfacing the state,” Simmons stated.“It’s been said that tax administrationis tax policy – and as TaxAdministrator, David has workedtirelessly to move Rhode Island’stax policy forward,” Simmons(Photo courtesy of Rhode Island Public Expenditure Council)told the crowd. “Whether it ishis behind-the-scenes work,providing information and guidanceto the legislature and staff,or in his role as the public face ofthe Division of Taxation, Davidhas consistently shown his deepknowledge of tax policy and hiscommitment to thoughtful reform,”Simmons said.RIPEC said it presents thestate-level award each year to acareer public employee whomakes “a sustained, superiorcontribution in the serviceof the Rhode Island taxpayer.”It is given to “anoutstanding state employee,”RIPEC said. Theaward is named in honor ofGary S. Sasse, formerRIPEC executive director,under whose leadershipRIPEC produced more than75 major studies for governors,mayors, the legislature,and nonprofit groupson state and local policy,government operations, andfiscal and economic issues.Sasse is a former director ofthe state Department ofRevenue and Department ofAdministration.Sullivan, formerly Delawaredeputy director ofrevenue, has a master’s degreein taxation fromWidener University and abachelor’s degree fromLebanon Valley College.He oversees an agencywith about 200 employeesand is responsible for administeringsales, income,and other taxes, which togetherbring in about $2.5billion in annual revenue.SULLIVAN NAMED TO NATIONAL ‘TOP TEN’ LISTRhode Island Tax AdministratorDavid M. Sullivan hasbeen named one of the top10 tax administrators in thecountry by State Tax Notes,an influential weekly taxpublication that covers statetax news nationwide.State Tax Notes, publishedcipients were selected basedon interviews, polling, andinput from the State TaxNotes editorial staff.The magazine named Margaret“Missy” Fulton, assistantcommissioner of theNew Hampshire Departmentof Revenue, as its taxby the nonprofit Tax Analysts,in Virginia, issued itsfirst annual awards editionin December.The magazine’s staff compileda list of “the very bestin our profession in fourcategories,” including taxadministrator. Award readministratorof the year. Atthe same time, State Tax Notesnamed nine others to its list ofthe top 10 tax administratorsnationwide. (The nine selectionswere not ranked.) BesidesFulton, Sullivan was theonly tax administrator in NewEngland to have been namedto the list.

A NEWSLETTER FOR TAXPAYERS AND PRACTITIONERSPAGE 7NATIONAL HONOR GIVEN TO EMPLOYER TAXhe Rhode IslandT Division of Taxation’sEmployer Taxsection has won a nationalaward for excellencefrom the U.S. Departmentof Labor(DOL).The award was presentedat the NationalUnemployment InsuranceDirectors Conferenceand IT/Legal IssuesForum, held at the Biltmorehotel in Providencein October. The awardwas for “performanceexcellence in tax operations”for small statesduring fiscal year 2011.The Tax Division’s EmployerTax section worksclosely with the Departmentof Labor and Trainingand is involved in theadministration and collectionof taxes involvingunemployment insurance,Temporary DisabilityInsurance (TDI), andthe Job DevelopmentFund.Receiving the honor onthe Tax Division’s behalfwas Philip D’Ambra,chief revenue agent andhead of the Tax Division’sEmployer Taxsection.The DOL’s Employmentand Training Administration,Office ofUnemployment Insurance,annually reviewsperformance against coremeasures established forthe unemployment insuranceprogram.Awards go to states thathave excelled in surpassingthe acceptable levelsof performance in variouscategories.The award was presentedby Gay Gilbert,administrator for theDOL’s Office of UnemploymentInsurance. Agathering commemoratingreceipt of the awardincluded D’Ambra andRaymond A. Filippone,assistant director at theDLT who oversees unemploymentinsuranceand TDI programs.“We’re all very proud ofthe accomplishments ofPhil and our entire employertax section,”said Rhode Island TaxAdministrator DavidM. Sullivan. “Theaward recognizes thehigh standards thatPhil and his teamhave, and the hardwork they all do.National honorsAccepting a national award from the U.S. Department of Labor during a conference inProvidence was Philip D’Ambra (center), chief of employer tax at the Rhode Island Divisionof Taxation. Also present were Raymond A. Filippone (left), assistant director at theRhode Island Department of Labor and Training who oversees unemployment insurance,and Gay Gilbert (right), administrator, U.S. Office of Unemployment Insurance.Their work reflectswell on the state as awhole,” Sullivan said.Director of Labor andTraining Charles J.Fogarty commented,“We were delightedbut not surprised thatour colleagues at the(Photo courtesy of U.S. Department of Labor)Division of Taxationwere chosen to receivean award for excellence.Their work relating toUnemployment Insuranceand TemporaryDisability Insurancecontinues to be exemplary.”INTEREST RATES SET FOR UNDERPAYMENTS, OVERPAYMENTSThe Rhode Island Division ofTaxation has set interest rates— for delinquencies and foroverpayments — for 2012.The interest rate on delinquenttax payments is at the rate of18% per annum. It will be ineffect for calendar year 2012.The interest rate for overpaymentsis at the rate of 3.25% perannum. It will be in effect forcalendar year 2012.The rates for underpaymentsand overpayments are unchangedfrom calendar year2011. The Tax Division hasposted a list of historical interestrates on its website.Interest rates: 2007 2008 2009 2010 2011 2012Delinquencies 18% 18% 18% 18% 18% 18%Overpayments 8.25% 7.75% 5.00% 3.25% 3.25% 3.25%

A NEWSLETTER FOR TAXPAYERS AND PRACTITIONERSPAGE 9NEW CHIEF TAKES REINS IN COLLECTIONSRhode Island Tax AdministratorDavid M.Sullivan has appointed anew chief for the Divisionof Taxation's Compliance &Collections section.Jacques Moreau, a longtimeTax Division employeewho most recentlyserved in the agency's ExciseTax section, took overas chief of Compliance &Collections in December.He replaced Tax Divisionveteran Paul H. Guertin,who retired after workingfor the agency for morethan 35 years.“Paul had a distinguishedcareer and we thank himfor his many, many years ofservice,” Sullivan said.“We are delighted thatJacques will move into thiscritical role for the TaxDivision. We’re confident ofhis leadership, and we knowthat the entire staff of ourCompliance & Collectionssection will continue to performtheir vital functions whileserving the citizens of RhodeIsland,” Sullivan said.Moreau will oversee morethan 30 people in one of theTax Division’s largest andhighest-profile units. Thesection’s areas of responsibil-FEDERAL, RHODE ISLAND LAWS DIFFER ON REFUNDSHow long do you get toclaim a refund?In other words, well after aparticular tax year ends –and after the tax return forthat year is due, how muchtime do you get to file aclaim for a refund? And howmuch -- if anything -- mightyou be eligible to receive?Change in commandJacques Moreau (left), formerly a principal revenue agent in the Rhode Island Divisionof Taxation’s Excise Tax unit, has been promoted to chief of the agency’s Compliance& Collections section. He succeeds Paul H. Guertin (right), who retired in December.Federal and Rhode Islandlaw differ in this regard --and the difference sometimescatches taxpayers (andtheir preparers) by surprise.Federal law is more expansive.For example, in general,federal law allows forboth a two-year and a threeyearlook-back provision;Rhode Island law allows onlya two-year look-back.It’s not some oversight ormere technicality. RhodeIsland law on this topic hasbeen in force for 40 years,state hearing officer CatherineR. Warren wrote in arecent Administrative Decisionon tax refunds. “Indeed,when reviewing the statutein its entirety and applyingthe plain meaning of thelanguage, it is clear that thelegislature intended tostrictly limit the time toclaim a refund and amountsof refunds,” she wrote.“The [Rhode Island] statutehas not been amended for 40years, contains clear differencesfrom the federal statute,and is clear and unambiguousregarding its differingtime limits,” she wrote.The problem is that sometaxpayers file claims for refundswell after the allow-ity include the following: sales permit block program; license block program; two lists of the “Top100” tax delinquents; refund offsets; offers in compromise;and installment agreements.Moreau, a Bryant Universitygraduate, began hisnearly 14-year Tax Divisioncareer with the Compliance& Collections section. Helater worked in Field Auditand in Excise Tax, wherehe most recently was aprincipal and helped lead ateam involved in a multistateinvestigation of contrabandcigarette smuggling.able time period haselapsed -- then go through alengthy and potentiallycostly appeal -- based onthe faulty assumption thatfederal and state refundlaws are the same.To find out more about howRhode Island refund lawswork, see the following Administrativedecisions:Decision 2011-20Decision 2011-15Details are in Rhode IslandGeneral Laws § 44-30-87.§ § §

PAGE 10RHODE ISLAND TAX NEWSContraband:SMUGGLING RING SHUT DOWN (CONTINUED FROM PAGE 1)Galvin sniffed out a smugglingring in the Providencearea, focusing on the sale ofcontraband cigarettes.Galvin’s dogged efforts –along with the diligent workof others in the Excise Taxsection, including ChiefRevenue Agent DonaldEnglert and Principal RevenueAgent Jacques Moreau(now chief of compliance) –sparked a far-reaching andcomplex case.Eventually, the case includednot just Tax Divisionpersonnel, but also state andfederal law enforcementauthorities in a multi-stateoperation.Tax backgroundSmugglers’ lootRhode Island State Police displayed some of the smuggled cigarettes and cash seized during a sweep that shut down a multistatesmuggling ring that was based in Rhode Island. Among the items taken was a heating iron (far right) that investigatorsallege was used to press counterfeit state tax stamps onto the bottom of contraband cigarette packages.In Rhode Island, as in manystates, each pack of cigarettesmust be stamped witha special state tax stamp. Itshows that tax has been paidon the cigarettes, as requiredby law.In the case developed byGalvin and others in the TaxDivision’s Excise Tax section,a Massachusetts mandrove rented cargo vans toVirginia and certain otherstates in that region, loadedup on cigarettes from thoselocations, then drove thecigarettes to a storage facilityjust off Route 95 in Warwick.From there, he illegallydistributed the contrabandcigarettes to a numberof local retailers.The Massachusetts man andseveral others were arrestedand charged in early November.Contraband cigarettes,cash, and other items – includingthe iron – wereseized by investigators andset aside as evidence in thecase, which continues towork its way through thecourt system.A special agentWhen Galvin and the ExciseTax team uncovered thescam, they did the initialspade work that led to thebroader investigation.From Rhode Island, itspread out across multiplestates, and even included theundercover surveillancework of a special agent withthe U.S. Department ofHomeland Security: JosephA. Sullivan.Rhode Island’s cigarette tax– totaling $3.46 a pack – isone of the highest such taxesin the country. Some areas,especially certain states inthe mid-Atlantic and South,levy little or no tax on cigarettes.At the time of the arrests inNovember, for example, thetax was 30 cents a pack inVirginia, 45 cents a pack inNorth Carolina, 57 cents inSouth Carolina.As a result, illegally smugglingcigarettes into RhodeIsland may appear to offer aquick way to profit – at leastuntil the smuggler is caught.AffidavitAccording to an affidavitfiled by Special Agent Sullivan,the smuggling enterprisegenerally worked likethis:The chief culprit in the casetraveled to North Carolina,South Carolina, and Virginiato obtain cigarettes for salein Rhode Island.(Please turn to page 11)

A NEWSLETTER FOR TAXPAYERS AND PRACTITIONERSPAGE 11Contraband:INVESTIGATORS NAB SMUGGLERS (CONTINUED FROM PAGE 10)He purchased Marlboro,Newport, Winston, Seneca,and other brand-name cigarettesfrom conveniencestores and other locations inthose states.He would then haul the stashback to Rhode Island in cargovans, then drive to the storageunit he rented off JeffersonBoulevard in Warwick, wherehe stored the cigarettes.The wee hoursHe returned to the storageunit, usually during the lateevening and early morninghours, to retrieve supplies ofthe contraband cigarettes.Then he delivered them tovarious convenience storesand other retailers in theProvidence area.Sometimes he went to thestores themselves; othertimes he made drop-offs atthe homes of store owners oroperators.The smuggling enterprisefinally ran aground on Tuesday,November 8, 2011. Ona mild and sunny day in Warwick,more than 50 membersof the Tax Division staff gatheredin a parking lot off JeffersonBoulevard shortly after7 a.m.From there, teams of agentsfanned out across the state.Included in the sweep weresearches of some retail locations,storage facilities, andhomes and businesses.Overall, more than 100agents and others were involved,including the RhodeIsland State Police; local police;the U.S. Treasury’s Bureauof Alcohol, Tobacco,Firearms and Explosives; andthe U.S. Immigration andCustoms Enforcement’s(ICE) Homeland SecurityInvestigations (HSI) Department.Team leadersDonald Englert (right), chief of the Rhode Island Division of Taxation’s ExciseTax section, and Jacques Moreau (left), then a principal revenue agent in Excise,played key roles in the contraband case. They also took part in a series of raids,and gathered at Rhode Island State Police headquarters in Scituate afterward.Top investigatorJim Galvin, Special Investigation Unit Supervisor at the Rhode IslandDivision of Taxation, met with other law enforcement personnel at RhodeIsland State Police headquarters in Scituate after they helped smash asmuggling ring.Search warrantsThe day marked the simultaneousexecution of statesearch warrants, under thedirection of the Rhode IslandState Police, at six RhodeIsland locations. At the sametime, more than two dozenteams of state troopers, locallaw enforcement officers,federal agents, and RhodeIsland Division of Taxationagents executed administrativeinspections at retail outletswhere the contrabandcigarettes were resold.Meanwhile, federal searchwarrants executed under thedirection of ICE-HSI wereconducted that same day atstorage facilities in Warwick,Rhode Island; Richmond,Virginia; and at the chief suspect’sresidence, in Cambridge,Mass.Altogether, agents seizedabout 121,200 packs of contrabandcigarettes. Somepacks had no tax stamps; othershad counterfeit taxstamps; others had tax stampsfrom other states.High praiseSome of the seized itemswere placed on display for anews conference at the ColonelWalter E. Stone Conference-TrainingCenter, atRhode Island State Policeheadquarters in Scituate.During the news conference,Rhode Island State PoliceColonel Steven G. O’Donnellsingled out Galvin for his passionin the case, and praisedthe Tax Division’s effort.“It’s a priority for them, andtherefore it became a priorityfor us,” O’Donnell said.(Please turn to page 12)

PAGE 12Contraband:A NEWSLETTER FOR TAXPAYERS AND PRACTITIONERSSMUGGLING CASE YIELDS RESULTS (CONTINUED FROM PAGE 11)Rosemary Booth Gallogly,director of the RhodeIsland Department of Revenue,was among those whoattended the news conference.She later offered hercongratulations to Tax AdministratorDavid M. Sullivanand other agency staffmembers.Illegal profitsBefore authorities broughtthe curtain down on theillegal enterprise, thoseinvolved in the smugglingring made a lot of money,while Rhode Island lost alot.At convenience stores andother retail sites, unsuspectingcustomers boughtthe contraband cigarettes atthe usual price. But theoutfits that were selling thecigarettes had purchasedthe contraband cigarettesdirt cheap – because theywere illegally evading thetax. The packs that wereseized on the day of thesweep represented lostrevenue to the state ofaround $485,000 (including$3.46 in Rhode Island excisetax, and 54 cents in RhodeIsland sales tax, per pack).Thus, three groups sufferedfrom the acts of the smugglingring: Smokers, who unwittinglypaid full price for counterfeitsmokes; Honest retailers, whofound it hard to competewith stores that were illegallyundercutting theirprices; and Taxpayers, who have sufferedthrough reductions inservices and increases intaxes partly because ofsmugglers and others whofail to pay their fair share.Charges broughtThose arrested in the caseface federal and state criminalcharges, as well as some civiland administrative actions.The chief culprit, a native ofSyria who resides in Massachusetts,admitted in a pleaagreement to being in posses-Investigation participantshe investigation and arrests in this case were announced onT November 9, 2011, by Colonel Steven G. O’Donnell, Superintendentof the Rhode Island State Police and Commissioner/Director of the Department of Public Safety; Peter F. Neronha,United States Attorney for the District of Rhode Island; Bruce M.Foucart, Special Agent-in-Charge of ICE-Homeland Security Investigations(ICE-HSI) in New England; Guy N. Thomas, SpecialAgent-in-Charge of the Bureau of Alcohol, Tobacco, Firearms andExplosives (ATF) Boston Field Office, and Rhode Island Tax AdministratorDavid M. Sullivan.SeizureInvestigators seized cash, cigarettes andother items while smashing a smugglingring. Items were displayed by RhodeIsland State Police.sion of 2.9 million contrabandcigarettes in November.Charges originally broughtagainst him included possessionof fraudulent state taxstamps; money laundering;the illegal transportation,possession, sale and distributionof contraband cigarettes;and travel in interstate commercewith intent to distributeproceeds of an unlawfulactivity.On February 9 he pleadedguilty to a single count oftrafficking in contraband cigarettes.Sentencing was to beheld at a later date.A summing upAfter all the search warrantshad been executed, and allthe arrests had been made,Tax Administrator Sullivaninvited all Tax Division personnelto a late-morning assemblyin a ground-floormeeting room at the PowersBuilding in Providence,where the agency is based.There, he congratulatedmembers of the Excise Taxstaff for their efforts. The caseappeared to have been thelargest such operation in TaxDivision history, he said. “Itwas pretty huge,” he told thestaff. “I don’t think we’ve hadanything this large.”Team effortLater, in a letter that he sentto all of the Tax Division’semployees, Tax AdministratorSullivan said, “I am extremelyproud of our ExciseTax team for developing thiscase and following it throughto its successful conclusion.“But I am also extremelyproud of the effort made byeveryone else in the Tax Division– including those employeeswho took part inTuesday’s sweep, and allthose who remained behind,efficiently and effectively performingthe day-to-day tasksthat keep the Tax Divisionrunning smoothly and thatmake such sweeps possible,”he wrote.Sullivan added, “We havejust made a huge dent in theillegal sale of cigarettes.Credit for that goes to everysingle one of you. And so, toevery member of the RhodeIsland Division of Taxationstaff, I extend my sincerestappreciation. It is an honorand privilege to work withsuch talented and dedicatedprofessionals.”

RHODE ISLAND TAX NEWShe Rhode Island Divisionof Taxation has Testablished a new estate taxthreshold for 2012. It is$892,865, up 3.9% from$859,350 for 2011.For many years, theRhode Island estate taxthreshold was $675,000.But a state law enacted in2009 raised the taxablethreshold to $850,000,effective for decedents dyingin 2010.The same law also requiredthat the thresholdamount be adjusted eachJanuary thereafter, basedon annual inflation, compoundedannually, androunded to the nearest $5increment.Estate tax detailsFor more informationabout the Rhode Islandestate tax, please see RIGLChapter 44-22 and thisadvisory, or call the TaxDivision’s Estate Tax sectionat (401) 574-8900.PAGE 13NEW ESTATE TAX THRESHOLD FOR 2012Estate tax at a glanceYearEstate taxthreshold2010 $ 850,0002011 $ 859,3502012 $ 892,865NEW INCOME TAX SCHEDULE FOR TRUSTS, ESTATESThe Tax Division has issued an updatedtax rate schedule for 2012 formost estates and trusts.The schedule will generally be usedby fiduciaries to calculate the RhodeIsland income tax owed on taxableincome earned by trusts and estates intax year 2011.The tax rates in the schedule are thesame as for 2011, but dollar ranges ineach tax bracket have been increasedabout 3 percent, reflecting inflation.A state law enacted in 2010 establishednew rates and brackets for thetaxable income of most estates andtrusts. The law also required that thebrackets be adjusted for inflation.Trusts and estates:Tax rate schedule for 2012Taxable incomeOver But not over pay this, plus % on excessof amountover$ 0 $ 2,300 -- 3.75% $ 0$ 2,300 $ 7,250 $ 86.25 4.75% $ 2,300$ 7,250 ………. $ 321.38 5.99% $ 7,250Schedule applies to most trusts and estates.For bankruptcy estates and grantor trusts, use personal income tax schedule.MASSACHUSETTS ISSUES DRAFT DIRECTIVE ON TDIThe Massachusetts Departmentof Revenue on January25 issued a draft directivethat deals with the treatmentof tax paid by workers intoRhode Island’s TemporaryDisability Insurance (TDI)program.Massachusetts GeneralLaws c. 62, § 6(a) allows acredit against Massachusettspersonal income tax fortaxes paid to another jurisdiction.Does the amount a workerpays in Rhode Island TDI taxcount as “taxes paid to anotherjurisdiction” for Massachusettspurposes?In a Letter Ruling in 1977,the Massachusetts Commissionerof Revenue ruled thatpayments made under RhodeIsland’s TDI laws were notthe type of taxes to becounted as “taxes paid toanother jurisdiction.”However, in the new DraftDirective, the Mass. DORrules that mandatory contributionsimposed underRhode Island’s TDI law do,indeed, qualify as incometaxes paid to Rhode Island forpurposes of the credit allowedunder Massachusettslaw.The Massachusetts DORsaid that such a ruling is consistentwith federal treatmentwhere payments madeunder the Rhode Island TDIlaw have been held to constitutestate income taxes andare allowed as a deductionInternal Revenue Code § 164provided the employee itemizesdeductions in computingtaxable income.

PAGE 14A NEWSLETTER FOR TAXPAYERS AND PRACTITIONERSCORPORATE TAX UPDATECOMBINED REPORTING (PRO FORMA) BEGINSnder a law enacted inU June 2011, the RhodeIsland Division of Taxationmust study the possibility ofimplementing a different typeof tax reporting for business,called combined reporting.To ensure that the study is asthorough and as accurate aspossible, the law requires thatcertain types of corporations,known as C corporations,provide additional informationwith their returns for taxyears 2011 and 2012.Separate entityFor Rhode Island tax purposes,a C corporation currentlyreports its income on a“separate entity” basis, as if itwere a separate business –even if it is part of a group ofbusinesses that have commonownership and operate inmultiple states.Under the new law, a Ccorporation generally willhave to file a special schedule,only for study purposes, thatcombines the income of all ofthe businesses in its group.Schedule CRSIn general, the schedule,known as Schedule CRS, willbe attached to the C corporation’sForm RI-1120C for taxyears 2011 and 2012. TheTax Division will use thatinformation to put together astudy in early 2014 showingwhat the tax results would beif Rhode Island were to adoptcombined reporting.Business corporation tax filersTotal filers: 38,951Minimum-tax filers: 36,658Minimum-tax filers include:LLC filers: 4,340S Corp filers: 21,613C Corp filers: 10,705“Total filers” of 38,951 includes “minimum-tax filers” of 36,658All data for tax year 2010 (through Oct. 27, 2011)On Capitol HillPatricia A. Thompson, chair of the American Institute of Certified Public Accountants’national tax executive committee, recently testified before Congressin Washington, D.C. Thompson, tax partner at Piccerelli Gilstein & Co. LLP,of Providence, also provided key input during the Tax Division’s crafting offinal regulations on pro forma combined reporting.Preparing and filing theSchedule CRS will mean thatcertain businesses will have totake some extra steps whenfiling their Rhode Island corporateincome tax returns.The Tax Division’s new regulationon combined reportingprovides information that taxadvisers may use in determiningwhether a client is subjectto the new combinedreporting requirement.StakeholdersA team from the Tax Division,led by Tax AdministratorDavid M. Sullivan,put together the regulation.Sullivan also reached out toa number of stakeholders,inviting them early on inthe months-long process toprovide input.Chief among them was theRhode Island Society ofCertified Public Accountants,the Rhode Island PublicExpenditure Council(RIPEC), and the EconomicProgress Institute (formerlyknown as the Poverty Institute).Sullivan publiclythanked these and othergroups for contributing(Photo courtesy of Piccerelli Gilstein & Co. and AICPA)their time and expertise. Healso singled out the work ofPatricia A. Thompson, oneof the CPAs representing theRhode Island Society of CertifiedPublic Accountants.“Pat provided detailedanalysis of the regulation atevery step of the way, fromthe time it was proposed tothe time it was promulgated.The regulation is better becauseof the extraordinaryefforts she made,” Sullivansaid of Thompson, who isalso tax partner at PiccerelliGilstein & Co. LLP, Providence.◊◊◊Regulation onlineClick here to view the TaxDivision’s Regulation CT11-15, "Combined Reporting(pro forma)."

RHODE ISLAND TAX NEWSPAGE 15LEGAL CORNER: RECENT STATE TAX CASESFollowing is a summary of taxrelatedcases in which finaldecisions were made after administrativehearings. By law,decisions are public information,but taxpayer informationcannot be disclosed.Sales and use taxAfter an audit by a seniorrevenue agent, the TaxDivision found that thetaxpayer had purchasedfurniture and clerical supplies,mostly from Massachusetts,but had not paidto Rhode Island the differencebetween Massachusettsand Rhode Island salestax. (At the time, the salestax rate was 5 percent inMassachusetts, 7 percent inRhode Island.)The Tax Division alsofound that the taxpayer hadconverted a residence to aplace of business but hadnot informed the utilitycompany of the change.Rhode Island does notcharge sales tax on residentialuse of utilities, but does onbusiness or commercial useof utilities.In this case, the taxpayerowed use tax on the portionof its utility usage related tothe commercial activity(because the sales tax had notbeen charged).The taxpayer requested ahearing, but chose not toappear at it. Hearing OfficerCatherine R. Warren concludedafter the hearing thatthe taxpayer owes RhodeIsland use tax, plus interestand penalty. Sullivan on October4, 2011, adopted thehearing officer’s decision andrecommendation.- Final Decision and OrderNo. 2011-18Use tax on antique carA Rhode Island state employeebought a car in NewHampshire and registered itTAX DECISIONS ONLINEhe Rhode Island Division ofT Taxation now posts AdministrativeDecisions online.“Administrative Decisions havelong been available for publicreview at Tax Division headquarters.But making them availableonline is an added convenience forpractitioners and taxpayers,"Rhode Island Tax AdministratorDavid M. Sullivan said in a recentstatement announcing the newservice. “Harnessing technologyto make more information availableonline is also in keeping withthe Rhode Island Department ofRevenue’s efforts to increasetransparency,” Sullivan said. AllAdministrative Decisions for2012 and for 2011 are now onthe Tax Division's website –listed by case number and by taxtype.No Administrative Decision hasuniversal application; each isbased on the facts and circumstancesof a particular case.Nonetheless, the decisions offerhelpful summaries of key statutesand case law as they relate toRhode Island tax matters.in New Hampshire. At issueis whether he owed use taxto Rhode Island related to thepurchase.Upon reviewing the situation,a senior revenue agentwith the Tax Division foundthat the taxpayer did notqualify as a bona fide nonresidentfor tax purposes, mainlybecause the taxpayer hadfiled Rhode Island residenttax returns, worked for theState of Rhode Island, had aRhode Island driver’s licensesince 1972, owns a house inCumberland, R.I., and votesin Rhode Island.The taxpayer agreed that heis a Rhode Island resident andpays Rhode Island taxes, butsaid he does not owe RhodeIsland use tax on the purchase.He said he bought thevehicle – an antique car – inNew Hampshire, stores itthere, insures it there, andpays an annual tax to NewHampshire on the vehicle.Warren wrote that the taxpayer,by registering the carin New Hampshire, did notpay Rhode Island tax on thecar. Under RIGL § 44-18-30,only a bona fide Rhode Islandnonresident does not have topay Rhode Island tax on vehicles.In this case, Warren wrote,the taxpayer is not exemptfrom paying Rhode Island usetax on the car even if thephysical purchase was madein New Hampshire and thevehicle is registered there.(Please turn to page 16)Tax HearingsAny taxpayer aggrieved bythe action of the Tax Divisionin determining theamount of tax, surcharge,or penalty, may makewritten request for a formalhearing.The taxpayer is first affordedan opportunity tohave a preliminary review.Should the matter not beresolved, it may then proceedto formal hearingunder the terms of thestate Administrative ProceduresAct (RIGL § 42-35-1 et seq) and Tax Divisionregulation AHP 97-01.If not satisfied with theoutcome, the taxpayermay appeal to Sixth DivisionDistrict Court (RIGL§ 8-8-24 et seq).

PAGE 16RHODE ISLAND TAX NEWSLEGAL CORNER: CASES (CONTINUED FROM PAGE 15)“The issue is not the locationof the purchase of amotor vehicle but ratherwhether the purchaser . . .was a resident of Rhode Islandat the time of purchase.”Because the taxpayerin this case was a Rhode Islandresident at the time, thetaxpayer owes use tax toRhode Island, plus interestand penalty, she said, citingRIGL § 44-18-20 and otherstatutes. Sullivan on October11, 2011, adopted the hearingofficer’s decision andrecommendation.- Final Decision and OrderNo. 2011-19Historic tax creditThis complex case involvedRhode Island’s historic taxcredit under RIGL 44-22.3-4. At issue was whethercosts incurred by a relatedbusiness entity -- andmarked up to fair marketvalue in an intercompanytransaction -- were allowableas qualified rehabilitationexpense (QRE) under thelaw. If so, were there limitson how much such actualcosts can be marked up?The Tax Division arguedthat the QRE is determinedon the basis of actual costsincurred, not on fair marketvalue of the work performed.The Tax Divisionalso argued that the projectcosts for a QRE must havesome economic substance orreality. (In this case, relatedparties were involved in thework.)The taxpayer argued thatthe QRE was justified underthe law; there was no basisin law to question the transactionbecause of relatedparties; and that, anyway,the QRE in this case wasbased not on fair marketvalue but on the actual costto the taxpayer.The redacted version of theAdministration Decisionsuggests the hearing officerrecommended that themark-up be reduced, to 10percent. (It was originallyclaimed at 29 percent.)Sullivan on December 1adopted the hearing officer’sdecision and recommendation.- Final Decision and OrderNo. 2011-21Claim for refundAt issue was whether aclaim for refund for 2006,filed by a married couple,was timely filed under RIGL44-30-87.On December 22, 2010,the taxpayers filed a nonresident2006 personal incometax return. Through the return,the taxpayers sought arefund related to tax thathad been withheld on theirsales of real estate in 2006.The Tax Division said that arefund can be claimed twoyears from the date of payment,which under the statuteis deemed to be April 15following the tax year. So inthis matter, the claim wouldbe limited to two years fromApril 15, 2007. (The statutealso allows for a three-yearperiod from the point thereturn was filed -- in thiscase, December 22, 2010 --but refund would be limitedin such a situation to anypayments made within thethree-year period, and nosuch payments were made.)The wife testified that sheand her husband were bothdiagnosed with cancer in2006, were treated in 2007and 2008, and are still notcancer-free; they filed theirreturns late due to the illness,which consumed theirtime and energy and resultedin stress. The couple alsosuffered from deaths in thefamily during the time periodin question.The hearing officer ruledthat, “While both taxpayerssuffered serious health issues,there are no provisionsin the statute that providefor any exemptions from thetime limits set by statute.”And while the taxpayersargued for some human consideration,the law does notprovide for such considerationin administrative proceedings.Accordingly, therefund request was denied;Sullivan on December 16adopted the hearing officer'srecommendation.- Final Decision and OrderNo. 2011-22(see also refund case No. 2011-20 )Tax on carAt issue is whether the taxpayerowed use tax on a car.Under RIGL § 44-18-20, usetax is imposed on theRhode Island Tax News providesonly summaries of some recent taxcasedecisions, which are based onspecific facts and circumstances.Don’t rely on them for legal advice;they are merely informativeand provide general guidance.Consult your tax professional if youhave a question or problem.“storage, use, or other consumptionin this state” ofpersonal property, includingautomobiles.The taxpayer said that,when he bought the car in2008, he was a resident ofMaine, had a Maine homesteadexemption, and votesin Maine.The Tax Division arguedthat the taxpayer was not abona fide nonresident becausehe owned Rhode Islandproperty in 2008, paidfor the car with Rhode Islandchecks, and filed Rhode Islandresident returns for2000 through 2009.Only a bona fide RhodeIsland nonresident who doesnot register the vehicle instatedoes not have to payRhode Island tax on a vehicle,the hearing officerfound, ruling that the taxpayerowed use tax, interestand penalty. Sullivan on December16 adopted the recommendation.- Final Decision and OrderNo. 2011-23

A NEWSLETTER FOR TAXPAYERS AND PRACTITIONERSPAGE 17NEWSLETTER POLICYRhode Island Tax News is a newsletter from the Rhode Island Department of Revenue’s Divisionof Taxation. It is typically published each quarter. Its purpose is to provide taxpayersand tax professionals with general information regarding Rhode Island tax laws, regulationsand procedures. It is neither designed nor intended to address complex issues in detail.Nothing contained in this newsletter in any way alters or otherwise changes any provisionsof the Rhode Island General Laws, regulations of the Tax Division, or formal rulings. TheTax Division is at One Capitol Hill, Providence, RI 02908. Its website is www.tax.ri.gov.SUBSCRIBERhode Island Tax News is distributed free, by e-mail, to those who have joined our listserv. If youare not on our listserv but would like to join, send an email to Susan.Galvin@tax.ri.gov withthe word SUBSCRIBE in uppercase in the subject block.COMMENTS AND SUGGESTIONSIf you have comments or suggestions for Rhode Island Tax News, please e-mail its editor, NeilDowning: Neil.Downing@tax.ri.govBACK ISSUESBack issues of Rhode Island Tax News are archived on the Rhode Island Division of Taxationwebsite:http://www.tax.ri.gov/newsletter/index.phpContributorsThe following people associated with theTax Division contributed to this issue:Barbara BissonJames V. CambioMichael F. CanolePhil D’AmbraDonna DubeDonald W. EnglertRaymond A. FilipponeLuisa FinelliJames M. GalvinSusan M. GalvinPaul H. GuertinCharles J. LarocqueMatthew LawlorLeo LebeufBernard J. LemosGail McNameePeter McVayJacques MoreauLinda C. RiendeauDavid M. SullivanRegulatory updateThe Rhode Island Division of Taxation has taken a number of regulatory actions in recent months.For example, the Tax Division:Adopted a new rule, Regulation CT 11-15, “Combined Reporting (pro forma),” which essentiallyapplies to the 2010 and 2011 tax years;Filed Regulation SU 11-114, “Use Tax - Payment by Purchasers,” which took effect December1, 2011, and amends and supersedes an identically named regulation, SU 95-114;Filed Regulation SST 11-01, “Streamlined Sales and Use Tax Agreement,” effective December1, 2011; Filed Regulation SU 11-91, “Records Requirements”, which took effect December 1, 2011,and which amends and supersedes Regulation SU 89-91, “Records”; andFiled Regulation SU 11-20, “Registration and Collection of Sales and Use Tax by Retailers,”which took effect December 1, 2011, amends and supersedes Regulation SU 90-20, “Out-of-State Retailers – Registration,” and incorporates the contents of Regulation SU 87-21,“Collection of Tax by Retailers.”All regulations are available at the Tax Division’s website.Rhode Island Division of TaxationOne Capitol HillProvidence, R.I. 02908Phone: 401-574-8829Fax: 401-574-8917www.tax.ri.govPay tax onlineElectronic Funds Transfer (EFT)lets business taxpayers make paymentsof sales, withholding, andother taxes electronically, via theACH network. Click here formore information.