Ryan.com Rhode Island Personal Income Tax Reform.

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Presentation transcript:

ryan.com Rhode Island Personal Income Tax Reform

2 AGENDA -History of Personal Income Tax Tax Policy Workgroup Personal Income Tax Reform -Lessons Learned – Personal Income Tax Reform

3 History of Rhode Island Personal Income Tax System -First enacted in Started as a flat percentage of federal tax -Morphed into an extremely complex burdensome tax -Largest revenue source generating over $1.1 billion (36% of total tax revenue)

4 History of Rhode Island Personal Income Tax System Tax Year Starting Point – Federal Adjusted Gross Income with modification for Rhode Island -Five Tax Brackets ranging from 3.75% to 9.90% -Capital Gains Tax Rate – 5.00% -Option of Standard Deduction or Federal Itemized Deductions -45 Tax Credits reducing Rhode Island Tax, including two refundable tax credits -Rhode Island Alternative Minimum Tax (modeled after Federal AMT) -Alternative Flat Tax – 6.5%

Tax Policy Workgroup -Created by Governor Donald Carcieri (R) in May 2008 with 21 members consisting of tax accountants, tax attorneys, economists, and business and labor leaders. -Mission: “Develop a tax strategy so that Rhode Island’s tax structure is a competitive advantage in retaining jobs and recruiting businesses” -The Workgroup’s personal income tax policy proposals target job creators by reducing taxes on those taxpayers that start, expand and locate businesses and jobs in the state

Personal Income Tax Reform -Major Personal Income Tax reform was enacted in June of 2010 and was effective January 1, Legislation passed unanimously in both the Rhode Island House and Senate -Legislation was revenue neutral

Personal Income Tax Reform -Tax Rates: -Reduced the top marginal rate from 9.90% to 5.99% -Eliminated Rhode Island Alternative Minimum Tax -Eliminated the Rhode Island Flat Tax

Personal Income Tax Reform -Deductions: -Increased Standard Deductions -Eliminated Itemized Deductions -Standard Deductions and Personal Exemptions will phase-out with modified AGI exceeds $195,000

Personal Income Tax Reform -Credits: -Reduced the total number of credits from 45 to 9 -Eliminated all credits carryovers from prior tax years -Rhode Island Credits Allowed for Tax Year 2011: -Credit for income taxes paid to other states -Credit for tax withheld -Historic structures tax credit -Motion picture production tax credit -Property tax relief credit -Residential lead paint credit -Rhode Island earned income tax credit -Credit for contributions to scholarship organizations -Credit for child and dependent care expense

10 Lessons Learned – Personal Income Tax Reform -Implementing a major tax reform is an extraordinary challenge -Beware of changes in withholding and refunds -Beware of unintended consequences