§ 44-31-1 - Investment tax credit.
SECTION 44-31-1
§ 44-31-1 Investment tax credit. –(a) A taxpayer shall be allowed a credit, to be computed as provided in thischapter, against the tax imposed by chapters 11, 14, 17, and 30 of this title.The amount of the credit shall be two percent (2%) of the cost or other basisfor federal income tax purposes of tangible personal property and othertangible property, including buildings and structural components of buildings,described in subsection (b) of this section, acquired, constructed,reconstructed, or erected after December 31, 1973. Provided, that the amount ofthe credit shall be four percent (4%) of the: (i) cost or other basis forfederal income tax purposes of tangible personal property and other tangibleproperty, including buildings and structural components of buildings, describedin subdivision (b)(1) of this section, acquired, constructed, reconstructed orerected after December 31, 1993; and (ii) qualified amounts for leased assetsof tangible personal property and other tangible property described insubdivision (b)(1) of this section, acquired, constructed, reconstructed, orerected after January 1, 1998, and the amount of the credit shall be tenpercent (10%) of the cost or other basis for federal income tax purposes, andthe qualified amounts for leased assets, of tangible personal property andother tangible property described in subdivision (b)(3) of this section,acquired, constructed, reconstructed, or erected after January 1, 1998, andwith respect to buildings and structural components which are acquired,constructed, reconstructed or erected after July 1, 2001, as described insubdivision (b)(3) of this section.
(b) A credit shall be allowed under this section with respectto tangible personal property and other tangible property, including buildingsand structural components of buildings, which are depreciable pursuant to 26U.S.C. § 167, have a useful life of four (4) years or more, are acquiredby purchase as defined in 26 U.S.C. § 179(d) or are acquired by lease asprescribed in paragraph (3)(iv) of this subsection, have a situs in this stateand are principally used by the taxpayer in the production of goods bymanufacturing, process, or assembling. The credit shall be allowable in theyear the property is first placed in service by the taxpayer, which is the yearin which, under the taxpayer's depreciation practice, the period fordepreciation with respect to the property begins, or the year in which theproperty is placed in a condition or state of readiness and availability for aspecifically assigned function, whichever is earlier. For purposes of thisparagraph, "manufacturing" means the process of working raw materials intowares suitable for use or which gives new shapes, new quality or newcombinations to matter that already has gone through some artificial process bythe use of machinery, tools, appliances, and other similar equipment. Propertyused in the production of goods includes machinery, equipment, or othertangible property which is principally used in the repair and service of othermachinery, equipment, or other tangible property used principally in theproduction of goods and includes all facilities used in the productionoperation, including storage of material to be used in production and of theproducts that are produced.
(2) Within the meaning of subdivision (1) of this subsection,the term "manufacturing" means the activities of a "manufacturer" as defined in§ 44-3-3(20)(iii) and (iv).
(3) A credit shall be allowed under this section with respectto tangible personal property and other tangible property, (excluding motorvehicles, furniture, buildings and structural components of buildings, exceptas provided in this section), which are depreciable pursuant to 26 U.S.C.§ 167, have a useful life of four (4) years or more, are acquired bypurchase as defined in 26 U.S.C. § 179(d) or acquired by lease asprescribed in paragraph (iv) of this subdivision, have a situs in this stateand to the extent the property is used by a qualified taxpayer, as that term isdefined in paragraph (v) of this subdivision, in any of the businessesdescribed in major groups 20 through 39, 50 and 51, 60 through 67, 73, 76, 80through 82, 87 and 89 in the standard industrial classification manual preparedby the technical committee on industrial classification, office of thestatistical standards, executive office of the president, United States Bureauof the Budget, as revised from time to time ("SIC Code") and/or any of thebusinesses described in the three (3) digit SIC Code 781.
(ii) A credit shall be allowed under this section withrespect to buildings and structural components that are acquired, constructed,reconstructed, or erected after July 1, 2001, which are depreciable pursuant to26 U.S.C. § 167, have a useful life of four (4) years or more, areacquired by purchase as defined in 26 U.S.C. § 179(d) or acquired by leasefor a term of twenty (20) years or more, excluding renewal periods, have asitus in this state and to the extent the property is used by a highperformance manufacturer. The term "high performance manufacturer" means ataxpayer: (A) engaged in any of the businesses described in the major groups28, 30, 34, to 36, and 38 of the SIC Codes, (B) that pays its full-timeequivalent employees a median annual wage above the average annual wage paid byall taxpayers in the state which share the same two-digit SIC Code, unless thehigh performance manufacturer is the only high performance manufacturer in thestate conducting business in that two-digit SIC Code, in which case thisrequirement shall not apply, and (C)(I) whose expenses for training orretraining its employees exceeds two percent (2%) of its total payroll costs,or (II) that pays its full-time equivalent employees a median annual wage equalto or greater than one hundred twenty-five percent (125%) of the average annualwage paid in this state by employers to employees, or (III) that pays itsfull-time equivalent employees classified as production workers by the RhodeIsland department of labor and training an average annual wage above theaverage annual wage paid to the production workers of all taxpayers in thestate which share the same two-digit SIC Code.
(iii) To the extent allowable, the credit allowed under thissection is allowed for computers, software and telecommunications hardware usedby a taxpayer even if the property has a useful life of less than four (4)years;
(iv) The credit for property acquired by lease is based onthe fair market value of the property at the inception of the lease times theportion of the depreciable life of the property represented by the term of thelease, excluding renewal options. The credit described in this subdivision forhigh performance manufacturers that lease buildings and their structuralcomponents 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; and
(v) For purposes of this subsection, a "qualified taxpayer"means a taxpayer in any of the businesses described in major groups 20 through39, 50 and 51, 60 through 67, 73, 76, 80 through 82, 87 and 89 of the SIC Code,and/or any of the businesses described in the three (3) digit SIC Code 781, andwhich meet the following criteria:
(A) The median annual wage paid to a qualified taxpayer'sfull-time equivalent employees must be above the average annual wage paid byall taxpayers in the state which share the same two-digit SIC Code, unless thatqualified taxpayer is the only qualified taxpayer in the state conductingbusiness in that two-digit SIC Code, in which case this requirement does notapply; and
(B) With respect to major groups 50 and 51, 60 through 67,73, 76, 80 through 82, 87 and 89 and/or the three (3) digit SIC Code 781(exceptfor those qualified taxpayers whose businesses are described in any of the four(4) digit SIC Codes 7371, 7372 and 7373) only:
(I) More than one-half ( 1/2) of its gross revenues are aresult of sales to customers outside of the state; or
(II) More than one-half ( 1/2) of its gross revenues are aresult of sales to the federal government; or
(III) More than one-half ( 1/2) of its gross revenues are aresult of a combination of sales described in items (I) and (II) of thissubparagraph.
(4) For purposes of this section, "sales to customers outsidethe state" means sales to individuals, businesses and other entities, as wellas divisions and/or branches of businesses and other entities, residing orlocated outside of the state. The requirement of subparagraph (v)(A) of thissubdivision does not apply to any qualified taxpayer: (i) whose expenses fortraining or retraining its employees exceeds two percent (2%) of thesequalified taxpayer's total payroll costs; or (ii) whose median annual wage paidto its full-time equivalent employees is equal to or greater than one hundredtwenty-five percent (125%) of the average annual wage paid in this state byemployers to employees; or (iii), with respect to major groups 20 through 39only, the average annual wage paid to these qualified taxpayer's full-timeequivalent employees, classified as production workers by the Rhode Islanddepartment of labor and training, is above the average annual wage paid to theproduction workers of all these taxpayers in the state which share the sametwo-digit SIC Code. At the election of a taxpayer, which is made at any timeand in any manner that may be determined by the tax administrator, thetaxpayer's ability in a particular fiscal year to qualify as a qualifiedtaxpayer may be based on the expenses and gross receipts of the taxpayer foreither the prior fiscal year or the immediately proceeding fiscal year ratherthan on the expenses and gross receipts for that fiscal year. For purposes ofthis chapter, the director of the Rhode Island human resource investmentcouncil shall certify as to legitimate training and retraining expenses inaccordance with the guidelines established in chapter 64.6 of title 42, and anyrules and regulations promulgated under this chapter. For purposes of thissubsection, a "full-time equivalent employee" means an employee who works aminimum of thirty (30) hours per week within the state or two (2) part-timeemployees who together work a minimum of thirty (30) hours per week within thestate. For purposes of this subsection, the director of the Rhode Islanddepartment of labor and training, upon receipt of an application from aqualified taxpayer, shall certify whether this qualified taxpayer meets therequirement in subparagraph (v)(A) of this subdivision or is exempt from thisrequirement because the median annual wage it pays its full-time equivalentemployees is equal to or greater than one hundred twenty-five (125%) percent ofthe average annual wage paid in this state by employers to employees or, withrespect to major groups 20 through 39 only, the average annual wage paid tothis qualified taxpayer's full-time equivalent employees, classified asproduction workers by the Rhode Island department of labor and training, isabove the average annual wage paid to the production workers of all thesetaxpayers in the state which share the same two-digit SIC Code. The director ofthe Rhode Island department of labor and training shall promulgate rules andregulations as required for the implementation of this requirement.
(5) To the extent otherwise allowable, the credit provided byparagraphs (3)(i) and (ii) of this subsection are also allowed for the propertyhaving a situs in Rhode Island and used, however acquired, by a property andcasualty insurance company.
(c) Subject to the provisions of subdivision (b)(3) of thissection, a taxpayer is not allowed a credit under subsection (a) of thissection with respect to tangible personal property and other tangible property,including buildings and structural components of buildings, which it leases toany other person or corporation and is not allowed a credit under subsection(a) of this section with respect to buildings and structural components ofbuildings it leases from any other person or corporation. For the purposes ofthe preceding sentence, any contract or agreement to lease or rent or for alicense to use the property is considered a lease, unless a contract oragreement is treated for federal income tax purposes as an installment purchaserather than a lease.
(d) The credit allowed under this section for any taxableyear does not reduce the tax due for the year by more than fifty percent (50%)of the tax liability that would be payable, and further in the case ofcorporations, to less than the minimum tax as prescribed in § 44-11-2(e);provided, that in the case of the credit allowed to high performancemanufacturers under subdivision (b)(3) of this section, the fifty percent (50%)limitation shall not apply. If the amount of credit allowable under thissection for any taxable year is less than the amount of credit available to thetaxpayer, any amount of credit not deductible in the taxable year may becarried over to the following year or years (not to exceed seven (7) years) andmay be deducted from the taxpayer's tax for the year or years.
(e) At the option of the taxpayer, air or water pollutioncontrol facilities which qualify for elective amortization deduction may betreated as property principally used by the taxpayer in the production of goodsby manufacturing, processing, or assembling; provided, that if the propertyqualifies under subsection (b) of this section, in which event, an amortizationdeduction is not allowed.
(f) With respect to property which is disposed of or ceasesto be in qualified use prior to the end of the taxable year in which the creditis to be taken, the amount of the credit shall be that portion of the creditprovided for in subsection (a) of this section, which represents the ratiowhich the months of qualified use bear to the months of useful life. Ifproperty on which credit has been taken is disposed of or ceases to be inqualified use prior to the end of its useful life, the difference between thecredit taken and the credit allowed for actual use must be added back in theyear of disposition. If this property is disposed of or ceases to be inqualified use after it has been in qualified use for more than twelve (12)consecutive years, it is not necessary to add back the credit as provided inthis subsection. A credit allowed to a qualified taxpayer is not recapturedmerely because the taxpayer subsequently fails to retain the classification asa qualified taxpayer. The amount of credit allowed for actual use shall bedetermined by multiplying the original credit by the ratio, which the months ofqualified use bear to the months of useful life. For purposes of thissubsection, "useful life of property" is the same as the taxpayer (or in thecase of property acquired by lease, the owner of the property) uses fordepreciation purposes when computing his or her federal income tax liability.Comparable rules are used in the case of property acquired by lease todetermine the amount of credit, if any, that will be recaptured if the leaseterminates prematurely or if the property covered by the lease otherwise failsto be in qualified use.
(g) The credit allowed under this section is only allowedagainst the tax of that corporation included in a consolidated return thatqualifies for the credit and not against the tax of other corporations that mayjoin in the filing of a consolidated tax return.