As Julie Minor, Jennifer Troyer, and Patty McDermott of CCH recently reported, Rhode Island Gov. Lincoln Chafee has signed a budget bill for the fiscal year ending June 30, 2013, that establishes a 75-day tax amnesty program. The bill also expands the sales and use tax base to include pet care services and taxi, limo, bus, and other ground transportation services; eliminates the tax on package tour and scenic and sightseeing transportation services; limits the sales and use tax exemption for clothing; enacts an income tax credit for musical and theatrical productions; amends the motion picture production credit; increases the cigarette tax; and makes other changes.
Rhode Island's tax amnesty program will run from September 1, 2012, to November 15, 2012, and will apply to any taxable period ending on or before December 31, 2011. During the program period, taxpayers who apply for amnesty and pay all taxes and interest due, or enter into an installment payment agreement for reasons of financial hardship, will have their penalties waived and will not be subject to civil or criminal prosecution for the taxes covered under the program. In addition, these taxpayers will have their interest reduced by 25% for periods covered by the amnesty program.
Amnesty is available for taxable periods for which a bill or notice of deficiency determination has been sent and taxable periods in which an audit has been completed but not yet billed. Amnesty is not available to taxpayers who are under any criminal investigation or are a party to a pending civil or criminal proceeding for tax fraud.
The legislation appropriates $300,000 for the Division of Taxation to carry out the amnesty program.
Taxation of Services
Effective October 1, 2012, pet care services, excluding veterinary and testing laboratory services, will be subject to sales and use tax. In addition, sales and use tax will be imposed on taxicab services, including taxi dispatchers; limousine services; other road transportation services, including charter bus service; and all other transit and ground passenger transportation.
Rhode Island's sales and use tax on package tour and scenic and sightseeing transportation services, which has only been in effect since October 1, 2011, is repealed effective July 1, 2012.
Beginning October 1, 2012, the sales and use tax exemption for clothing and footwear is limited to items of clothing and footwear with a sales price of up to $250. This exemption does not apply to clothing accessories or equipment, or to special clothing or footwear primarily designed for athletic activity or protective use.
The legislation provides that, in "recognition of the work being performed by the Streamlined Sales and Use Tax Governing Board," the $250 limitation on the clothing exemption will be eliminated if a federal law is enacted that requires remote sellers to collect tax. The limitation would be eliminated beginning on the first day of the first state fiscal quarter following the change in federal law.
Credit for Musical and Theatrical Productions
From July 1, 2012, through June 30, 2019, a credit against income, franchise, gross premiums, bank, and public service corporation taxes is available for musical and theatrical productions. In finding and declaring that Rhode Island's priority is to "reduce the state's unemployment rate by stimulating new industries that have large employment growth potential by providing tax incentives and other means[,]" the General Assembly found that incentives should be created for the arts and entertainment industry, and created the music and theatrical productions credit "for the purpose of stimulating the local economy and reducing unemployment in Rhode Island."
The credit is equal to 25% of the total production and performance expenditures and transportation expenditures. Expenditures for design, construction and operation, including sets, special and visual effects, costumes, wardrobes, make-up, accessories, costs associated with sound, lighting, staging, and payroll qualify for the credit. Advertising and public relations expenditures, facility expenses, rentals, per diems, and accommodations are also eligible for the credit. State funds, state loans, and state guaranteed loans cannot be used to qualify for the credit.
The maximum credit per taxpayer is $5 million, and the minimum production budget required is $100,000. The credit may be carried forward for three years, and may be assigned or transferred. Also, if a pass-through entity earns the credit, it may be passed through to the owners. If a consolidated tax return is filed, only the corporation that qualified for the credit can use it on the consolidated return. Any recapture of the credit for ineligible costs will be pursued only against the applicant, and not against any assignee, transferee, or seller.
Applications for initial certification of the credit must be submitted to the Rhode Island Film & TV Office. After the theater production is completed, an application for final certification must be submitted to the Film & TV Office along with a cost report and an accountant's certification.
Motion Picture Production Credit
Beginning July 1, 2012, documentary productions are eligible for the motion picture production credit. A "documentary production" is a nonfiction production intended for educational or commercial distribution that may require out-of-state principal photography. A documentary production also qualifies as a "motion picture" for purposes of the credit.
The motion picture production credit definition of "primary locations" is expanded to allow motion picture productions to be eligible for the credit if they spend at least 51% of the motion picture's final production budget in Rhode Island and employ at least five individuals in the state. For documentary productions, the "primary locations" of the film, which must be in Rhode Island to qualify for the credit, also include the location of at least 51% of the film's total production days, including pre-production and post-production locations, as well as the locations where at least 51% of the motion picture principal photography days are filmed.
Also, the motion picture production credit is scheduled to sunset on June 30, 2019; the minimum total production budget required for the credit is reduced from $300,000 to $100,000; and the maximum credit per taxpayer is $5 million. Previously, the maximum credit per taxpayer was the total production budget. Furthermore, state funds, state loans, and state guaranteed loans cannot be used to qualify for the credit.
The Division of Taxation will issue a certification of the credit amount within 90 days after the division receives a motion picture production company's final certification and cost report. To claim the credit, this certification must be attached to the claimant's tax return.
Beginning July 1, 2012, the Rhode Island cigarette tax rate is increased from $3.46 per pack of 20 cigarettes to $3.50 per pack of 20. In addition, a floor stock tax of 2 mills per cigarette is imposed on all cigarettes held by retailers and stamps held by distributors at 12:01 a.m. on July 1, 2012. A floor stock tax return must be filed by July 10, 2012.