AN ACT RELATING TO TAXATION -- BUSINESS CORPORATION TAX (Provides that credits issued pursuant to § 44-11-2.3 relating to pass through entities would be refundable.)

H8187

2026 -- H 8187
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LC005766
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STATE OF RHODE ISLAND
IN GENERAL ASSEMBLY
JANUARY SESSION, A.D. 2026
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A N A C T
RELATING TO TAXATION -- BUSINESS CORPORATION TAX

Introduced By:
Representatives Shallcross Smith, and Casey

Date Introduced:
February 27, 2026

Referred To:
House Finance
It is enacted by the General Assembly as follows:
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SECTION 1. Section 44-11-2.3 of the General Laws in Chapter 44-11 entitled "Business
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Corporation Tax" is hereby amended to read as follows:
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44-11-2.3. Pass-through entities — Election to pay state income tax at the entity level.
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(a)
Definitions.
As used in this section:
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(1) “Election” means the annual election to be made by the pass-through entity by filing
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the prescribed tax form and remitting the appropriate tax.
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(2) “Net income” means the net ordinary income, net rental real estate income, other net
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rental income, guaranteed payments, and other business income less specially allocated
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depreciation and deductions allowed pursuant to § 179 of the United States Revenue Code (26
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U.S.C. § 179), all of which would be reported on federal tax form schedules C and E. Net income
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for purposes of this section does not include specially allocated investment income or any other
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types of deductions.
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(3) “Owner” means an individual who is a shareholder of an S Corporation; a partner in a
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general partnership, a limited partnership, or a limited liability partnership; a member of a limited
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liability company, a beneficiary of a trust; or a sole proprietor.
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(4) “Pass-through entity” means a corporation that for the applicable tax year is treated as
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an S Corporation under I.R.C. 1362(a) (26 U.S.C. § 1362(a)), or a general partnership, limited
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partnership, limited liability partnership, trust, limited liability company or unincorporated sole
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proprietorship that for the applicable tax year is not taxed as a corporation for federal tax purposes

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under the state’s regulations.
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(5) “State tax credit” means the amount of tax paid by the pass-through entity at the entity
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level that is passed through to an owner on a pro rata basis. For tax years beginning on or after
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January 1, 2025, “state tax credit” means ninety percent (90%) of the amount of tax paid by the
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pass-through entity at the entity level that is passed through to an owner on a pro rata basis.
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(b)
Elections.
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(1) For tax years beginning on or after January 1, 2019, a pass-through entity may elect to
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pay the state tax at the entity level at the rate of five and ninety-nine hundredths percent (5.99%).
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(2) If a pass-through entity elects to pay an entity tax under this subsection, the entity shall
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not have to comply with the provisions of § 44-11-2.2 regarding withholding on non-resident
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owners. In that instance, the entity shall not have to comply with the provisions of § 44-11-2.2
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regarding withholding on non-resident owners.
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(c)
Reporting.
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(1) The pass-through entity shall report the pro rata share of the state income taxes paid by
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the entity which sums will be allowed as a state tax credit for an owner on his or her personal
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income tax return.
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(2) The pass-through entity shall also report the pro rata share of the state income taxes
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paid by the entity as an income (addition) modification to be reported by an owner on his or her
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personal income tax returns
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(d) State tax credit shall be the amount of tax paid by the pass-through entity, at the entity
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level, which is passed through to the owners, on a pro rata basis. For tax years beginning on or after
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January 1, 2025, the state tax credit shall be ninety percent (90%) of the amount of tax paid by the
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pass-through entity, at the entity level, which is passed through to the owners, on a pro rata basis.
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(e) A similar type of tax imposed by another state on the owners’ income paid at the state
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entity level shall be deemed to be allowed as a credit for taxes paid to another jurisdiction in
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accordance with the provisions of § 44-30-18.
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(f) “Combined reporting” as set forth in § 44-11-4.1 shall not apply to reporting under this
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section.
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(g) For purposes of this section, the member credit shall be refundable, and shall be allowed
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in full against Rhode Island individual income tax liability for the taxable year in which the entity-
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level tax was paid. Any portion of the credit that exceeds the member's Rhode Island tax liability
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shall be refunded to the member.
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(h) This section shall sunset and no longer apply to taxable years beginning after December
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31 of the year in which the federal limitation on state and local tax deductions under § 164(b)(6) of

LC005766 - Page 2 of 4
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the Internal Revenue Code is repealed, unless further amended by the general assembly.
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(i) The commissioner of revenue may promulgate rules and regulations to implement this
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section, including rules governing elections, allocations, reporting, and the calculation of the
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refundable credit.
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SECTION 2. This act shall take effect upon passage.
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LC005766
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EXPLANATION
BY THE LEGISLATIVE COUNCIL
OF
A N A C T
RELATING TO TAXATION -- BUSINESS CORPORATION TAX
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This act would provide that credits issued pursuant to § 44-11-2.3 relating to pass through
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entities would be refundable.
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This act would take effect upon passage.
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LC005766
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