§ 44-31-1 — § 44-31-1. Investment tax credit.

§ 44-31-1. Investment tax credit.

(a) A taxpayer shall be allowed a credit, to be computed as provided in this chapter, 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 basis for federal income tax purposes of tangible personal property and other tangible 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 of the credit shall be four percent (4%) of the: (i) cost or other basis for federal income tax purposes of tangible personal property and other tangible property, including buildings and structural components of buildings, described in subdivision (b)(1) of this section, acquired, constructed, reconstructed or erected after December 31, 1993; and (ii) qualified amounts for leased assets of tangible personal property and other tangible property described in subdivision (b)(1) of this section, acquired, constructed, reconstructed, or erected after January 1, 1998, and the amount of the credit shall be ten percent (10%) of the cost or other basis for federal income tax purposes, and the qualified amounts for leased assets, of tangible personal property and other tangible property described in subdivision (b)(3) of this section, acquired, constructed, reconstructed, or erected after January 1, 1998, and with respect to buildings and structural components which are acquired, constructed, reconstructed or erected after July 1, 2001, as described in subdivision (b)(3) of this section.

(b)(1) A credit shall be allowed under this section with respect to tangible personal property and other tangible property, including buildings and structural components of buildings, which are depreciable pursuant to 26 U.S.C. § 167, have a useful life of four (4) years or more, are acquired by purchase as defined in 26 U.S.C. § 179(d) or are acquired by lease as prescribed in paragraph (3)(iv) of this subsection, have a situs in this state and are principally used by the taxpayer in the production of goods by manufacturing, process, or assembling. The credit shall be allowable in the year the property is first placed in service by the taxpayer, which is the year in which, under the taxpayer's depreciation practice, the period for depreciation with respect to the property begins, or the year in which the property is placed in a condition or state of readiness and availability for a specifically assigned function, whichever is earlier. For purposes of this paragraph, "manufacturingâ€� means the process of working raw materials into wares suitable for use or which gives new shapes, new quality or new combinations to matter that already has gone through some artificial process by the use of machinery, tools, appliances, and other similar equipment. Property used in the production of goods includes machinery, equipment, or other tangible property which is principally used in the repair and service of other machinery, equipment, or other tangible property used principally in the production of goods and includes all facilities used in the production operation, including storage of material to be used in production and of the products that are produced.

(2) Within the meaning of subdivision (1) of this subsection, the term "manufacturingâ€� means the activities of a "manufacturerâ€� as defined in § 44-3-3(20)(iii) and (iv).

(3)(i) A credit shall be allowed under this section with respect to tangible personal property and other tangible property, (excluding motor vehicles, furniture, buildings and structural components of buildings, except as 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 by purchase as defined in 26 U.S.C. § 179(d) or acquired by lease as prescribed in paragraph (iv) of this subdivision, have a situs in this state and to the extent the property is used by a qualified taxpayer, as that term is defined in paragraph (v) of this subdivision, in any of the businesses described in major groups 20 through 39, 50 and 51, 60 through 67, 73, 76, 80 through 82, 87 and 89 in the standard industrial classification manual prepared by the technical committee on industrial classification, office of the statistical standards, executive office of the president, United States Bureau of the Budget, as revised from time to time ("SIC Codeâ€�) and/or any of the businesses described in the three (3) digit SIC Code 781.

(ii) A credit shall be allowed under this section with respect to buildings and structural components that are acquired, constructed, reconstructed, or erected after July 1, 2001, which are depreciable pursuant to 26 U.S.C. § 167, have a useful life of four (4) years or more, are acquired by purchase as defined in 26 U.S.C. § 179(d) or acquired by lease for a term of twenty (20) years or more, excluding renewal periods, have a situs in this state and to the extent the property is used by a high performance manufacturer. The term "high performance manufacturerâ€� means a taxpayer: (A) engaged in any of the businesses described in the major groups 28, 30, 34, to 36, and 38 of the SIC Codes, (B) that pays its full-time equivalent employees a median annual wage above the average annual wage paid by all taxpayers in the state which share the same two-digit SIC Code, unless the high performance manufacturer is the only high performance manufacturer in the state conducting business in that two-digit SIC Code, in which case this requirement shall not apply, and (C)(I) whose expenses for training or retraining its employees exceeds two percent (2%) of its total payroll costs, or (II) that pays its full-time equivalent employees a median annual wage equal to or greater than one hundred twenty-five percent (125%) of the average annual wage paid in this state by employers to employees, or (III) that pays its full-time equivalent employees classified as production workers by the Rhode Island department of labor and training an average annual wage above the average annual wage paid to the production workers of all taxpayers in the state which share the same two-digit SIC Code.

(iii) To the extent allowable, the credit allowed under this section is allowed for computers, software and telecommunications hardware used by 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 on the fair market value of the property at the inception of the lease times the portion of the depreciable life of the property represented by the term of the lease, excluding renewal options. The credit described in this subdivision for high performance manufacturers that lease buildings and their structural components 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 through 39, 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, and which meet the following criteria:

(A) The median annual wage paid to a qualified taxpayer's full-time equivalent employees must be above the average annual wage paid by all taxpayers in the state which share the same two-digit SIC Code, unless that qualified taxpayer is the only qualified taxpayer in the state conducting business in that two-digit SIC Code, in which case this requirement does not apply; 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(except for 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 (½) of its gross revenues are a result of sales to customers outside of the state; or

(II) More than one-half (½) of its gross revenues are a result of sales to the federal government; or

(III) More than one-half (½) of its gross revenues are a result of a combination of sales described in items (I) and (II) of this subparagraph.

(4) For purposes of this section, "sales to customers outside the state� means sales to individuals, businesses and other entities, as well as divisions and/or branches of businesses and other entities, residing or located outside of the state. The requirement of subparagraph (v)(A) of this subdivision does not apply to any qualified taxpayer: (i) whose expenses for training or retraining its employees exceeds two percent (2%) of these qualified taxpayer's total payroll costs; or (ii) whose median annual wage paid to its full-time equivalent employees is equal to or greater than one hundred twenty-five percent (125%) of the average annual wage paid in this state by employers to employees; or (iii), with respect to major groups 20 through 39 only, the average annual wage paid to these qualified taxpayer's full-time equivalent employees, classified as production workers by the Rhode Island department of labor and training, is above the average annual wage paid to the production workers of all these taxpayers in the state which share the same two-digit SIC Code. At the election of a taxpayer, which is made at any time and in any manner that may be determined by the tax administrator, the taxpayer's ability in a particular fiscal year to qualify as a qualified taxpayer may be based on the expenses and gross receipts of the taxpayer for either the prior fiscal year or the immediately proceeding fiscal year rather than on the expenses and gross receipts for that fiscal year. For purposes of this chapter, the director of the Rhode Island human resource investment council shall certify as to legitimate training and retraining expenses in accordance with the guidelines established in chapter 64.6 of title 42, and any rules and regulations promulgated under this chapter. For purposes of this subsection, a "full-time equivalent employee� means an employee who works a minimum of thirty (30) hours per week within the state or two (2) part-time employees who together work a minimum of thirty (30) hours per week within the state. For purposes of this subsection, the director of the Rhode Island department of labor and training, upon receipt of an application from a qualified taxpayer, shall certify whether this qualified taxpayer meets the requirement in subparagraph (v)(A) of this subdivision or is exempt from this requirement because the median annual wage it pays its full-time equivalent employees is equal to or greater than one hundred twenty-five (125%) percent of the average annual wage paid in this state by employers to employees or, with respect to major groups 20 through 39 only, the average annual wage paid to this qualified taxpayer's full-time equivalent employees, classified as production workers by the Rhode Island department of labor and training, is above the average annual wage paid to the production workers of all these taxpayers in the state which share the same two-digit SIC Code. The director of the Rhode Island department of labor and training shall promulgate rules and regulations as required for the implementation of this requirement.

(5) To the extent otherwise allowable, the credit provided by paragraphs (3)(i) and (ii) of this subsection are also allowed for the property having a situs in Rhode Island and used, however acquired, by a property and casualty insurance company.

(c) Subject to the provisions of subdivision (b)(3) of this section, a taxpayer is not allowed a credit under subsection (a) of this section with respect to tangible personal property and other tangible property, including buildings and structural components of buildings, which it leases to any other person or corporation and is not allowed a credit under subsection (a) of this section with respect to buildings and structural components of buildings it leases from any other person or corporation. For the purposes of the preceding sentence, any contract or agreement to lease or rent or for a license to use the property is considered a lease, unless a contract or agreement is treated for federal income tax purposes as an installment purchase rather than a lease.

(d) The credit allowed under this section for any taxable year 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 of corporations, to less than the minimum tax as prescribed in § 44-11-2(e); provided, that in the case of the credit allowed to high performance manufacturers under subdivision (b)(3) of this section, the fifty percent (50%) limitation shall not apply. If the amount of credit allowable under this section for any taxable year is less than the amount of credit available to the taxpayer, any amount of credit not deductible in the taxable year may be carried over to the following year or years (not to exceed seven (7) years) and may be deducted from the taxpayer's tax for the year or years.

(e) At the option of the taxpayer, air or water pollution control facilities which qualify for elective amortization deduction may be treated as property principally used by the taxpayer in the production of goods by manufacturing, processing, or assembling; provided, that if the property qualifies under subsection (b) of this section, in which event, an amortization deduction is not allowed.

(f) With respect to property which is disposed of or ceases to be in qualified use prior to the end of the taxable year in which the credit is to be taken, the amount of the credit shall be that portion of the credit provided for in subsection (a) of this section, which represents the ratio which the months of qualified use bear to the months of useful life. If property on which credit has been taken is disposed of or ceases to be in qualified use prior to the end of its useful life, the difference between the credit taken and the credit allowed for actual use must be added back in the year of disposition. If this property is disposed of or ceases to be in qualified 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 in this subsection. A credit allowed to a qualified taxpayer is not recaptured merely because the taxpayer subsequently fails to retain the classification as a qualified taxpayer. The amount of credit allowed for actual use shall be determined by multiplying the original credit by the ratio, which the months of qualified use bear to the months of useful life. For purposes of this subsection, "useful life of property� is the same as the taxpayer (or in the case of property acquired by lease, the owner of the property) uses for depreciation purposes when computing his or her federal income tax liability. Comparable rules are used in the case of property acquired by lease to determine the amount of credit, if any, that will be recaptured if the lease terminates prematurely or if the property covered by the lease otherwise fails to be in qualified use.

(g) The credit allowed under this section is only allowed against the tax of that corporation included in a consolidated return that qualifies for the credit and not against the tax of other corporations that may join in the filing of a consolidated tax return.

Legislative History

P.L. 1974, ch. 200, art. 4, § 1; P.L. 1975, ch. 188, art. 2, § 1; P.L. 1984, ch. 206, art. 4, § 1; P.L. 1984 (S.S.), ch. 450, § 2; P.L. 1993, ch. 138, art. 58, § 1; P.L. 1997, ch. 30, art. 14, § 1; P.L. 1997, ch. 57, § 1; P.L. 1999, ch. 221, § 1; P.L. 2000, ch. 224, § 1; P.L. 2000, ch. 269, § 1; P.L. 2001, ch. 111, § 1; P.L. 2002, ch. 265, § 2.