1. ryan.com Rhode Island Personal Income Tax Reform

2. 2 AGENDA -History of Personal Income Tax -2008 Tax Policy Workgroup -2010 Personal Income Tax Reform -Lessons Learned – Personal Income Tax Reform

3. 3 History of Rhode Island Personal Income Tax System -First enacted in 1971 -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. 4 History of Rhode Island Personal Income Tax System Tax Year 2008 -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%

5. 5 2008 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

6. 6 2010 Personal Income Tax Reform -Major Personal Income Tax reform was enacted in June of 2010 and was effective January 1, 2011 -Legislation passed unanimously in both the Rhode Island House and Senate -Legislation was revenue neutral

7. 7 2010 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

8. 8 2010 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

9. 9 2010 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. 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