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HB 7397

AN ACT RELATING TO TAXATION -- BUSINESS CORPORATION TAX

2026 Regular Session Introduced by Jon Brien and 9 co-sponsors

The bill repeals the corporate minimum tax and changes how Rhode Island corporate taxes are calculated, affecting net income and certain investment firm and S-corp tax calculations

05/07/2026 Committee recommended measure be held for further study
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Bill Summary · HB 7397

Summary of HB 7397 ( Rhode Island, 2026 ) - AN ACT RELATING TO TAXATION — BUSINESS CORPORATION TAX

Purpose and Intent

  • The bill proposes to modify Rhode Island’s corporate income tax structure by repealing the separate corporate minimum tax and adjusting the tax calculation for corporations.
  • It seeks to change how corporate taxes are computed for tax years beginning on or after January 1, 2015, and to ensure a minimum tax level is maintained through updated provisions (though text indicates repeal of the existing minimum tax).

Key Provisions

1) Tax Rate and Base (Section 44-11-2)

  • Current provision (as retained by the bill’s language) sets:
    • For tax years beginning on or after January 1, 2015, the base corporate tax is 7% of net income, as defined and apportioned under Rhode Island rules.
  • The bill would alter this framework by repealing or superseding certain minimum tax components; the explanation notes the repeal of the minimum tax, but the enacted language retains a framework including a 9% rate in subsection (a) and related adjustments (note: the bill text shows both 9% and 7% references, indicating a complex prior structure—final effect is described below in the “Minimum Tax” note).

2) Special Adjustments to Net Income (Section 44-11-2(b))

  • If a corporation qualifies for a specific set of securities activities (buying, selling, dealing in, or holding securities on its own behalf, not as broker/underwriter/distributor) and these activities account for at least 90% of gross receipts, the calculation allows:
    • Deduction of 50% of the excess of capital gains over capital losses from net income before computing the tax.
  • This provision targets financial/investment activities and reduces the tax base for qualifying entities.

3) Alternative Tax Based on Gross Income (Section 44-11-2(c))

  • For certain entity types (personal holding companies, regulated investment companies, or real estate investment trusts under federal tax definitions), the tax can be computed on a gross income basis rather than net income, with:
    • A minimum tax of $0.10 per $100 of gross income, or a flat $100 minimum, whichever is greater.
    • Gross income is defined as federal gross income plus certain adjustments, with subtractions for interest on U.S. obligations and 50% of capital gains excess, among others.

4) Subchapter S Corporations (Section 44-11-2(d))

  • Small business corporations with an S-corp election would generally be exempt from Rhode Island corporate income tax on income taxed at the federal level, but:
    • They would still be subject to the base tax under (a) to the extent of the income taxed federally under Subchapter S.
    • Effective for tax years beginning on or after January 1, 2015, S-corp entities are subject to the state minimum tax under § 44-11-2(e).

5) Minimum Tax (Section 44-11-2(e))

  • Currently: Minimum tax amounts are specified as $450 (for earlier years) and $400 (for tax years beginning on or after January 1, 2017).
  • The explanatory note accompanying the bill indicates the act would repeal the corporate minimum tax.

6) Effective Date

  • The act provides that it shall take effect upon passage (i.e., immediate upon enactment).

Affected Entities and Impacts

  • All Rhode Island corporations subject to the corporate income tax (the base tax computation under § 44-11-2(a)) will be affected.
  • Financial/investment-oriented firms that meet the 90% gross receipts threshold for securities activities may see a lower tax base due to the 50% deduction of capital gains in net income.
  • Entities categorized as personal holding companies, regulated investment companies, or real estate investment trusts may face alternative tax computation under gross income, with a different minimum threshold (but ultimately repealed minimum tax guidance indicates a shift away from minimum tax approach).
  • Subchapter S corporations with Rhode Island residents as shareholders will face minimum tax provisions to the extent of income taxed federally, aligning with federal S-corp treatment.

Procedural and Timeline Aspects

  • Introduced January 28, 2026, and referred to the House Finance Committee.
  • Scheduled hearing/consideration noted for May 7, 2026.
  • Effective date: immediate upon passage.

Notes for Readers

  • The bill’s explanatory section states an intent to repeal the corporate minimum tax, aligning with the removal of minimum tax provisions in Section 44-11-2(e).
  • The text of the bill contains both a 9% and a 7% reference for tax rates; the enacted version’s primary substantive change appears to be a repeal of the minimum tax and potential adjustments to how net income is calculated and taxed, especially for certain investment vehicles and S-corporations. If enacted, a detailed fiscal note and guidance from Rhode Island Division of Taxation would clarify the final rate and calculation.

Compiled from official sources — confirm details with the bill’s official record.

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