Summary of HB 7239 (2026) – Rhode Island
Title: AN ACT RELATING TO TAXATION -- CITY OF PROVIDENCE: TRANSFER OF PORTION OF STATE INCOME TAXES OF NEW EMPLOYEES OF NOT-FOR-PROFIT HEALTH CARE INSTITUTIONS AND EDUCATIONAL INSTITUTIONS
Jurisdiction: Rhode Island (House of Representatives)
Introduced: January 21, 2026
Committee: House Finance
Sponsors: Representatives Kislak, Slater, Diaz, Biah, DeSimone, J. Lombardi (with co-sponsors Slater, Biah, Diaz, DeSimone, Kislak, Lombardi)
Status: As of the latest action, the measure was recommended to be held for further study by the committee (April 28, 2026).
Purpose and intent
- The bill creates a new framework to transfer a portion of state income taxes paid by employees of certain not-for-profit entities (not-for-profit healthcare institutions, health service corporations, and educational institutions) from the state to the City of Providence. The intent is to provide the city with a dedicated revenue source to offset costs associated with growth in healthcare and educational sectors within Providence.
Key provisions and changes
1) New Chapter establishing a Providence tax transfer mechanism (Chapter 73, Title 44)
- Definitions (44-73-1): Sets terms for the program, including:
- City and Director: City of Providence; Director of the state Division of Taxation.
- Institutions covered: Not-for-profit healthcare institutions, health service corporations, and educational institutions (e.g., private, nonprofit colleges/universities).
- New employee: For each calendar year beginning Jan 1, 2026, the number of employees added in that year over the initial employment level, for whom Rhode Island state income tax was withheld.
- Initial employment level: The institution’s total employees in 2025 for whom state income tax was withheld.
- Initial employment level and new employees are used to determine eligible new hires each year.
- Data reporting and timing (44-73-2):
- By July 30, 2026: Institutions must report 2025 initial employment level and total state income tax withheld (aggregate) to the state Director and to Providence’s Chief Financial Officer (CFO).
- By December 31, 2026: Institutions must report for 2026 the aggregate number of new employees and the total annual state income taxes submitted for those new employees.
- Annually thereafter: Institutions must report, for each calendar year, the number of new employees and total state income taxes paid for new employees, plus cumulative totals since the initial period (to track growth and revenue).
- Data must be signed by the preparer and the authorized signatory.
- Revenue transfer to Providence (44-73-2, continued):
- Beginning September 1, 2028, the state must remit to Providence 25% of the aggregate state income taxes attributed to all new employees since the initial reporting period. This represents the transfer portion of taxes generated by new hires in the defined institutions.
- Data use: The act emphasizes separate accountability for the city’s use of funds and requires clear, auditable reporting.
2) Amendment to the State Funds statute to earmark new revenue (35-4-1)
- Adds a new provision (44-73 transfer of taxes) to the list of funds for which withholding taxes received by the Director of Revenue are remitted specifically to the City of Providence beginning in 2026.
- In effect, after 2026, state withholding taxes collected from new employees in the defined institutions are diverted to Providence for the transfer specified in Chapter 73.
3) Adjustment to State Aid framework for cities and towns (Chapter 45-13-1)
- The bill affects the broader framework for state aid to municipalities by clarifying that amounts paid to Providence under the Chapter 73 transfer are treated as a separate allocation to the city, not part of general state aid appropriations.
- This preserves a distinct stream of revenue for Providence arising from the new transfer and avoids conflating it with standard aid allocations.
Who would be affected
- Not-for-profit healthcare institutions, health service corporations, and educational institutions operating in Rhode Island with nonprofit status.
- New employees hired by these institutions in the calendar year 2026 and onward (as measured against each institution’s initial 2025 employment level).
- The City of Providence, which would receive 25% of the aggregate state income taxes tied to new employees at these institutions, starting in fiscal year 2028.
- The Rhode Island Department of Revenue and Division of Taxation (administrative oversight and data collection).
Procedural and timeline notes
- Data collection starts with 2025 baseline employment (initial employment level reported by July 30, 2026 for 2025 data).
- Reporting of new hires and tax withholdings begins for 2026, with annual reporting thereafter.
- The 25% transfer to Providence is authorized to begin September 1, 2028 and would apply to the aggregate total of new employees since the initial reporting period.
- Funding under this mechanism is described as a separate allocation to Providence, not part of standard state aid appropriations.
Potential impact and considerations
- Provides Providence with a dedicated revenue stream tied to growth in nonprofit healthcare and educational sectors within the city.
- Creates administrative responsibilities for nonprofit institutions to track and report employment and tax data annually.
- Substantial questions may arise about the definitional scope (which institutions qualify), enforcement of reporting, and the fiscal impact on state revenue and city budgeting.
- The mechanism is designed to be revenue-neutral for the state in the sense that a portion of withholding taxes from new employees is redirected to Providence, rather than being redistributed through typical state aid formulas.
Note: The bill is currently described as “held for further study” by committee, indicating that detailed discussion, potential amendments, and formal votes have not yet occurred in the legislative process as of the latest action.
