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SB 3227

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

2026 Regular Session Introduced by Jake Bissaillon and 7 co-sponsors

Providence would receive a dedicated annual share (25%) of state income tax withholdings from new employees of certain not-for-profit health care and educational institutions, star

05/28/2026 Committee recommended measure be held for further study
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Bill Summary · SB 3227

Overview

SB 3227 (Rhode Island, 2026) would create a new chapter to allocate a portion of state individual income tax revenues from new employees at not-for-profit health care and educational institutions in Providence to the City of Providence. The mechanism is designed to help offset costs associated with growth in healthcare and educational facilities in the city. The bill establishes reporting requirements for affected institutions and specifies a phased transfer of funds beginning in fiscal year 2028.

Main purpose and intent

  • Provide Providence with a dedicated transfer of a portion of state income tax revenues collected from new employees of certain not-for-profit institutions (health care and educational institutions) located in the city.
  • Use the transferred funds to offset expenses tied to growth in the city’s healthcare and educational sectors.
  • Create a transparent reporting framework to determine the amount of new employment and the associated tax withholdings that generate the transfer.

Key provisions and changes

  • Establishment of Chapter 73 within Title 44 (Taxation) to govern the transfer.
    • Definitions (44-73-1):
    • City = Providence.
    • New employee / new employment: annual count of new hires in a calendar year beyond the initial employment level (2025) for an institution.
    • Initial employment level: total employees for whom RI state income tax was withheld in 2025.
    • Institutions: not-for-profit healthcare institutions, health service corporations, and educational institutions.
    • Health care institution, educational institution, and not-for-profit entity definitions are broad to include hospitals, clinics, nursing facilities, and not-for-profit colleges/universities, etc.
  • Reporting requirements (44-73-2):
    • By July 30, 2026: each institution must provide the 2025 initial employment level and the total state income tax withholdings for that year to the state Director of Revenue and Providence’s Chief Financial Officer.
    • By December 31, 2026: institutions must report the number of new employees in 2026 and the total annual state income taxes withheld for all new employees.
    • Annually thereafter: annual reporting of (a) new employees for the calendar year, (b) total state income taxes from all new employees, and (c) cumulative totals since initial reporting, including estimated taxes.
    • All data must be signed by authorized representatives.
  • Transfer mechanism and timeline (44-73-2(c)-(e)):
    • Beginning September 1, 2028, Rhode Island must transfer to Providence 25% of the aggregate state income taxes paid by all new employees since the initial reporting period.
    • The act sets up future transfers to be calculated on an annual basis as new employees join the workforce under the defined institutions.
  • Funding reallocation in state budget provisions (Section 2):
    • Amends general fund revenue rules to recognize that state withholding taxes received for calendar years 2026 onward shall be remitted to Providence as per Chapter 73.
    • Establishes that these funds are separate from other state aid or general appropriation provisions, ensuring a dedicated allocation to the city.
  • State aid framework relevance (Section 3):
    • Modifies how state aid to cities and towns is calculated and distributed, with explicit note that the amount paid to Providence under this chapter is not treated as part of general state aid or appropriation but as a separate allocation to Providence.

Who would be affected

  • Not-for-profit healthcare institutions, health service corporations, and educational institutions operating in Providence that withhold Rhode Island state income taxes for their employees.
  • City of Providence (receiving entity) and its taxpayers and financial administration (City Treasurer/Chief Financial Officer) due to new revenue allocation.
  • Rhode Island Department of Revenue (administrative oversight and data collection).
  • Potential ripple effects on institutions’ payroll planning and budget, given reporting obligations and the impact of tax withholding transfers.

Procedural and timeline aspects

  • Effective date: Upon passage.
  • Initial reporting milestone: July 30, 2026 (initial employment level and 2025 tax withholdings).
  • First 2026-2027 reporting cycle: December 31, 2026 (2026 new hires and taxes for new employees).
  • Annual reporting: Due December 31 of each subsequent year (with ongoing totals and cumulative figures).
  • First formal transfer to Providence: September 1, 2028 (25% of aggregate new-employee withholdings, and ongoing thereafter).
  • Long-term: Transfers are tied to new employee growth and withholdings from the defined institutions, with the state treating these funds as a dedicated allocation to Providence.

Potential impact and considerations

  • Financial: Providence would receive a new, dedicated revenue stream tied to growth in healthcare and education sectors, potentially stabilizing or enhancing the city’s ability to fund services and infrastructure related to those sectors.
  • Administrative: Institutions must implement and maintain robust data collection and reporting practices for initial employment levels and annual new hires, including accurate tax-withholding totals.
  • Policy implications: The bill reconfigures state-level revenue distribution to favor a single city and creates a distinct accounting category for these funds, outside the general state aid framework.

Note: The summary reflects the bill as introduced and does not account for amendments that might be adopted during the legislative process.

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

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