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SB 3154

AN ACT RELATING TO TAXATION -- WEALTH PROCEEDS TAX

2026 Regular Session Introduced by Bob Britto and 8 co-sponsors

Rhode Island would impose a 4% tax on a high earner’s wealth proceeds, defined largely as net investment income, with adjustments and thresholds tied to federal rules.

04/30/2026 Committee recommended measure be held for further study
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Bill Summary · SB 3154

Bill Summary: SB 3154 (Rhode Island, 2026) – Wealth Proceeds Tax

Overview

  • Purpose: Introduce a new state-level wealth proceeds tax (Wealth Proceeds Tax) targeted at high-income individuals, estates, and certain trusts based on net investment income (wealth proceeds) as defined with adjustments to align with federal rules.
  • Status: Introduced March 27, 2026; referred to Senate Finance. Committee recommended holding for further study (May 1, 2026). Effective date set for January 1, 2027; no retroactive application.

Key Provisions

1) Taxable Base and Rate

  • Tax rate: 4% of the lesser of:
    • Wealth proceeds for the taxable year, or
    • Federal modified adjusted gross income (fMAGI) for the taxable year, minus the threshold amount.
  • Threshold and base definitions align with federal Internal Revenue Code (IRC) sections, with Rhode Island-specific adjustments.

2) Definitions and Adjustments (Wealth Proceeds)

  • “Wealth proceeds” largely follows the federal concept of net investment income but with specific Rhode Island adjustments:
    • Excludes interest on U.S. obligations that Rhode Island cannot tax under federal law.
    • Includes interest on obligations issued by other states/local governments (outside Rhode Island).
    • Includes:
    • Net gains excluded under IRC § 1202 (Qualified Small Business Stock gains).
    • Net gains excluded under IRC § 1400Z-2 (Opportunity Zones).
    • Net gains from disposition of property held for a trade or business (not described under a specific IRC provision).
    • Net gains described under the exception in IRC § 1411(c)(4).
    • Net gains excluded under IRC § 1411(c)(5) attributable to net unrealized appreciation (NUA) under IRC § 402(e)(4).
    • Special rule for incomplete gift non-grantor trusts:
    • Wealth proceeds of such trusts are included to the extent they would be for federal purposes, minus trust deductions.
    • Definition: An incomplete gift non-grantor trust is a resident trust not treated as a grantor trust under IRC §§ 671–679, where the transfer is an incomplete gift under § 2511 and related regs.

3) Tax Computation and Allocation

  • Individuals, estates, and trusts: 4% tax on the lesser of wealth proceeds or fMAGI minus the threshold amount.
  • Non-resident individuals ( Rhode Island resident for less than the full year ):
    • Compute as if resident for the full year, then prorate:
    • Numerator: wealth proceeds allocable to RI.
    • Denominator: total wealth proceeds for the year.
  • Estates and trusts:
    • Tax liability is multiplied by a fraction:
    • Numerator: amount of wealth proceeds allocated to Rhode Island under RI estate/ trust allocation rules (chapter 23, title 44).
    • Denominator: total wealth proceeds of the taxpayer.
  • Compliance with federal code: References to the IRC are as of January 1, 2026.

Who Would Be Affected

  • High-income individuals whose wealth proceeds (net investment income) would exceed the Rhode Island threshold.
  • Estates and trusts that generate wealth proceeds and have RI allocations.
  • Non-resident individuals with RI wealth proceeds but who spend part of the year in RI.

Timing and Process

  • Effective date: January 1, 2027.
  • Not retroactive; would apply to taxable years beginning after December 31, 2026.
  • Legislative process: Introduced in Senate, referred to Senate Finance; bill considered for potential study (as of May 2026).

Potential Impacts and Considerations

  • Revenue: Creates a new 4% tax on wealth proceeds, intended to tax high-income households’ net investment income.
  • Compliance burden: Requires calculation of RI allocations for non-residents and detailed integration with federal definitions and several IRC exceptions.
  • Estate and trust planning: May affect the structuring of trusts and distributions, particularly incomplete gift non-grantor trusts and NUA considerations.
  • Federal alignment: Heavily references federal tax code definitions and adjustments as of 2026, potentially subject to future federal changes.

If you’d like, I can provide a side-by-side comparison with existing RI taxes or a plain-language FAQ for taxpayers and estate planners.

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

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