Small Business Capital Investment Tax Incentives
Small business entities or venture capital partnerships that are certified by the Rhode Island Economic Development Corporation may be eligible for three (3) types of special incentives:
- Deductions or Modifications: The deduction or modification is equal to the taxpayer's qualifying investment in a certified venture capital partnership or equal to the entrepreneur's investment in a qualifying business entity. Restrictions prohibit the deduction of modification from reducing the business corporation tax, public service corporation tax or bank excise tax to less than the minimum tax. Personal income tax or gross premiums tax may not be reduced to less than $0. The amount of unused deductions or modifications may not be carried over to following years.
- Capital Gains Exclusion: The calculation of the business corporation tax, public service corporation tax, bank excise tax or personal income tax may exclude long term capital gains from sale or exchange of an interest in a qualifying business entity or certified venture capital partnership if: (1) it is recognized by a partner in a certified venture capital partnership from the sale or exchange of an interest in the partnership, or (2) it is a partner's distributive share (from a certified venture capital partnership) of a long term capital gain recognized by the partnership from the sale or exchange of an interest in a qualifying business entity; or (3) it is recognized by an entrepreneur from the sale or exchange of an interest in a qualifying business entity. Taxpayers must provide proof of the date and amount of the investment in the qualifying business entity or certified venture capital partnership.
- Wage Credit: A credit is available against an entrepreneur's personal income tax for wages paid in a qualifying business entity. The wage credit is computed annually beginning with the first calendar year in which the business first became a qualified business entity. The credit is first computed at 3% of the wages paid to employees for the calendar year in excess of $50,000 and excludes (1) wages paid to owners; (2) wages paid more than 5 years after the start or purchase of the business; and (3) wages paid to employees who are not principally employed in Rhode Island and whose wages are not subject to Rhode Island withholding. The credit is then divided among the entrepreneurs of the qualifying business entity by using the ratio of each entrepreneur's interest compared to the total interest held by all entrepreneurs. The credit ceases in the tax year following the year in which the average annual gross revenue of the business equals or exceeds $1,500,000.
For More Information Follow These Web Links
- Tax Division Regulation: http://www.tax.state.ri.us/regs/regs/cr88-02.htm
- RI General Law: http://www.rilin.state.ri.us/Statutes/TITLE44/44-43/INDEX.HTM
Jean Robertson