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H 7810Administration & Compliance

Taxation - State Tax Officials

Caps interest on late taxes at 12% and restricts the state from auditing records older than three to seven years.

Held for study
Population
Affected
35
Email Legislator
Introduced Feb 12, 2026Committee House Finance

Plain-English Summary

This legislation changes the rules regarding late tax payments and state tax audits in Rhode Island, effective January 1, 2027. It sets a fixed interest rate of 12% per year on all overdue taxes, replacing the current variable rates that can be significantly higher. Additionally, the bill limits the timeframe the state can audit a taxpayer to three years generally, or seven years in cases of fraud. It strictly prohibits the tax administrator from initiating audits or collecting taxes for periods older than seven to ten years, providing a definite statute of limitations.

For younger readers

Imagine you forgot to pay a fine at the library. Usually, the fine keeps growing every day. This bill stops the extra money you owe (called interest) from getting too high by setting a limit. Also, the government sometimes checks to see if people paid the right amount of taxes. This bill says the government can only look back at records from the last few years, not forever. This protects people from getting in trouble for mistakes made a very long time ago.

Who & Where It Applies

Impacted groups
TaxpayersBusiness OwnersRhode Island Division of TaxationAccountants and Tax PreparersTrust Fund Trustees
Impacted communities
All

Constitutional & Fiscal Check

None Likely

Estimated cost
None
Estimated revenue
None

Bill Analysis

Both viewpoints
For Progressives
  • Protects low-income individuals and struggling families from predatory debt spirals by capping the interest rate on delinquent taxes at a fixed 12%, rather than higher variable rates.
  • Establishes a statute of limitations on tax audits, preventing the state from endlessly pursuing debts against citizens who may no longer have the records or resources to defend themselves against old claims.
  • Standardizes the interest rate calculation based on the notification date, ensuring fairer treatment for taxpayers who may not have been aware of an administrative error or liability until years later.
  • Reduces state revenue collected from penalties and interest, which ultimately decreases the pool of funds available for social safety nets and public services.
  • Limits the state's ability to investigate and recover unpaid taxes from wealthy corporations or individuals who committed fraud more than seven years ago, potentially allowing tax evasion to go unpunished.
  • Lowers the financial penalty for delaying tax payments, which might encourage wealthy entities to prioritize other investments over their civic duty to contribute to the public good.
For Conservatives
  • Significantly checks government overreach by establishing hard time limits on audits, preventing the tax authority from weaponizing the code to harass businesses about the distant past.
  • Promotes corporate freedom and financial stability by lowering the interest rate cap on delinquent payments to 12%, reducing the burden on businesses facing cash flow issues.
  • Enforces the rule of law by creating clear boundaries for the tax administrator, ensuring that the government cannot arbitrarily demand records or payments for periods exceeding ten years.
  • Delays the effective date until 2027, leaving businesses and taxpayers vulnerable to aggressive government audit tactics and higher interest rates for several more years.
  • Maintains a double-digit interest rate (12%) on debts, which some may still view as the government unjustly profiting from the financial struggles of private citizens.
  • The seven-year limitation on fraud audits might allow genuine criminals to escape justice, potentially undermining the integrity of the system for law-abiding taxpayers.

Votes

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Full Bill Text

Changes to existing Rhode Island law · 20 additions · 2 deletions

SECTION 1. Section 44-1-7 of the General Laws in Chapter 44-1 entitled "State Tax Officials" is hereby amended to read as follows: 44-1-7. Interest on delinquent payments. Interest on delinquent payments and audit limitations.

(a) Whenever the full amount of any state tax or any portion or deficiency, as finally determined by the tax administrator, has not been paid on the date when it is due and payable, whether the time has been extended or not, there shall be added as part of the tax or portion or deficiency interest at the rate as determined in accordance with subsection (b) of this section, notwithstanding any general or specific statute to the contrary.

(b) Each January 1 the tax administrator shall compute the rate of interest to be in effect for that calendar year by adding two percent (2%) to the prime rate, which was in effect on October 1 of the preceding year, except:

(1) Before January 1, 2023, in no event shall the rate of interest exceed twenty-one percent (21%) per annum nor be less than eighteen percent (18%) per annum;

(2) On and after January 1, 2023, in no event shall the rate of interest exceed twenty-one percent (21%) per annum nor be less than twelve percent (12%) per annum except:

(i) For trust fund taxes as established by §§ 44-19-35 and 44-30-76, in no event shall the rate of interest exceed twenty-one percent (21%) per annum nor be less than eighteen percent (18%) per annum.; and

(3) On or after January 1, 2027, the interest rate on all delinquent tax payments shall be twelve percent (12%) per annum, for all taxes, inclusive of trust fund taxes as established by §§ 44- 19-35 and 44-30-76.

(i) The interest rate assessed on all tax payments, including delinquent taxes, shall be the rate in effect on the date of the notification of delinquency, and not the date of the original tax obligation.

(c) “Prime rate” as used in subsection (b) of this section means the predominant prime rate quoted by commercial banks to large businesses as determined by the board of governors of the Federal Reserve System.

(d) Notwithstanding any provisions of the general laws to the contrary, the tax administrator shall waive interest and penalty on the taxable portion of each Paycheck Protection Program loan taxed pursuant to §§ 44-11-11(a)(1)(iv), 44-14-11, and 44-30-12(b)(8) and forgiven during tax year 2020 provided that the tax on that portion is paid in full on or before March 31, 2022. The tax administrator shall make available suitable forms with instructions for making tax payments on the taxable portion of such forgiven Paycheck Protection Program loans.

(e) The tax administrator’s authority to audit taxpayers shall be limited to:

(1) A period of three years (3) years from the date of filing, except for cases involving fraud, then the audit period shall not exceed seven (7) years from the date of filing.

(2) Under no circumstances shall the tax administrator initiate or conduct an audit, investigation or tax collection for any period in excess of ten (10) years from the date of the original filing or required filing deadline, whichever is later.

(3) The tax administrator shall be prohibited from requesting filings or attempting to collect tax liabilities for any period in excess of seven (7) years from the date of filing or required filing deadline, whichever is later, regardless of whether an audit has been initiated. The limitation provided in this subsection shall apply without exception.

SECTION 2. This act shall take effect on January 1, 2027, and shall apply to all assessments, audits and tax payments, including delinquent taxes, initiated on or after that date.