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H 8200Income

Taxation - Wealth Proceeds Tax

This bill creates a new 4% state tax on investment income, such as stocks and bonds, for wealthy individuals.

Introduced
Population
Affected
25
Email Legislator
Introduced Feb 27, 2026Committee House Finance

Plain-English Summary

This legislation establishes a new state tax called the "Wealth Proceeds Tax." It imposes an additional four percent (4%) tax on the investment income of individuals, estates, and trusts. This applies to money earned from sources like capital gains, dividends, and interest, specifically targeting amounts that exceed certain federal thresholds. The bill also closes specific loopholes related to trusts and certain financial gains that are usually exempt from federal taxes. The tax is calculated based on residency and the portion of investment income connected to Rhode Island.

For younger readers

This bill creates a new rule for how much money some people have to pay to the state government. It focuses on people who make a lot of money not by working a job, but by having their savings grow, like owning parts of companies or lending money. If a person, or a group managing money for a family, makes a large amount from these investments, they must pay an extra 4% of that money to Rhode Island. It is designed to collect extra tax money from people who have a lot of wealth.

Who & Where It Applies

Impacted groups
High-net-worth individualsTrusts and EstatesInvestorsFinancial PlannersTax Accountants
Impacted communities
All

Constitutional & Fiscal Check

The bill taxes "wealth proceeds," which relies largely on realized income, reducing the risk of being labeled an unconstitutional direct tax on property/wealth. However, the inclusion of "net unrealized appreciation" in Section 2(3)(vii) and the aggressive taxation of "incomplete gift non-grantor trusts"—which may lack sufficient nexus to Rhode Island if administered out-of-state—could trigger Due Process or Commerce Clause challenges regarding the state's jurisdiction to tax those specific assets or entities.

Estimated cost
Amount unknown
Estimated revenue
Amount unknown

Bill Analysis

Both viewpoints
For Progressives
  • Addresses economic inequality by ensuring that high-net-worth individuals pay a fairer share of taxes on investment income, helping to balance the tax burden between labor and capital.
  • Generates significant new revenue for the state that can be utilized to fund essential public services, education, infrastructure, and social safety nets for the broader community.
  • Closes specific tax loopholes, particularly those regarding "incomplete gift non-grantor trusts," preventing the wealthy from using complex financial structures to hide assets and avoid state taxation.
  • May inadvertently encourage high-income residents to move their primary residence to states without investment taxes, potentially reducing the overall tax base available for social programs.
  • Relies heavily on federal tax definitions and thresholds, meaning that changes at the federal level could unpredictably alter the state's revenue stream and tax policy.
  • The four percent rate might be viewed by some advocates as insufficient to effect meaningful systemic change regarding the redistribution of extreme generational wealth.
For Conservatives
  • The tax is levied on "proceeds" (income) rather than a direct tax on total asset holdings (wealth tax), avoiding the complex valuation issues and constitutional concerns associated with taxing unrealized wealth.
  • Includes specific provisions for non-residents to only be taxed on income allocable to Rhode Island, preventing extraterritorial overreach by the state taxing authority.
  • The delayed effective date of January 1, 2027, provides a significant window for high-net-worth individuals to restructure their finances or relocate before the tax is imposed.
  • Imposes a significant financial penalty on investment and savings, which discourages capital accumulation, punishes financial success, and may stifle economic growth.
  • Will likely drive wealthy individuals, entrepreneurs, and job creators to relocate to states with more favorable tax climates, ultimately damaging Rhode Island's economy.
  • Constitutes a form of double taxation on income that is already subject to federal taxes, further eroding the property rights of citizens and increasing the size of government.

Votes

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Full Bill Text

Changes to existing Rhode Island law · 52 additions

SECTION 1. Title 44 of the General Laws entitled "TAXATION" is hereby amended by adding thereto the following chapter: 44-73-1. Short title. This act shall be known and may be cited as the "Wealth Proceeds Tax". 44-73-2. Definitions. The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.

(1) "Federal modified adjusted gross income" means the definition contained in § 1411(d) of the Internal Revenue Code, modified in accordance with the same adjustments identified in subsections (3)(i) through (3)(iv) of this section.

(2) "Threshold amount" means the definition contained in § 1411(b) of the Internal Revenue Code.

(3) "Wealth proceeds" means the same meaning as "net investment income" contained in § 1411(c) of the Internal Revenue Code, subject to the following adjustments:

(i) Excluding interest on U.S. obligations that the state is prohibited from taxing under federal law;

(ii) Including interest on obligations issued by state and local governments other than Rhode Island and its subdivisions;

(iii) Including net gain excluded under § 1202 of the Internal Revenue Code;

(iv) Including net gain excluded under § 1400Z-2 of the Internal Revenue Code;

(v) Including net gain attributable to the disposition of property held in a trade or business not described under § 1411(c)(2) of the Internal Revenue Code;

(vi) Including net gain described under the exception found in § 1411(c)(4) of the Internal Revenue Code;

(vii) Including net gain excluded under § 1411(c)(5) of the Internal Revenue Code that is attributable to net unrealized appreciation within the meaning of § 402(e)(4) of the Internal Revenue Code; and

(viii) Including, for a taxpayer who transferred property to an incomplete gift non-grantor trust, "wealth proceeds" of the trust as described under subsections (3)(i) through (3)(vii) of this section, less any deductions of the trust, to the extent such wealth proceeds and deductions of such trust would be taken into account in computing the taxpayer's federal taxable income if such trust in its entirety were treated as a grantor trust for federal tax purposes. For purposes of this subsection, an "incomplete gift non-granter trust" means a resident trust that meets the following conditions:

(A) The trust does not qualify as a grantor trust under §§ 671 through 679 of the Internal Revenue Code; and

(B) The grantor's transfer of assets to the trust is treated as an incomplete gift under § 2511 of the Internal Revenue Code, and the regulations thereunder. 44-73-3. Imposition of tax.

(a) In the case of an individual, estate, or trust there is hereby imposed (in addition to any other tax imposed) for each taxable year a tax equal to four percent (4%) of the lesser of:

(1) Wealth proceeds for such taxable year; or

(2) Federal modified adjusted gross income for such taxable year, less the threshold amount.

(b) For an individual who is not a Rhode Island resident for the entire taxable year, the tax under this subsection shall be calculated as if the individual is a Rhode Island resident for the entire year, and that amount shall be multiplied by a fraction in which:

(1) The numerator is wealth proceeds allocable under this chapter to Rhode Island; and

(2) The denominator is the total amount of wealth proceeds for the taxable year.

(c) For an estate or trust, the tax under this section shall be calculated by multiplying the wealth proceeds tax liability by a fraction, the numerator of which is the amount of the estate or trust's wealth proceeds allocated to the state pursuant to the provisions of chapter 23 of title 44, and the denominator of which is the taxpayer's total wealth proceeds.

(d) All references to the Internal Revenue Code in this section shall refer to the code in effect as of January 1, 2026.

SECTION 2. This act shall take effect on January 1, 2027, and shall not be applied retroactively.