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S 2847Administration & Compliance

Taxation - State Tax Officials

Caps interest on overdue taxes at 12% and limits the state's ability to audit or collect taxes beyond seven years.

Introduced38 Yea0 Nay0 Not voting
Population
Affected
35
Email Legislator
Introduced Mar 4, 2026Committee Senate Finance

Plain-English Summary

This legislation modifies the rules regarding overdue state taxes and audits. Starting January 1, 2027, the interest rate charged on delinquent tax payments will be capped at a flat 12% per year, replacing the current variable rates that can reach 21%. It also establishes stricter time limits for the state to conduct audits or collect unpaid taxes. Generally, the state will be limited to looking back three years for standard returns and seven years for cases involving fraud. The bill prohibits the state from requesting tax filings or attempting to collect taxes for periods older than seven years.

For younger readers

When people or businesses forget to pay the money they owe the government (taxes), they have to pay extra money called interest. Right now, that extra money can be very high. This bill says that starting in the year 2027, the extra money they have to pay will be lower. Also, the bill creates a rule that the government can't go back and check for mistakes from a long time ago. They can usually only look back 3 years, or 7 years if someone lied, but they can't go back forever to ask for money.

Who & Where It Applies

Impacted groups
TaxpayersBusiness OwnersAccountantsTax AdministratorDelinquent Filers
Impacted communities
All

Constitutional & Fiscal Check

None Likely

Estimated cost
None
Estimated revenue
Amount unknown

Bill Analysis

Both viewpoints
For Progressives
  • Reduces the financial burden on low-income individuals and struggling small business owners who fall behind on taxes by lowering the interest rate cap to 12%, preventing debt from spiraling out of control.
  • Establishes a clear statute of limitations on tax collections, protecting vulnerable residents from having the state pursue them indefinitely for old debts they may not have the records to dispute.
  • Promotes economic stability for disadvantaged communities by ensuring that tax penalties are not predatory, allowing people a more realistic path to clear their debts and return to financial health.
  • Reduces the amount of revenue collected by the state from penalties and interest, which could decrease the funding available for social safety nets and public services.
  • Limits the state's ability to hold wealthy individuals and corporations accountable for tax fraud by capping the audit period at seven years, potentially allowing sophisticated evaders to escape consequences.
  • The 12% interest rate may be low enough that wealthy entities view it as a cheap loan rather than a penalty, reducing the incentive for timely compliance and shifting the burden to honest taxpayers.
For Conservatives
  • Restricts government overreach by imposing strict time limits on how far back the state can audit, providing businesses with security against indefinite investigations.
  • Reduces the financial penalty for businesses and taxpayers by capping the delinquency interest rate at 12%, preventing the state from charging usurious rates on citizens' money.
  • Reduces the regulatory burden on businesses regarding record retention, as they will no longer need to fear audits for periods extending beyond the new seven-year limit.
  • Could be viewed as being too lenient on those who committed fraud by limiting the lookback period to seven years, potentially undermining the rule of law and fairness to law-abiding taxpayers.
  • The reduction in collected interest and penalties might lead to revenue shortfalls, potentially prompting the government to seek tax increases elsewhere to compensate.
  • Removes the flexibility of the state to set interest rates based on market conditions or the prime rate, replacing market-based logic with a government-mandated price fix on penalties.

Votes

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Full Bill Text

Changes to existing Rhode Island law · 24 additions · 1 deletion

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.

(3) On or after January 1, 2027, the interest rate on all delinquent tax payments, including, but not limited to, sales and trust fund taxes, shall be capped at twelve percent (12%) per annum, no exclusions. This cap shall serve as both a floor and a ceiling, ensuring consistency in the application of interest rates.

(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) For ordinary tax returns, the audit period shall not exceed three years (3) years from the date of filing.

(2) In cases involving fraud, the audit period shall not exceed seven (7) years from the date of filing.

(3) 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.

(4) The tax administrator shall be prohibited from requesting filings or attempting to collect tax liabilities for any period in excess of seven (7) years, regardless of whether a formal audit has been initiated.

(5) These limitations shall apply without exception.

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

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 this date.