S 3154Income

Taxation - Wealth Proceeds Tax

This bill creates a new 4% state tax on the investment income of individuals, estates, and trusts starting in 2027.

Held for study

Population
Affected

Introduced Mar 27, 2026Committee Senate Finance

Plain-English Summary

This bill creates a new "Wealth Proceeds Tax" in Rhode Island. Starting in 2027, it imposes an additional 4% tax on the investment income of individuals, estates, and trusts. The tax is calculated based on either a taxpayer's total investment income or their adjusted gross income above a certain federal threshold, whichever is lower. The bill includes specific rules outlining what counts as investment income, such as interest from out-of-state government bonds and certain capital gains, and provides formulas for how the tax applies to part-year residents and trusts.

For younger readers

This bill creates a new tax in Rhode Island. A tax is money people pay to the government to help run the state. Starting in 2027, people who make a lot of money from investments—like owning parts of companies or earning interest from the bank—will have to pay an extra 4% of that money to the state. It also applies to trusts, which are special accounts where people keep money for their families.

Who & Where It Applies

Impacted groups

High-income earnersInvestorsTrust beneficiariesEstate executorsNon-resident investors

Impacted communities

All

Constitutional & Fiscal Check

None Likely. The bill imposes a state tax on investment income, which falls well within the state's constitutional authority to levy taxes. It uses established federal tax definitions and provides clear apportionment formulas for non-residents, which generally satisfies the Commerce Clause and Due Process requirements regarding state taxation.

Estimated cost

Amount unknown

Estimated revenue

Amount unknown

Bill Analysis

Both viewpoints

For Progressives

Generates new tax revenue from wealthy individuals' investment income, which can be utilized to fund generous public services and bolster the social safety net.
Targets unearned wealth, such as investment income and capital gains, promoting a more equitable and progressive tax system that addresses systemic wealth inequality.
Closes specific tax loopholes by explicitly taxing incomplete gift non-grantor trusts and out-of-state municipal bonds, ensuring the wealthy pay their fair share.
The 4% tax rate may be viewed as too low to significantly dismantle entrenched wealth inequality or fund massive systemic reforms like universal healthcare.
The legislation relies on federal tax code definitions and thresholds, which may still contain loopholes that protect the ultra-wealthy from paying their fair share.
The bill does not explicitly earmark the newly generated tax revenue for social justice initiatives, anti-poverty programs, or marginalized communities.

For Conservatives

Explicitly exempts interest on U.S. obligations from the new tax, respecting federal law and protecting certain traditional investments.
Provides clear apportionment formulas for non-residents, ensuring they are only taxed on the specific portion of wealth proceeds directly tied to Rhode Island.
Delays implementation until January 1, 2027, and explicitly bans retroactive application, providing taxpayers and businesses ample time to plan and adjust their finances.
Imposes a new 4% tax on investment income, effectively penalizing financial success, savings, and investment, which limits personal financial freedom.
Expands the size and reach of the government by extracting more wealth from private citizens and the private sector to fund state programs.
Eliminates exemptions for certain capital gains and out-of-state municipal bonds, increasing the tax burden on investors and potentially driving wealth and businesses out of the state.

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.