§ 44-32-1 - Elective deduction against allocated entire net income.
SECTION 44-32-1
§ 44-32-1 Elective deduction againstallocated entire net income. – (a) General. Except as provided in subsection (c) of this section, atthe election of a taxpayer who is subject to the income tax imposed by chapters11 or 30 of this title, there shall be deducted from the portion of its entirenet income allocated within the state the items prescribed in subsection (b) ofthis section, in lieu of depreciation or investment tax credit.
(1) Expenditures paid or incurred during the taxable year forthe construction, reconstruction, erection or acquisition of any new, not used,property as described in subsection (c) of this section, which is used or to beused for purposes of research and development in the experimental or laboratorysense. The purposes are not deemed to include the ordinary testing orinspection of materials or products for quality control, efficiency surveys,management studies, consumer surveys, advertising, promotion, or research inconnection with literary, historical, or similar projects. The deduction shallbe allowed only on condition that the entire net income for the taxable yearand all succeeding taxable years is computed without the deduction of anyexpenditures and without any deduction for depreciation of the property, exceptto the extent that its basis may be attributable to factors other than theexpenditures, (expenditures and depreciation deducted for federal income taxpurposes shall be added to the entire net income allocated to Rhode Island), orin case a deduction is allowable pursuant to this subdivision for only a partof the expenditures, on condition that any deduction allowed for federal incometax purposes on account of the expenditures or on account of depreciation ofthe property is proportionately reduced in computing the entire net income forthe taxable year and all succeeding taxable years. Concerning property that isused or to be used for research and development only in part, or during onlypart of its useful life, a proportionate part of the expenditures shall bedeductible. If all or part of the expenditures concerning any property has beendeducted as provided in this section, and the property is used for purposesother than research and development to a greater extent than originallyreported, the taxpayer shall report the use in its report for the first taxableyear during which it occurs, and the tax administrator may recompute the taxfor the year or years for which the deduction was allowed, and may assess anyadditional tax resulting from the recomputation as a current tax, within three(3) years of the reporting of the change to the tax administrator. Any changein use of the property in whole or in part from that, which originallyqualified the property for the deduction, requires a recomputation. The taxadministrator has the authority to promulgate regulations to prevent theavoidance of tax liability.
(2) The deduction shall be allowed only where an election foramortization of air or water pollution control facilities has not beenexercised in respect to the same property.
(3) The tax as a result of recomputation of a prior year'sdeduction is due as an additional tax for the year the property ceases toqualify.
(c) Property covered by deductions. The deductionsshall be allowed only with respect to tangible property which is new, not used,is depreciable pursuant to 26 U.S.C. § 167, was acquired by purchase asdefined in 26 U.S.C. § 179(d), has a situs in this state, and is used inthe taxpayer's trade or business. For the taxable years beginning on or afterJuly 1, 1974, a taxpayer is not allowed a deduction under this section withrespect to tangible property leased by it to any other person or corporation orleased from any other person or corporation. For purposes of the precedingsentence, any contract or agreement to lease or rent or for a license to usethe property is considered a lease, unless the contract or agreement is treatedfor federal income tax purposes as an installment purchase rather than a lease.With respect to property that the taxpayer uses itself for purposes other thanleasing for part of a taxable year and leases for a part of a taxable year, thetaxpayer shall be allowed a deduction under this section in proportion to thepart of the year it uses the property.
(d) Entire net income. "Entire net income", as used inthis section, means net income allocated to this state.
(e) Carry-over of excess deductions. If the deductionsallowable for any taxable yearpursuant to this section exceed the portion ofthe taxpayer's entire net income allocated to this state for that year, theexcess may be carried over to the following taxable year or years, not toexceed three (3) years, and may be deducted from the portion of the taxpayer'sentire net income allocated to this state for that year or years.
(f) Gain or loss on sale or disposition of property.In any taxable year when property is sold or disposed of before the end of itsuseful life, with respect to which a deduction has been allowed pursuant tosubsection (b) of this section, the gain or loss on this entering into thecomputation of federal taxable income is disregarded in computing the entirenet income, and there is added to or subtracted from the portion of the entirenet income allocated within the state the gain or loss upon the sale or otherdisposition. In computing the gain or loss, the basis of the property sold ordisposed of is adjusted to reflect the deduction allowed with respect to theproperty pursuant to subsection (b) of this section; provided, that no loss isrecognized for the purpose of this subsection with respect to a sale or otherdisposition of property to a person whose acquisition of this property is not apurchase as defined in 26 U.S.C. § 179(d).
(g) Investment credit not allowed on research anddevelopment property. No investment credit under chapter 31 of this titleshall be allowed on the research and development property for which acceleratedwrite-off is adopted under this section.
(h) Consolidated returns. The research and developmentdeduction shall only be allowed against the entire net income of thecorporation included in a consolidated return and shall not be allowed againstthe entire net income of other corporations that may join in the filing of aconsolidated state tax return.