By James Nani

Law360 (May 4, 2020, 9:01 PM EDT) -- Rhode Island's conformity to tax provisions of the federal pandemic relief law passed in March could cost the state about $17.5 million over two fiscal years, according to projections by the state Division of Taxation.

Rhode Island's conformity to the Coronavirus Aid, Relief and Economic Security Act , or CARES Act, according to initial estimates and projections released this week, could decrease revenue by about $11 million in the 2021 fiscal year and $6.4 million in 2022. The estimates were presented by Neena Savage, the tax administrator of the state Department of Revenue's Division of Taxation, to principals of the state Revenue Estimating Conference.

The conference members heard testimony ahead of the Friday meeting of the Revenue Estimating Conference. The conference, made up of the state budget officer and the fiscal advisers of the state Senate and House, meets twice a year to reach a consensus on state revenues and to help prepare a budget.

Among the provisions that would cause revenue losses for the state are federal changes to certain employer-provided retirement plans and individual retirement accounts that are subject to required minimum distribution rules. The federal government got rid of the requirement that a minimum distribution be taken out for 2020, according to an analysis by the federal Joint Committee on Taxation.

Rhode Island's conformity to the provision would cost the state $334,376 in the 2021 fiscal year and $1.3 million in 2022, according to the presentation.

"Taxpayers will not be required to take the minimum distribution, lowering their [adjusted gross income] and the subsequent Rhode Island tax," Savage said.

Savage's presentation also found that federal changes to net operating losses and carrybacks would cost the state $2 million in 2021 and about $692,000 the year after. The measure could reduce state tax liability in the tax years 2018 through 2020.

Federal changes to limitations on business interest deductions that increased adjusted taxable income limitation under Internal Revenue Code 163(j)  from 30% to 50% would reduce federal taxable income and state taxable income as well, the presentation said. That would cost the state $1.6 million in 2021 and $972,000 in the next year.

Charles St. Martin, a spokesman for the Rhode Island Department of Administration, noted the information presented Monday was from the Division of Taxation and was only one set of data being reviewed this week as part of the Revenue Estimating Conference. 

"This information does not represent the final, official numbers which will be released at the conclusion of the conference on Friday afternoon," St. Martin said. "Additionally, we expect to receive updated numbers on the data regarding the impact of the CARES Act tax changes during the week, so these numbers may change."

State legislative leaders didn't immediately respond to requests for comment on Monday.

Todd Betor, counsel at Eversheds Sutherland, told Law360 on Monday that as a state with rolling conformity, Rhode Island automatically conforms to the provisions of the Internal Revenue Code as they are updated unless the state otherwise decouples from a specific provision. 

"The figures could be used to support an effort to change Rhode Island's IRC conformity through legislation," Betor said. "The Rhode Island General Assembly is currently slated to reconvene on May 12, 2020, after having its legislative session suspended due to the COVID-19 pandemic."

COVID-19 is the respiratory disease caused by the novel coronavirus.

If Rhode Island were to decouple, it would be following the lead of the first state to do so last month, New York. Betor said Savage's presentation showed Rhode Island's tax revenue in 2018 attributable to global intangible low-taxed income was about the same amount as projected to be lost by state conformity to the CARES Act's changes to interest expense limitations and net operating losses.

The Revenue Department's analysis found certain conformity to the Tax Cuts and Jobs Act in the 2018 tax year would result in the state netting $3.3 million in additional taxes from GILTI after it was apportioned to the state.

"While I vehemently oppose any state taxing GILTI, the Rhode Island Legislature likely does not want to see their GILTI gains offset by supposed CARES Act losses," Betor said. "However, Rhode Island should be cautious of the business climate it would be creating should it choose to decouple from the CARES Act and retain its position on GILTI."

--Editing by Neil Cohen.

Update: This story has been updated to reflect revised figures from the state.

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