By Brian Skornicki, Esq., Checkpoint News
On June 30, 2025, the fiscal year 2026 budget bill has been enacted without Rhode Island Governor Dan McKee’s signature that: (1) increases the local hotel tax rate and imposes a whole home short-term rental tax; (2) increases the real estate conveyance tax and updates the consideration threshold for inflation; (3) increases the motion picture production company tax credit; (4) increases the motor fuel tax rate; (5) expands the definition of net income for corporate and resident individual taxpayers; (6) expands the definition of “other tobacco products” (OTP) and updates the inventory floor tax on these products; (7) adds parking services to the list of taxable sales and use tax services performed in Rhode Island; (8) imposes a statewide tax on non-owner occupied residential property; and (9) adds new qualifications for development projects tax credits. Sunset dates have been set for the following credits, incentives, or deductions: Jobs Growth Act; specialized investment tax credit for certain reconstruction costs; the deduction against net income for new research and development facilities; employment tax credit; certain deductions and modifications for qualifying investments; and wage tax credit. The sunset date has been extended for the following credits/incentives: Stay Invested in Rhode Island Qualified Jobs Incentive Act of 2015; Rhode Island Tax Increment Financing program; and Stay Invested in Wavemaker Fellowship program. Further, the hospital licensing fee has been set; the holiday business license requirement has been repealed; the maximum penalties under the motor fuel use reporting tax for motor carriers that fail to secure or display the proper license or identification has increased; the reporting requirement for the real estate nonutilization tax credit has changed; and the certification requirement for the lead abatement tax relief has changed. (L. 2025, H5076 (c. 278), effective 07/01/2025, unless otherwise stated.)
Local Hotel Tax Rate Increase and New Short-Term Rentals Tax
The local hotel tax rate will increase from 1% to 2% for tax periods beginning on or after January 1, 2026. Effective January 1, 2026, a new tax is imposed on whole home short-term rentals at the rate of 5% on the total consideration charged for occupancy of a house, condominium, or other resident dwelling in Rhode Island rented in its entirety furnished by any room reseller or reseller or any other taxpayer. Effective January 1, 2026, the City of Newport is authorized to collect the local hotel tax and the whole home short-term rental tax with respect to a house, condominium, or other resident dwelling rented in its entirety in the City of Newport.
Real Estate Conveyance Tax Increase
Effective October 1, 2025, the real estate conveyance tax is $3.75 (previously, $2.30) for each $500, or fractional part thereof, that is paid for the purchase of property or the interest in an acquired real estate company. Effective October 1, 2025, the additional real estate conveyance tax is $3.75 (previously, $2.30) for each $500, or fractional part thereof, in consideration that is paid above $800,000 for the purchase of residential real property or the interest in an acquired real estate company. For tax years beginning on or after January 1, 2026, the $800,000 threshold is adjusted for inflation.
Motor Fuel Tax Rate Increase
Effective July 1, 2025, the motor fuel tax rate increases from $0.32 per gallon to $0.40 per gallon. Starting July 1, 2027, and every other year thereafter, the motor fuel tax is adjusted for inflation as of September 30 for the two (previously, single) calendar years preceding the increase.
Net Income Definition Expanded
For the taxable year beginning on or before January 1, 2025, the definition of “net income” for corporate income tax purposes includes the amount of any income, deduction or allowance that would be subject to federal income tax but for the enactment of the federal One Big Beautiful Bill Act or any other similar federal enactment. For the taxable year beginning on or before January 1, 2025, for purposes of determining personal income tax for resident taxpayers, an addback to federal adjusted gross income must include the amount of any income, deduction, or allowance that would be subject to federal income tax but for the federal enactment of the One Big Beautiful Bill Act or any other similar federal enactment. For corporate and personal income tax purposes, the enactment of the federal One Big Beautiful Bill Act or any other similar federal enactment and any IRS changes to forms, regulations, and/or processing that go into effect during the current tax year or within six months of the beginning of the next tax year is deemed grounds for the promulgation of emergency rules and regulations to effectuate the purpose of preserving the Rhode Island tax base under Rhode Island law with respect to the federal One Big Beautiful Bill Act or any other similar federal enactment.
Certificate for Lead Abatement Tax Relief
For the residential lead abatement personal income tax credit, the Rhode Island Department of Health has replaced the Rhode Island Housing Resources Commission for claimants to obtain a regulated certificate of conformance for mitigation when seeking tax relief for residential lead removal or lead hazard reduction.
Motion Picture Production Company Tax Credit
The cap on the total amount of motion picture tax credits and/or musical and theatrical production tax credits issued: for tax years 2022 is $35 million (previously, $30 million); and for tax year 2023 is $35 million (previously, $40 million).
Development Projects Tax Credit Qualifications
To be eligible as a qualified development project entitled to tax credits for the Rebuild Rhode Island Tax Credit or the Historic Preservation Tax Credits 2013, until July 1, 2025, for construction projects that exceed $10 million and for construction projects awarded a tax credit agreement on or after July 1, 2025, and involving a budget of direct hard construction costs that exceed $25 million, all construction workers must be paid with the wages and benefits required under Rhode Island law with all contractors and subcontractors required to file certified payrolls on a monthly basis for all work completed in the preceding month on a uniform form prescribed by the director of labor and training. In addition to the maximum project credit of $15 million for the Rebuild Rhode Island tax credit, qualified development projects are allowed sales and use tax exemptions of up to 30% of the maximum project credit for projects that provide for at least 20% of the housing units to be affordable housing units for residents making no more than between 80% to 120% of the area median income. Any sales and use tax exemptions allowed in addition to the maximum project credit must be for purchases made by June 30, 2028.
Jobs Growth Act Sunset Date
The performance-based compensation modification to the personal income tax under the Jobs Growth Act is disallowed beginning on or after January 1, 2026. Applications submitted to the Rhode Island Economic Development Corporation to take part in this program will not be certified on or after January 1, 2026, and no taxpayers certified prior to January 1, 2026, will pay the tax under this program for tax years beginning on or after January 1, 2026.
Specialized Investment Tax Credit Sunset Date
The specialized investment tax credit for the rehabilitation and reconstruction costs of a certified building which has been substantially rehabilitated is not allowed beginning on or after January 1, 2026. Credits allowed for tax years ending on or before December 31, 2025, may be carried forward into tax years beginning on or after January 1, 2026.
Research and Development Property Sunset Date
For the elective deduction for research and development facilities, deductions are not allowed against a taxpayer’s personal or corporate income tax for tax years beginning on or after January 1, 2026 for the expenditures paid or incurred during the taxable year for the construction, reconstruction, erection or acquisition of any new, not used, property which is used or to be used for purposes of research and development in the experimental or laboratory sense. Deductions allowed for tax years ending on or before December 31, 2025, may be carried forward into tax years beginning on or after January 1, 2026. For the research and development property credit, credits for research and development property acquired, constructed, or reconstructed or erected after July 1, 1994, are not allowed for tax years beginning on or after January 1, 2026. Credits allowed for tax years ending on or before December 31, 2025, may be carried forward into tax years beginning on or after January 1, 2026. For the credit for qualified research expenses, the credit allowed for qualified research expenses will not be allowed to reduce that tax due for that year by more than 50% of the tax liability that would be payable, and in the case of corporations, to less than the corporate minimum tax, for tax years beginning on or after January 1, 2026. If the amount of credit allowable for any taxable year is less than the amount of credit available to the taxpayer, any amount of credit not credited in that taxable year may be carried over to the following year or years, up to a maximum of 15 years.
Employment Tax Credit Sunset Date
The employment tax credit has been eliminated for tax years beginning on or after January 1, 2026, for employers that participated in the bonus program.
Small Business Capital Investment Tax Incentives Sunset Date
For the tax incentives for capital investment in small businesses, the deductions and modifications allowed for taxpayers that made certain qualifying investments in a certified venture capital partnership or for entrepreneurs that made certain investments in a qualifying entity are not allowed for tax years beginning on or after January 1, 2026. In addition, the 3% wage tax credit provided to entrepreneurs for wages paid in excess of $50,000 to employees of the entity is not allowed for tax years on or after January 1, 2026.
Rhode Island New Qualified Jobs Incentive Act of 2015 Sunset Date
The sunset date after which no credits will be authorized to be reserved under the Rhode Island New Qualified Jobs Incentive Act of 2015 is extended to December 31, 2026 (previously, 2025).
Tax Increment Financing Sunset Date
The sunset date under which the commerce corporation may enter into agreements for the Rhode Island Tax Increment Financing program is extended to December 31, 2026 (previously, 2025).
Wavemaker Fellowship Sunset Date
The sunset date under which credits or incentives may be authorized for the Stay Invested in Rhode Island Wavemaker Fellowship fund is extended to December 31, 2026 (previously, 2025).
Sales and Use Tax Imposed on Parking Services
Effective October 1, 2025, sales and use tax is imposed on parking services. “Parking services” means the act of offering a parking space in or on a parking facility for purposes of occupancy by a patron in exchange for a parking fee for a duration of less than one month.
Statewide Tax on Non-Owner-Occupied Residential Property Enacted
The Non-Owner Occupied Property Tax Act has been enacted to impose a tax on the privilege of utilizing property as non-owner-occupied residential property within Rhode Island during any taxable year, for taxable years beginning on or after July 1, 2026. The tax is measured by the assessed value of the real estate at the rate of $2.50 for each $500, or fractional part, of the assessed value in excess of $1 million. For tax years beginning on or after July 1, 2027, the assessed value threshold of $1 million will be adjusted for inflation, compounded annually, and will be rounded up to the nearest $5 increment. In no event will the assessed value threshold in any tax year be less than the prior tax year. The tax will be due and payable in four equal installments: the first on or before September 15 of the taxable year; the second on or before December 15 of the taxable year; the third on or before March 15 of the taxable year; and the fourth on or before June 15 of the taxable year.
Other Tobacco Products (OTP) Expanded
Effective October 1, 2025, the definition of OTP has been expanded to include any products that are made from or derived from tobacco or that contain nicotine, whether natural or artificial. Electronic nicotine delivery system (ENDS) products are specifically excluded from the definition of OTP. In addition, OTP does not include any product that has been approved by the U.S. Food and Drug Administration for the sale of or use as a tobacco or nicotine cessation product or for other medical purposes and which is marketed and sold or prescribed exclusively for that approved purpose. Further, a floor tax is imposed on the existing OTP inventory held as of October 1, 2025, that was previously not taxed as OTP but falls under the new definition of OTP. Each licensee must file a floor tax return and pay the tax on or before October 16, 2025.
Real Estate Nonutilization Tax Department Change
For the real estate nonutilization tax, the Rhode Island Executive Office of Housing has replaced the Rhode Island Housing Resources Commission as the office to which property owned by an abutter or a nonprofit housing organization must submit a proposed development plan.
Hospital License Fee Set
The hospital licensing fee for state fiscal year 2023 against each hospital in the state is repealed. A hospital licensing fee is imposed for state fiscal year 2026 against net patient-services revenue of every non-government owned hospital for the hospital’s first fiscal year ending on or after January 1, 2023. The hospital licensing fee remains the same as state fiscal years 2024 and 2025 for the three tiers with differing fees based on inpatient and outpatient net patient-services revenue. The Rhode Island Executive Office of Health and Human Services, in consultation with the tax administrator, must identify the hospitals in each tier by July 15, 2025, and must notify each hospital of its assigned tier by August 1, 2025. In addition, the hospital licensing fee for state fiscal year 2026 related to state-government owned and operated hospitals in Rhode Island is the same as state fiscal year 2025, which is equal to 5.25% of the net patient-services revenue of every hospital for the hospital’s fiscal year ending on or after January 1, 2023. The licensing fee is due before June 25 of each fiscal year, and tax returns for the hospital licensing fee are due on or before August 1 of each fiscal year. These hospital licensing fees apply to hospitals that are duly licensed on July 1, 2024.
Motor Carrier Fuel Use Reporting Tax Max Penalty
Applicable to offenses committed on or after July 1, 2025, the maximum motor carrier fuel use reporting tax penalties for any motor carrier failing to secure or display upon demand the license or identification device required under the International Fuel Tax Agreement increases to $100 (previously, $85) for the first offense and increases to $110 (previously, $100) for subsequent offenses.
Holiday Business License Repealed
Effective January 1, 2026, the law requiring that a retail establishment be closed on a holiday unless it is issued a license by the appropriate town council is repealed.
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