ICI Urges Revisions to Rhode Island State Tax Legislation

Washington, DC, May 10, 2007 - ICI recently urged the Rhode Island General Assembly to revise proposed state legislation in a way that would curb abusive behavior by "captive regulated investment companies" (RICs) without harming mutual fund shareholders.

Background

The Rhode Island General Assembly introduced legislation (S. 0974) that would deny the dividends paid deduction (DPD) to regulated investment companies (RICs) and real estate investment trusts (REITs). Several states already have introduced or enacted legislation designed to address concerns regarding captive REITs. Some states, such as Indiana and Maryland, have enacted legislation that solely targets captive REITs, denying such entities the DPD. One state, New York, recently enacted legislation that eliminates the DPD for both captive REITs and RICs.

However, Rhode Island's legislation, although apparently intended to curb abusive arrangements, is drafted broadly and appears to deny the DPD to all REITs and RICs.

ICI Position

The Institute urges the Rhode Island General Assembly to revise S. 0974 to target only abusive structures and to address any concerns by eliminating the DRD rather than the DPD. Eliminating the DRD conforms to federal law and avoids the unintended taxation of RIC investors in nonabusive arrangements.

Related Links
Sections of this website are devoted to tax issues and state issues impacting mutual funds and their shareholders.