Frequently Asked Questions
Which type of business can apply?
C-Corporations, S-Corporations, Limited Liability Partnerships and Limited Liability Corporations may receive up to a $100,000 tax credit annually for a donation to a certified Scholarship Granting Organization (SGO).
How does the tax credit work?
Eligible businesses can choose to make a 1-year or 2-year commitment to the scholarship tax credit program. A 1-year commitment results in a 75% tax credit while a 2- year commitment results in a 90% tax credit with a maximum credit of $100,000. Therefore, a business can contribute up to $111,111 per year. Donors can also claim the contribution as an itemized deduction on federal returns, although the state deduction will be reduced, since the donor is paying less tax. Taxpayers subject to the Alternative Minimum Tax realize even greater benefits than those outlined below.
The scholarship tax credit program has a total tax credit cap of $1.5 million dollars, meaning once the program has reached $1.5 million in approved tax credits from eligible businesses, no further tax credit applications will be accepted until the start of the next fiscal year. If the cap has not been used for the calendar year, then a business can apply at the beginning of the business's fiscal year. Businesses can choose to make a two-year contribution commitment which will maximize the amount of tax credit they can receive (example scenarios below).
|EXAMPLES OF TAX CREDIT BENEFIT FOR A TAXPAYER IN THE 33% TAX BRACKET*
|$ AMOUNT OF BUSINESS CONTRIBUTION||ESTIMATED NET COST AFTER 75% TAX CREDIT (1-YEAR COMMITMENT)||ESTIMATED NET COST AFTER 90% TAX CREDIT (2-YEAR COMMITMENT)|
*For Rhode Island state tax taxes only, federal tax deductions are not included.
How can eligible businesses participate?
Businesses must apply for qualified tax credits-up to $100,000 annually through the Rhode Island Division of Taxation. Within 30 days of the application submittal due date (July 1),
approval or denial will be granted from the Division of Taxation. Approved businesses have 120 days to make the contribution to their selected SGO(s).
The program is limited to $1.5 million in approved tax credits annually. Once the annual cap is reached no more tax credits will be approved until the following year.
How does a contribution become a scholarship?
Scholarship tax credit contributions are distributed to certified Scholarship Granting Organizations (SGOs). SGOs are charitable organizations-representing two or more private schools-that administer tuition assistance grants to eligible students to allow them to attend any qualified participating school of their parents' choice. A corporation may allocate its contribution to one or more specific SGOs.
RESOURCES AND DOCUMENTS
Application to be completed by business entity interested in donating to qualified scholarship granting organizations (SGOs).
Note: when more credits are applied for than available, a drawing is held to determine the order of approval for all applications. Applicants drawn prior to reaching the cap will be approved in whole, or in part, and anything drawn after that will be denied. A letter will be sent to all applicants by the Division of Taxation to let them know of their approval or denial.
These steps must be followed in order to ensure the certificate process. Credit under this program will not be allowed on your tax filing unless the original certificate is attached to your return. An original certificate can only be issued upon completion of these steps. Please read the detailed instructions carefully.
For more information, contact the CTF Program Coordinator at CTF_NE@acsi.org or visit the State of Rhode Island Division of Taxation: Tax Credits for Contributions to Scholarship Granting Organizations page.
Full text of RIGL §44-62, the Rhode Island Corporate Tax Credit Law.