RI Tax Credit Program

STEPS - (Scholarships to Economically Poor Students) - is a certified SGO comprised of The Grace School, Community Preparatory School, San Miguel School and Sophia Academy.

Children enrolled in grades K-12 at one of the five STEPS schools, including The Grace School, whose family’s annual household income does not exceed more than 250% of the federal poverty threshold.

Businesses can choose to make a 1-year or 2-year commitment. A 1-year commitment results in a 75% credit while a 2-year commitment results in a 90% 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.

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 STEPS. Companies are selected for participation in the program through a state lottery. The lottery is capped at $1,500,000 in credits annual.

Qualified businesses can apply for the tax credit by filling out and submitting an application available from an SGO or on-line. 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. Applications must be submitted to the RI Division of Taxation on July 1.

Within 30 days of submittal, businesses receive an approval or denial from the Division of Taxation. Approved businesses have 120 days to make the contribution to the SGO. Businesses whose tax credit application is not approved are under no obligation to make a donation to STEPS.

The credit passes through to the shareholder/member/partner pro-rata based on ownership percentages. The credit can be claimed on RI-1040 against ALL of the taxpayer's RI tax, not only against the income from the pass-through entity, including spouse's income, W-2 income, investment income, etc. The pass-through entity does not have to have income to qualify for the credit. A taxpayer can use an entity that has no business income and pass the credit through. For example, if an RI taxpayer were an S-corporation that also has a nonresident shareholder, that corporation would not want to contribute. But if that RI taxpayer also owns an LLC that has an unrelated source of revenue, i.e., rental property in the LLC, the LLC qualifies to make the contribution.

Scholarship tax credit contributions are distributed to certified SGOs, one of which STEPS. SGOs are charitable organizations-representing two or more private schools-that administer tuition assistance grants to eligible students, allowing them to attend any qualified participating school of their parents' choice. A corporation may allocate its contribution to one or more SGOs.

The credit does not help a nonresident since it would be negated by a reduction of the credit for tax paid to other states on their home state returns.

Lori Sousa, Grants and Corporate Relations Officer at Meeting Street, 401.533.9223 More information and applications are available at: www.tax.ri.gov/Credits/index.php