If you own a business, large or small, enjoy two new business-related tax breaks at the federal level, but don’t expect to take advantage of them at the state level, too.

Legislation approved by the General Assembly and signed into law by Governor Carcieri last week will generally prevent businesses from getting a state tax benefit from the new federal economic-stimulus law.

If Rhode Island had allowed the benefit of the federal tax breaks to flow through at the state level, businesses might have saved about $18 million in state taxes.

But that would have meant about $18 million less in state tax revenue –– an amount that Rhode Island can’t afford to lose amid the state’s budget problems, said Fred Sneesby, a spokesman for Carcieri.

The new state law is bad news for businesses –– because they won’t be able to obtain a state tax benefit for the new incentives recently adopted at the federal level, said Patricia A. Thompson, former president of the Rhode Island Society of Certified Public Accountants.

The new state law will affect many businesses, including those organized as C corporations, S corporations, limited liability companies, partnerships and sole proprietorships, said Thompson, tax partner with Piccerelli Gilstein & Co. LLP, a CPA firm in Providence.

Some background:

The new federal economic-stimulus act, approved by Congress and signed into law by President Bush in February, provided for billions of dollars in rebates to individuals.

But it also included special incentives aimed directly at businesses, to help spur economic activity.

These incentives have mainly to do with the purchase of machinery, equipment and other items.

For example, if you buy a new machine for your business, you’re generally able to recover its cost by claiming a special deduction, called a depreciation deduction.

You claim the deduction all at once, or a little at a time, depending on the type of asset involved and other factors.

The new federal law generally expands the amount of the deduction you may claim for federal tax purposes:

•Section 179: One of these incentives is named after Section 179 of the Internal Revenue Code. It generally lets you take the deduction all at once. Under the new federal law, you may claim a deduction of up to $250,000, about double what was allowed under prior law.

•Bonus Depreciation: The second of these incentives involves claiming depreciation deductions a little at a time, spread out over a number of years. Under the new federal law, you’re generally allowed, in the first year, to deduct 50 percent of the cost of the asset, and also claim depreciation deductions over time for the remainder of the cost.

The new Rhode Island law won’t allow Rhode Island businesses to obtain a state tax benefit for either of the newly expanded federal deductions.

The measure, which had been introduced by state Rep. Steven M. Costantino, D-Providence, head of the House Finance Committee, was approved by the House in March and by the Senate last week. Carcieri signed it into law on Friday.

As a result, businesses in Rhode Island will have to continue to calculate depreciation and expense deductions according to the less generous provisions of Rhode Island law.

That will mean additional bookkeeping, too –– maintaining at least one set of records for federal depreciation purposes, another for Rhode Island purposes.

Enactment of the new Rhode Island law comes as the state faces a budget deficit that is between $50 million and $55 million more than originally expected for the fiscal year that begins July 1.

TODAY’S TIP: The measure that was approved by the General Assembly and signed into law by Governor Carcieri is H 8036A, and is available at the following General Assembly Web site:

www.rilin.state.ri.us

The provisions of the new law took effect upon passage.

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