April 13, 1977

You inquire as to whether payments made by an employee pursuant to R.I. General Laws, Section 28-10-1, the Rhode Island Temporary Disability Insurance Act (the "Act"), qualify for the credit against income tax permitted by M.G.L. c. 62, s. 6(a). You cite the recent decision in McGowan et al v. Commissioner of Internal Revenue, Docket No. 7070-76. 67 T.C.___, No. 43. Filed December 29, 1976, in which it was held that said amounts constituted "taxes" deductible under Section 164 of the Internal Revenue Code.

The Act requires the payment by an employee of 1½% of the first $4,800 of earned wages to the Rhode Island temporary disability fund which is administered by the Department of Employment Security. Insurance benefits are provided by the fund for those sick or injured. Maternity benefits are provided participants. Those who depend for healing upon prayer or spiritual means will be exempt upon filing of prescribed affidavits.

An income tax is generally defined as a contribution, measured by a taxpayer's ability to pay on the basis of the extent of his income, exacted from those domiciled or doing business within a state, to defray the expenses of government.

Payments made pursuant to the Act may well meet the definition of a tax deductible under I.R.S. Code Section 164. The decision that it is a tax in McGowan et al v. Commissioner, supra, is based in large measure on the fact that it was an allowable deduction under long-standing administrative interpretation prior to Rev. Rul. 75-148.

The long-standing administrative practice in Massachusetts is that payments under the Act are not income taxes of the type referred to in M.G.L. c. 62, s. 6(a). They constitute payments for the purchase of insurance protection for the employed individual. They are not used to defray the cost of government in Rhode Island. The decision in McGowan et al v. Commissioner, supra, does not warrant any change in this position. Therefore no credit will be allowed against the tax imposed by M.G.L. c. 62 for amounts paid to Rhode Island pursuant to the Act.

Very truly yours,

/s/Owen L. Clarke

Owen L. Clarke
Commissioner of Corporations
and Taxation

LR 77-10