Sen. Michael J. McCaffrey (D-Dist. 29, Warwick) is pushing for legislation that would essentially allow individuals to subtract state income tax refunds included in their federal adjusted gross income (AGI) where the refund was originally claimed as an itemized deduction for federal income tax purposes.

The bills (2014-H 2465, 2014-H 2466) stem from the Rhode Island Special Legislative Commission to Study Installation and Implications of Itemizing State Income Tax Refunds as Federal Deductions report. McCaffrey, chairman of the special legislative commission, said the information he was able to gather from the commission meetings proved valuable in the development of his legislation.

Under the 2010 personal income tax reform measure, itemized deductions were eliminated. Standard deduction amounts were increased to offset the elimination of itemized deductions. The reform took effect in 2011. Government officials testified that the current system amounts to double-taxation of income that is refunded from state taxes.

“We were able to gather testimony from state tax officials, who were extremely helpful in analyzing what would happen if the legislature decided to make this change to the tax code,” he said in a statement. “I’m proud of the work our commission has accomplished, and I think we can move forward now that we have explored all the different angles.”

Other findings in the report included:

• Prior to 2011, Rhode Island taxpayers could itemize deductions. Income taxes paid were an allowable deduction. Therefore, any state income tax refund received where the individual claimed a deduction for state income tax paid in a prior year should be included in taxable income.

• Allowing a modification to subtract state tax refunds from federal AGI would make the personal income tax return more complex. There are currently 23 modifications allowed under state law. However, these are specific to certain cases. This would be a broad-based modification that would apply to all personal income tax filers.

• Permitting taxpayers to modify income amounts to exempt prior year refunds would reduce state revenues by an estimated $12.3 million to $13.3. million in Fiscal Year 2014.

Members of the commission include Sen. William A. Walaska (D-Dist. 30, Warwick), Rep. Deborah L. Ruggiero (D-Dist. 74, Jamestown, Middletown), Rep. Scott A. Slater (D-Dist. 10, Providence), state Tax Administrator David Sullivan; and Grafton Willey, of the Rhode Island Society of Certified Public Accountants.