Senate President Dominick Ruggerio promotes a tangible tax break proposal during a morning breakfast event at Kirkbrae Country Club in Lincoln organized by the Northern Rhode Island Chamber of Commerce. (Photo by Nancy Lavin/Rhode Island)
Rhode Island businesses stand to get a tax break on office furniture, computers, commercial kitchen appliances and other tangible property under a proposal unveiled by Senate President Dominick Ruggerio on Thursday.
Speaking to business leaders at a Northern Rhode Island Chamber of Commerce breakfast event, Ruggerio, a North Providence Democrat, touted the tangible tax exemption as a relief to financial and administrative headaches for small businesses.
“It is complex to comply with, and some small businesses have to hire an accountant to navigate the requirements,” Ruggerio said. “Monitoring compliance can be an administrative challenge for cities and towns, too …particularly for smaller communities, so addressing the issue will benefit them – but our goal here is to provide relief to small businesses.”
The legislation was developed with the Rhode Island Public Expenditure Council and is slated to be introduced by Sen. Melissa Murray, a Woonsocket Democrat, later Thursday. The bill gives businesses a tax break on up to $100,000 of tangible property such as desks and cubicles, restaurant kitchen appliances, computers and slot machines. Manufacturing equipment is already exempt from tangible taxes.
Our goal here is to provide relief to small businesses.
– Senate President Dominick Ruggerio
For 85% of businesses, the move would wipe out their annual tangible tax bill altogether, according to estimates from RIPEC.
Those with more than $100,000 in property would only get taxed on the amount that exceeds the exemption.
The biggest corporations with the highest tax bills could get more relief down the line. Ruggerio hinted at increasing the tangible tax exemption threshold to $250,000 next year if the $100,000 carveout passes this year.
Gov. Daniel J. McKee’s fiscal 2024 budget proposal does not include a tangible tax exemption, but Ruggerio said he’s broached the topic “in passing” with McKee and House Speaker K. Joseph Shekarchi.
“Conceptually, the governor supports the idea as he is all in favor of providing relief to our small businesses,” Olivia DaRocha, a spokesperson for McKee’s office, said in an emailed response. “Of course, we need to make sure it works in the current budget environment.”
Shekarchi in an emailed statement said the proposal was “on our radar” but called it “premature to make any budget commitments.”
There’s no House companion bill yet.
Provision to reimburse municipalities
Like any tax break, there’s a cost: $36.6 million in revenue collected through Rhode Island’s cities and towns (since tangible taxes are municipal), according to RIPEC. The proposed legislation calls for the state to reimburse cities and towns on that lost tax revenue starting in fiscal year 2025, using the fiscal 2024 tax roll. It also prevents cities and towns from raising their tangible tax rates any higher than what they charged in 2022.
Tangible taxes are a much smaller source of revenue for cities and towns than real estate taxes, but the rate is often higher; 23 cities and towns had higher tangible tax rates than what they charged on residential property in fiscal 2022, and 19 taxed tangible property at a higher rate than commercial real estate, according to a RIPEC report. Nine municipalities already offer tangible tax exemptions, though the amount is typically much smaller: about $5,000 to $10,000, RIPEC research shows.
Speaking to Rhode Island Current earlier this month, Michael DiBiase, president and CEO of RIPEC, praised the tangible tax exemption as a partial solution to the
“onerous and anti competitive” municipal tax environment.
Then there’s the accounting headache of tracking and reporting every new office chair, laptop or restaurant oven. For Don Nokes, president of computer-support company NetCenergy, the administrative burden was worse than the financial one.
“It’s really a pain,” said Nokes, detailing the annual preparation process, capped off with the requirement of a notary signature. “I would be happy just to not have to track it.”
Of course, not paying the extra $1,532 tax bill – based on the $55,000 of tangible property NetCenergy reported in fiscal 2022 – helps too.
Especially for restaurant owners still reeling from the aftermath of the pandemic. Armando Bisceglia, who owns Bacco Vino & Contorni restaurant on Federal Hill, welcomed any sort of financial relief.
“What people don’t understand, or forget, is that restaurants were butchered,” Bisceglia said. “For us, anything that comes across as a break or discount is a positive.”
And with initial projections forecasting a $610 million surplus in fiscal 2023 there’s money to spare.
Other states have already eliminated or offered carve outs on their tangible taxes, according to RIPEC. Eight states don’t tax tangible property at all, while another five only apply the tax on “central industries” like utility companies and oil and gas refineries. Seven more states, plus DC, exempt taxes on tangible property up to a certain amount.
Massachusetts and Connecticut do not offer any tangible tax exemptions, though their tax rates may be lower depending on the municipality, according to Justine Oliva, RIPEC research manager.
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