Providence catering company Easy Entertaining has paid over $150,000 in tangible taxes on equipment and furnishings including its cafe tables and chairs over the last 10 years, its owner Kaitlyn Roberts told lawmakers. (Photo credit Blueflash Photography)
Business groups and lawmakers seem to agree that Rhode Island businesses deserve a tax break on office equipment, laptops and other tangible property.
But the amount of the tangible tax exemption – and how quickly it should ramp up – remains up for debate, with a series of competing proposals before the Rhode Island General Assembly.
The House Committee on Finance considered, but did not vote on, two such bills Wednesday. Both versions, from Rep. Carol McEntee, a South Kingstown Democrat, and Rep. Brian Rea, a Smithfield Republican, would eliminate tangible taxes on up to $250,000 of assessed property, incrementally increasing the exemption threshold over a five-year period.
In the opposite chamber, Sen. Melissa Murray, a Woonsocket Democrat, has proposed a $100,000 tangible tax exemption, offered in a single swoop that reimburses cities and towns beginning in fiscal 2025. The Senate legislation, unveiled by Senate President Dominick Ruggerio in March, has no House companion as of Thursday.
The Rhode Island Public Expenditure Council has backed McEntee’s and Murray’s bills, despite their differences.
Michael DiBiase, RIPEC executive director, called the tangible tax an “onerous” charge that “discourages business investment,” denouncing the financial burden and administrative headache for small businesses.
“We think this is the way to go to start bringing some needed balance to our property tax structure,” DiBiase said of the exemption.
Municipalities must make up revenue loss
The $250,000 threshold, phased in over five years, was RIPEC’s original pitch to lawmakers. By the final year, in which the exemption reaches $250,000, more than 92% of businesses would not pay any tangible taxes, according to RIPEC calculations.
But the higher exemption amount also means a bigger loss in revenue to cities and towns, in turn costing the state more money in reimbursement: $55.6 million, according to RIPEC.
By contrast, Murray’s bill, for a $100,000 exemption, wipes out the tangible tax bill for 85% of business owners, with a $36.6 million state revenue reimbursement, according to RIPEC.
Also at issue: how soon to start the exemption. McEntee’s bill would kickstart the incremental exemption in fiscal 2024, reaching the full $250,000 threshold in fiscal 2025. Rea’s and Murray’s bills both take effect in fiscal 2025.
Jordan Day, associate director for the Rhode Island League of Cities and Towns, stated in written testimony that the schedule put forth in McEntee’s bill would be challenging for municipalities that are already in the midst of planning their fiscal 2024 budgets. However, Rea’s bill does not provide for a state reimbursement to cities and towns to continue after 2029, which would also leave municipalities on the hook for millions in lost revenue after that time, said Alan Krinsky, director of research and fiscal policy for the Economic Progress Institute.
“I’m concerned about the revenue implications,” Krinsky said, though he also supported the exemption generally.
Rea, a small business owner himself, said he wanted to give businesses the maximum support available through a $250,000 exemption. But, he also said he was open to amendments.
“There is a lot more to discuss than just that cap,” Rea said in a separate interview.
State losing to competition
McEntee also indicated she was open to amending her bill, stressing the importance of the mission to help small businesses rather than the semantics of exemption caps and timing.
“We need to get small businesses to come to Rhode Island, and we need to keep them healthy,” McEntee said. “Rhode Island already has one of the least competitive business tax rates in the nation.”
We need to get small businesses to come to Rhode Island, and we need to keep them healthy. Rhode Island already has one of the least competitive business tax rates in the nation.
– Rep. Carol McEntee of South Kingstown, who has proposed a bill that would grant businesses a tangible tax exemption up to $250,000
Indeed, Kaitlyn Roberts, owner of Providence catering company Easy Entertaining Inc., told lawmakers on Wednesday she is looking for a building, potentially outside of Rhode Island, due to the state’s unfriendly business environment. That includes tangible taxes, which her business has shelled out more than $150,000 for over the last 10 years.
“It does actively keep us from expanding,” she said of the state tangible tax. “It’s hard to justify paying continuous amounts of money for equipment you already own.”
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, according to RIPEC. Seven more states, plus DC, exempt taxes on tangible property up to a certain amount.
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