Gregg Davenport, left, owner of Davenport’s Restaurants, praises the tangible tax exemption signed into law by Rhode Island Gov. Dan McKee, right, at Davenport’s restaurant in Cumberland.(Nancy Lavin/Rhode Island Current)
Gregg Davenport paid $30,000 in taxes last year for the furniture, computers, equipment and other tangible assets within his two Rhode Island restaurants.
Next year, his bill will be $0, thanks to a tax break signed into law by Gov. Dan McKee on Thursday.
McKee gathered with lawmakers and business leaders at Davenport’s Cumberland restaurant – aptly named Davenport’s – to celebrate the end of a tax widely viewed as a financial and administrative burden for small businesses.
The tangible tax exemption legislation passed by the Rhode Island General Assembly this year wipes out the tax bill for up to $50,000 of tangible assets; this threshold is enough to clear the balance for an estimated 75% of businesses in Rhode Island, according to estimates from the Rhode Island Public Expenditure Council, which championed the legislation.
For businesses with more than $50,000 in tangible assets, the same discount on the first $50,000 still applies.
McKee described the bill as a way to make Rhode Island more economically competitive and business-friendly.
“We’re no longer going to be an unfriendly state to small businesses,” he said.
Referencing his own experience as head of his family’s small business – McKee Brothers Oil Corp. – McKee denounced the tangible tax as “unpopular” and a nuisance.
“It holds businesses back and strains local resources,” said Sen. Melissa Murray, a Woonsocket Democrat and bill sponsor.
Indeed, the paperwork required to add up tangible assets, recalculated for depreciation over time, often proved as much or more onerous than the tax itself. Rhode Island Commerce Secretary Liz Tanner recalled the time-consuming experience of doing so for her law firm, only to end with a $12 bill.
For Davenport, whose two restaurants in Cumberland and East Providence have considerably more furniture and equipment, the savings from the tax break will be more significant.
“Really, it’s going to help the whole business community,” he said.
The new law, which takes effect in the 2024 tax year, calls for the state to reimburse cities and towns for the loss in revenue, since the tangible tax is collected at the municipal level. The $50,000 exemption is estimated to cost $25 million in state reimbursement, according to RIPEC calculations.
Senate President Dominick Ruggerio, who first proposed the legislation but at a higher threshold –$100,000 rather than $50,000 – is still hoping to wipe out the tax altogether in the future.
“I want to be cautious because I don’t know the revenue projections, but I am hoping maybe in the future, if we have additional money, we can continue to shave some more off the tangible tax and ultimately eliminate it,” Ruggerio said in an interview earlier this month.
RIPEC also called for getting rid of the tax entirely, incrementally raising the exemption over a five-year period. Michael DiBiase, RIPEC’s executive director, backed the $50,000 exemption as a “substantial amount.”
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