It’s budget time in Rhode Island, and two tax changes being considered promise to improve the state’s business climate.
The first is the corporate tax, which at 9 percent has been the highest in New England for years. But early indications (this edition of PBN went to press before the House Finance Committee was scheduled to consider the fiscal 2015 budget) are that the tax rate will be dropped to 7 percent, making it the lowest rate in the region.
The revenue lost by the drop – estimated to be $26 million by Republican gubernatorial candidate Ken Block – is likely to be made up by an accompanying change in the corporate tax structure by the adoption of combined reporting, according to a R.I. Division of Taxation study.
Twenty-three of the 44 U.S. states that levy taxes on corporate income use combined reporting – including, in New England, Maine, Massachusetts, New Hampshire and Vermont – so Rhode Island would not be an outlier on this policy. And it would not affect Rhode Island-based businesses, except to level the playing field against large, national entities doing business here.
The other tax issue ripe for overhaul is the estate tax. It was unclear last week what House leaders would propose, but the two issues that need to be changed are the size of the estate that is exempted from tax and the fact that once the size threshold is reached, the entire estate is taxed, not just the portion above the threshold. Large estates need to be exempted from taxation and the estate tax should apply only to the value of the estate over the threshold.
If both these changes make it into the fiscal 2015 budget, Rhode Island’s business climate will be much better off. •