'The cost is offset by the amount of people put to work'
BY A THREAD: North East Knitting was among the R.I. companies that benefited from a now-limited income tax credit on personal tax returns for businesses located in the state's enterprise zones. Above, machine operator Guilhermina Zuniga fixes a thread on a machine.
Thomas Rich, co-owner of New England Boatworks in Portsmouth, is one of the many small businesses in the state located in an enterprise zone. Changes made in the state tax code in 2010, however, now prevent him from claiming tax credits for creating jobs.
“That change affected 90 percent of the businesses in enterprise zones,” Rich said. “It eliminates the backbone of small business.”
In 2010, lawmakers changed the state’s income tax structure, passing legislation that, among other things, lowered the top marginal rate from 9.9 percent to 5.99 percent to improve Rhode Island’s tax ranking. The measure also eliminated an individual taxpayer’s ability to use enterprise-zone tax credits for job creation on personal tax returns. For “pass-through” companies such as sole proprietorships, partnerships, LLCs, LLPs and S-corporations, – smaller businesses – income and expenses are claimed through their owners, who also reap the benefits of the credits on their personal tax returns. Now, because of the 2010 rules, only C-corporations, larger companies, can claim the credits.
Municipal officials responsible for economic development in affected areas are hopeful bills in the General Assembly will amend those changes. They say that without such legislative help, enterprise zones are stripped of their incentives and run counter to promoting business in the state.
Before the changes, the program brought meaningful benefits to New England Boatworks, Rich said.
The credits enabled the company to grow from 30 employees in 1992 to 140 at its peak before the recession. It currently employs 110 people, 30 of whom were recently rehired.
“We have been able to build our employment. … Over the years when we were building this company, if it wasn’t for the tax credits, we couldn’t have done this,” he added.
The enterprise-zone program began in 1992, with a goal of making economically depressed sections of the state – generally long-established commercial districts – desirable places for companies to occupy. Its merits, however, have been questioned by several legislators, as well as former Gov. Donald L. Carcieri, who believe the cost to the state in lost tax revenue isn’t worth the end result.