Rhode Island is the least-friendly state in the nation for small businesses and entrepreneurs, according to a recent study.
The Small Business Survival Committee, a nonprofit, small-business advocacy group based in Washington, D.C., ranks the Ocean State dead last among all 50 states in its annual Small Business Survival Index, released July 30th. Only Washington, D.C., ranked behind Rhode Island.
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The report measures 17 “government-imposed or government-related” factors — mostly tax burdens — to determine each state’s climate for small businesses.
Personal income tax rates, property and sales taxes, capital-gains taxes and other tax burdens were measured, along with factors such as workers’ compensation costs, electricity rates and number of government bureaucrats. The factors were combined for a cumulative score.
“Differences in government-imposed costs of doing business can make a huge difference between whether a state grows economically or falls behind,” said the committee’s president Darrell McKigney.
Rhode Island was among the worst states on several measures that are considered “real keys” for fostering small-business development, McKigney said.
The state’s lofty personal income tax rate of 9.97 percent – long the bane of existence for small businesses and entrepreneurs – is the nation’s highest, according to the study.
The state’s property taxes rank among the U.S.’s five highest, as does its unemployment tax rate of 9.81 percent. Rhode Island’s 9 percent corporate tax rate also is among the country’s highest, the study says.
Rhode Island’s sales tax rate and crime rate are favorable compared to other states, the report says.
Rep. Antonio J. Pires (D-Pawtucket), said the state has made recent strides in alleviating the burdens faced by Rhode Island businesses. Although Pires said he had not seen the Small Business Survival Committee study, he said he was surprised at Rhode Island’s low rank.
“The problem with a lot of these studies is that the data is not timely,” said Pires. “I’d be very interested in seeing the year they’re using to make that (50th ranked) determination.”
Indeed, some of the data is dated: Figures used to calculate property and sales taxes were taken from four-year-old U.S. Census Bureau data. But many of the study’s key indicators — including personal and corporate income-tax rates — are 2001 figures.
Pires said the state legislature has approved several measures in the last few years that should improve Rhode Island’s small-business climate relative to other states:
- The long-term capital-gains tax is being phased out.
- Rhode Island’s personal income tax has come down over the past five years and will continue to decrease.
- The state is in the fourth year of a 10-year phase-out of the state’s inventory tax.
The report notes that “Rhode Island is in the midst of a small, multiyear decline in its personal-income and capital-gains tax rates.”
Pires said despite those efforts, much more can be done to improve the climate for small businesses.
“If that data is subjective and timely, being 50th is not something that should settle well with anyone,” Pires said. “We need to keep being aggressive in how small-business opportunities are created and sustained.”
The best state for small business and entrepreneurs, according to the index, is Nevada, followed by South Dakota, Washington, Wyoming and Florida. The worst states, after Rhode Island, are Hawaii, Maine, Kansas and Minnesota.
