Chambers seek business tax breaks, fight key bills

Last year, the Rhode Island Chamber of Commerce Coalition set out to make groundbreaking changes in the state’s tax policy, calling for a constitutional amendment to limit government spending growth and tax increases.
This year, after reforms expected to achieve the same basic things, though by different means, the Chambers have set more modest goals for their legislative agenda, still with an eye on reducing the impact of taxes on Rhode Island’s businesses.
The coalition, which unveiled its legislative agenda March 1, is backing legislation sponsored by Rep. Raymond Church, D-North Smithfield, that would phase down the corporate minimum tax – also known as the franchise tax – on the state’s smallest companies from the current $500 to $300 by 2009.
All corporations in Rhode Island pay at least the minimum tax, even if they had no taxable income for the year or, as is the case of limited liability companies and S corporations, if they are pass-through entities whose income is taxed at the personal level, after it has been allocated to the shareholders.
Rhode Island’s franchise tax was $250, but it was doubled in 2005, with a projection that it would yield an extra $9 million in revenue for the state.
Small businesses were disproportionately affected, said David R. Carlin III, vice president of government affairs for the Northern Rhode Island Chamber of Commerce and lobbyist for the coalition, which represents 13 Chambers.
Church’s proposal would only partially reverse that move, phasing down the tax for LLCs, C corporations and S corporations with at least one, but no more than four, full-time employees. It’s unclear exactly how many companies that would be, but the R.I. Department of Labor and Training’s latest breakdown of employers by size, as of March 2006, shows 14,845 private-sector employers in that category, or 45.1 percent of the total.
Church would reduce the tax for qualifying companies to $400 by next Jan. 1 and to $300 in the following year.
“Often these businesses are mom-and-pop operations,” Carlin said. This tax cut, he added, “will make a difference for those small businesses.”
The Chamber Coalition is also supporting another proposed tax break for business, the reinstatement of the state tax credit for U.S. Small Business Administration loan guarantee fees, which Gov. Donald L. Carcieri included in his 2008 budget.
“We support and commend the governor” for that proposal, Carlin said, adding that the credit, which was eliminated by the General Assembly in 2005, helped small businesses with limited means. “Sometimes a business [that] applies for that loan doesn’t have the resources to pay that fee, but the tax credit allowed [a] write off.”
The Chambers’ legislative agenda also includes some bills they strongly oppose. Topping that list are bills by House Speaker Pro Tempore Charlene Lima, D-Cranston, and Rep. Al Gemma, D-Warwick, that Carlin said “we’re very concerned about … and will vehemently oppose.”
The Lima legislation, which was vetoed by the governor in 2005 and never made it out of the Senate in 2006, would allow consumers to sue regulated companies for deceptive trade practices, both individually and in class-action lawsuits. State law currently exempts regulated companies from deceptive trade practices lawsuits.
“The courts have interpreted regulated to mean everybody,” Lima said. “So the only thing that can happen is that the R.I. Department of Business Regulation can fine the company, but the problem is there’s no recourse for the consumer who has been ripped off. The companies are making millions through these practices, and the consumers have no recourse.”
But Carlin said regulated businesses are exempt “because the General Assembly knows that state agencies have tremendous power and leeway with respect to their governance of regulated businesses in Rhode Island.” All Lima’s bill would do, he said, is encourage frivolous lawsuits.
But Lima said she is working on language that would require plaintiffs whose lawsuits are unsuccessful to pay the defendant’s attorney fees.
Carlin said such a provision would make the bill better, “but it’s still putting lipstick on a pig.” He also said the coalition expects Lima to re-submit a related bill to the attorney general to initiate civil actions against businesses under the Deceptive Trade Practices Act. Carlin said that also would be opposed with the same vigor. But Lima said she also has concerns about the bill and is unsure if that will be submitted.
The coalition also has taken a strong stance against a bill sponsored by Gemma to amend an identity-theft bill passed in 2005. It would, among other things, require businesses to notify all customers when any breach of personal information has taken place. Currently the law requires only “significant” breaches to be reported. A similar bill failed to pass last year.
“We oppose the legislation because it adds additional unnecessary reporting requirements,” Carlin said. “In an environment where there might be an incidental, accidental, no-harm-no-foul identity disclosure, as long as the breach did not take place outside the company, we don’t think there should be a requirement that all the company’s consumers or clients be notified. … It goes too far and may scare consumers.”
But Gemma, who said his bill was “mutilated” by the Senate before being passed in 2005, believes that letting businesses decide what is significant is ridiculous.