Changes in taxes for capital gains and sales opposed

David R. Carlin III knew they were coming this legislative session: bills that attempt to alter the sales tax, alternative flat tax and capital gains tax in order to address the state’s fiscal woes.
And now Carlin, the Statehouse lobbyist for a coalition of 13 Chambers of Commerce across Rhode Island, is preparing to oppose several measures submitted recently that would roll back some of the tax-code changes that business leaders have insisted are critical to economic development in the state.
Number one in Carlin’s sights is a lengthy piece of legislation – introduced late last month in both the House and Senate – that would eliminate the alternative flat tax and restore the capital-gain tax to previous levels.
The bill, whose prime sponsors are Rep. Arthur Handy (D-Cranston) and Sen. Paul Moura (D-East Providence), also would add a sales tax to clothing of more than $250. It’s backed by the advocacy group Campaign for Rhode Island’s Priorities.
Supporters of the proposal say it would change Rhode Island’s tax structure and provide residents some relief from property taxes.
Carlin has a different take.
“It sets back the economic development and the taxation-reform measure passed in the last three or four General Assembly sessions,” said Carlin, coordinator of the Rhode Island Chamber of Commerce Coalition.
There is other tax legislation, too. For instance, at least two recommend changes to the capital gains tax; one wants to do away with the alternative flat tax.
Another that especially got the Chambers’ attention: a bill introduced by Rep. Thomas Slater (D-Providence) that would decrease the sales tax from 7 to 4.5 percent, but would expand that tax to cover service-oriented business.
“Our major concern is bits and pieces of these may be pulled together in the development of the 2009 fiscal year budget,” Carlin said. “And the document will result in increased and new taxes and fees.”
Ever since the state’s fiscal problems developed, it’s been a constant refrain from business leaders: the state cannot afford to go back on recent tax reforms. But the structural deficit situation – a projected $450 million shortfall for fiscal 2009 – is making it difficult for state leaders to pull off the balancing act.
Gov. Donald L. Carcieri last month proposed a 2009 budget that would not require major tax increases, but would cut state aid to local communities and would reduce service and the number of state employees.
Most everybody seems to agree that Rhode Island’s tax structure is faulty, but there’s a disagreement on what should be done to fix it.
Slater’s bill – H7873 – would lower the sales tax rate from 7 to 4.5 percent. But Carlin said consumers will pay in other ways because the proposal would make all services taxable, except for medical and legal services.
That includes advertising, financial and insurance services and entertainment. “You do just about anything in your everyday [life] where a service is provided and you’ll be paying a tax,” he said. “It will also require small business owners who have never been required to do so before to administer the tax.”
And, according to Carlin, calculations indicate that the state will lose as much as $300 million in revenue by reducing the sales tax, and he’s not sure whether taxing services will make up the difference.
A similar bill was submitted last year and didn’t go anywhere, but Carlin isn’t taking it lightly. “This bill gets taken seriously. It’s a senior member of the House Finance Committee that’s submitted it,” he said.
The 82-page bill introduced by Moura and Handy (H7950 and S2668), dubbed the Economic Growth and Fairness Act of 2008, is an attempt to lower the state’s reliance on property taxes, according to the Campaign for Rhode Island’s Priorities.
Karen Malcolm, executive director of Ocean State Action and coordinator of the campaign, said the bill would increase revenue by broadening the sales tax and eliminating some tax breaks, particularly those that assist the state’s wealthiest taxpayers. The benefits would be passed on to homeowners and renters through property tax rebates, Malcolm said.
She asserted that 90 percent of Rhode Islanders would see a net reduction in their taxes, and the state would raise an additional $161 million in tax revenue.
“We need to get our tax system back in some kind of balance,” she said.
Handy and Moura said their main focus is to help middle- and lower-income families by reducing the reliance on property taxes. “
Moura said he knows parts of the bill are already doomed. The alternative flat tax, for example, has the support of legislative leadership, himself included.
He doesn’t fault the business community for objecting. “I would expect them to take that position,” he said. “But can’t we have a discussion?” &#8226

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