Melissa D. Travis has been CEO and president of the Rhode Island Society of Certified Public Accountants since 2019. The society is one of Rhode Island’s largest statewide professional membership organizations for CPAs and industry leaders. She also spearheaded the creation and launch of the RI Business Forum, which promotes workforce initiatives, leadership development and networking opportunities for members.
PBN: What are RISCPA’s top legislative priorities for this session?
TRAVIS: Advocacy is at the core of RISCPA/RI Business Forum’s mission, supporting fiscal policies that create a healthy business climate and incentivize economic growth. Reducing the state sales tax is among our key legislative priorities this session. We are thrilled to see state leaders supporting this reduction because inflation and rising interest rates are crushing families and small-business owners.
The rate, never intended to be permanent, was put in place “as a temporary stop-gap measure” to address the state’s financial crisis at the time. We urge taxpayers to contact their House and Senate representatives and let them know they support this change. We have a budget surplus, so it’s time to get that done and we are encouraged to see our elected leaders proposing changes to improve the state’s business climate.
Another reason for the optimism was the passing [last year] of RISCPA-led legislation that was a win for all taxpayers – and more than 40 years in the making. Thanks to the outstanding leadership of House Speaker K. Joseph Shekarchi, (introduced by state Rep. Robert Phillips, D-Woonsocket), legislation took effect Jan. 1 that reduces the state’s penalty interest rate from the highest in the country at 18% (where it stood since the 1970s) to 12%, finally bringing Rhode Island in line with other states.
PBN: What do you see as the best uses for the state’s remaining COVID-19 relief funds and projected budget surplus, particularly as it relates to accounting and taxation?
TRAVIS: Speaker Shekarchi’s efforts to ensure $100 million was included in the state budget to fund the state’s unemployment insurance trust fund is exactly how we should be spending these funds. Funding the trust fund was the right move and critical to reducing unemployment tax rates for Rhode Island businesses. The budget surplus is temporary, and COVID-19 also had a devastating impact on the state’s rainy day fund. We would support the speaker in his efforts to address that.
The tax burden is among the first thing businesses look at when considering relocating or expanding, so we applaud Senate President Dominick J. Ruggerio’s efforts to address the tangible property tax. An in-depth report by [the] Rhode Island Public Expenditure Council was recently presented to RI Business Coalition members.
The well-researched report concluded the tangible property taxes levied by cities and towns represent incredible tax burdens on businesses. In fact, in most of the state’s cities and larger towns, business property is taxed at rates much higher than property tax rates paid by homeowners. Compounding the problem is that unlike real estate, these tangible tax assessments rely on self-reporting by taxpayers; most have no idea how to comply. The process is cumbersome, and many feel the need to hire an attorney or CPA because they have no idea where to begin.
The tax also places an extraordinary collection burden on our local governments – most do not have the resources they need to implement collection, much less create the necessary forms and documents. Not only is this making it harder for the state to remain competitive but, by all accounts, it has gotten worse this year.
PBN: Are there any changes you would like to see to Gov. Daniel J. McKee’s proposed FY24 budget, and if so, what are they?
TRAVIS: In Governor McKee’s State of the State address, he said he was going to “invest in Rhode Island’s future” – and announced sweeping tax relief proposals – many of which were long overdue. Although some may feel the proposals don’t go far enough, we welcome Governor McKee’s effort to get Rhode Island back on track. The proposals take a step in the right direction – instead of consistently being dead last in national rankings by organizations such as the National Tax Foundation.
Proposals that include the long-awaited reduction of the 7% state sales tax, stopping the gas tax increase, providing a tax rebate for the gross receipts tax on energy bills ($35 million in tax relief where we need it the most – in the pockets of Rhode Island families and businesses), eliminating the “litter tax” (paid for by small businesses), addressing the disparity between the tax on vehicles and small trucks, and reducing the corporate minimum tax without any broad-based tax increases. We are moving the needle in the right direction and energizing the business community.
PBN: How has the bevy of federal and state relief programs and tax credits made accounting, both personal and business, more complicated? Is there additional clarity on any of these programs still needed?
TRAVIS: CPAs were working nights and weekends throughout the crisis to keep up with the dizzying amount of COVID relief programs and tax credits that were coming at them. Although the fallout has somewhat subsided, on any given Saturday or Sunday, most are still working at least half days.
RISCPA Tax Committee Chair Brenda Russell, a partner at PKF O’Connor Davies, said one pain point for many clients is regulatory compliance overlap, but in recent years the state has been much more receptive to working with RISCPA on solutions.
Both the IRS and the R.I. Division of Taxation deserve credit for their efforts to provide guidance and clarification to tax professionals and consumers in a timely manner; the Herculean amount of paperwork is not going away any time soon. Our recent national tax conference focused on issues impacting preparers, and while some have been addressed, we are waiting on additional guidance from Rhode Island on others such as [passive activity losses] and bonus depreciation, and what happens when you have a bonus subtraction in a year with only suspended passive losses.
PBN: What are the top concerns you’re hearing from members on IRS/federal corporate tax changes, and is there anything that needs to be addressed before tax season?
TRAVIS: Norm LeBlanc, RISCPA’s Government Affairs Committee chair, said a key federal issue all are watching this tax season is research and development tax credits and the new requirement to capitalize research and other experimental expenses generated by businesses across multiple industries.
The Tax Cuts and Jobs Act changed the treatment of research or experimental expenditures under Section 174; but it is not clear whether the Section 174 capitalization provision will be deferred by Congress this year, so taxpayers need to determine the impact on their tax and financial statements. After Dec. 31, 2021, they are required to capitalize and amortize R&E [research and experimentation] costs paid or incurred on lab or research projects. This is a national issue being discussed daily; any changes to Section 174 rules need to come from the IRS but also have the potential to impact effective tax rates on valuation allowances, deferred tax assets and other R&D [research and development] calculations. The affected expenditures include everything from salaries, energy, lab materials and supplies, drawings or computer-aided design, samples/models, attorney or consultant fees, and much remains unclear on product development and capabilities.
Members of the Rhode Island Manufacturing Association and others who engage in most types of research will be monitoring these developments closely. The American Institute of Certified Public Accountants sounded alarm bells and has been working with Congress to urge them to delay the implementation and there is bipartisan support for legislation postponing this change under Section 174. Since Congress did not defer or repeal the new capitalization rules in 2022, negotiations will most likely resume this year. Of course, the concern among our members is legislation would not apply to financial statements for tax years after Dec. 31, 2021, and ending before legislation was enacted. In other words, taxpayers would need to address the impact of amortizing these costs on 2022 financial statements – many are finding that given the challenges the legislation faces, companies should all be preparing to implement the changes for tax compliance, planning and payment purposes.
The AICPA is working with Congress on potential resolutions to this and other issues. They provided RISCPA with the letter they recently sent to leaders in Congress asking for relief. With the recent push by the Biden administration to revitalize U.S. production and semiconductor research with the CHIPS and Science Act, RISCPA/RI Business Forum and our national partners remain hopeful a resolution or compromise can be reached before the 2023 corporate filing deadlines.
