Michael Knipper, an executive vice president and head of property and procurement at Citizens Financial Group Inc., has been the point person for the bank while it lobbies for a change in how banks are taxed in Rhode Island.
The Rhode Island-based bank had asked the state to switch to a "single sales factor apportionment methodology" in determining tax liability, matching a move by two dozen other states. Citizens says the change would “level the playing field” for instate corporate taxpayers. Without a change, financial institutions might be incentivized to move operations to another state, Citizens says. Gov. Daniel J. McKee's administration has said the change would result in $7.7 million in lost revenue this fiscal year, growing to $15.6 million over the full fiscal 2025.
Last month, McKee proposed a state budget amendment that would have allowed the tax change, but that amendment wasn't included in the budget plan approved by the House Finance Committee on May 31. The proposed budget now goes to the full House.
Knipper spoke with Providence Business News about the matter.
PBN: House Speaker K. Joseph Shekarchi is indicating he’d like to work with Citizens over the summer and file something to address Citizens’ request next session. What’s your reaction to that? Can Citizens wait another year for action?
KNIPPER: We are disappointed that a provision to address this issue was not included in the state budget. This decision will make it difficult for the state to compete on a level playing field with Massachusetts and other states and is not in the best interest of Rhode Islanders. We are focused on this legislative session and are committed to working to achieve a positive outcome.
PBN: Would Citizens really consider moving some of its operations out of state without this tax change?
KNIPPER: Our Rhode Island roots date back nearly 200 years to 1828. We began as a small community bank and have grown into one of the largest regional banks in the country with branches in 14 states. With 4,200 employees and $400 million in annual payroll here in Rhode Island, we’d hope to maintain a strong presence here, including our campus in Johnston.
But our long-standing commitment to the state is severely threatened by this outdated tax policy that will ultimately hurt the local economy and prompt financial institutions to move operations out of the state. Failure by the state to pass this amendment will undeniably create a landscape that will incentivize us to move at least some operations to Massachusetts and focus our growth plans elsewhere over time.
PBN: How much money would Citizens save annually if R.I. implements this policy?
KNIPPER: In December 2023, Citizens lost its long-standing Jobs Development Act tax credit in large part due to workforce trends accelerated by the COVID-19 pandemic. This credit, which we have received since 1994, was valued at roughly $10 million annually. By allowing us to elect to be taxed under a single sales apportionment structure, it would effectively achieve tax neutrality for Citizens without reducing revenue for the state of Rhode Island. Otherwise, Citizens will see its tax increase dramatically in the state of Rhode Island.
PBN: You testified before the House Finance Committee that it was important for R.I. to show it will “continue to incentivize rather than penalize” financial institutions. How would this incentivize Citizens to invest even more locally?
KNIPPER: As one of the largest private employers in Rhode Island, Citizens has long been committed to helping drive our state’s economy, serving more than 200,000 residents and more than 30,000 small businesses. We invested $285 million in the state by building our corporate campus in Johnston without any state incentives and created hundreds of construction jobs in one of the largest development projects the state had seen in more than a decade.
We contribute more than $1 million annually to local nonprofits, including a $600,000 pledge to support local workforce development programs. Citizens colleagues volunteer more than 50,000 hours annually to great local organizations such as the Rhode Island Community Food Bank, McAuley House and the Boys & Girls Club. Additionally, Citizens allocated $123 million in community development lending and $32 million in community development investments in 2023.
[With the passage of this amendment], we [would] continue to be incentivized to focus growth plans here and fixing this outdated tax structure will give Rhode Island the chance to compete effectively while continuing to build a thriving, vibrant economy.
PBN: Can you cite any evidence/examples where a move to “single sales factor” benefited a state’s economy?
KNIPPER: Historically, all Rhode Island corporations calculated taxable income by applying an equally weighted, three-factor apportionment formula based on property, payroll and sales. In 2015, for all nonbank corporations, Rhode Island replaced this three-factor formula with a single sales apportionment factor: the proportion of their Rhode Island sales to their total sales across the country. At the time, banks were left out of this important tax package.
On Jan. 1, 2025, Massachusetts will transition all corporations, including banks, to a single sales factor structure. In Rhode Island, single sales factor would support the largest employers in the state by more fairly taxing companies that invest here by having large property and employee portfolios in the state. The three-factor formula that banks are currently taxed under penalizes banks for making these investments here.
Budget amendment 19 [would have created] tax fairness for banks by creating parity with our neighbor Massachusetts and 26 other states by allowing banks to be taxed the same way other Rhode Island corporations are today.
In 2018, the R.I. Division of Taxation explained the benefits in its annual report, stating “a Rhode Island corporation typically has a greater portion of its property and payroll in Rhode Island than does an out-of-state corporation doing business in Rhode Island.” Accordingly, the shift to a single sales factor “levels the playing field” between instate and out-of-state taxpayers “because the distorting factors of payroll and property are no longer taken into account.”