PROVIDENCE – The House Committee on Finance on Thursday questioned administration officials over two budget amendments proposed by Gov. Daniel J. McKee that if approved would lower tax liabilities for Rhode Island-based financial institutions and authorize the state to purchase a 210,000-square-foot office building in East Providence owned by Citizens Bank.
The change to the corporate tax code would allow the use of a "single sales factor apportionment methodology” in determining tax liability, allowing banks to apportion their net income based solely on in-state receipts rather than a weighted three-factor formula applying payroll, property and a percentage of sales.
Twenty-six states have passed similar legislation applying to financial institutions, with Massachusetts scheduled to join that list on Jan. 1, 2025, a development that R.I. Department of Revenue Director Jonathan Wormer acknowledged may have led to the proposal.
Rhode Island lawmakers made a similar change to the state's corporate tax structure in 2015.
In written testimony, Citizens Vice President of Property and Procurement Michael Knipper told lawmakers the current tax structure penalizes banks that have more employees and a physical footprint within the state, which can result in these institutions moving operations across the border to Massachusetts.
Knipper called Rhode Island "an outlier, placing it at a severe competitive disadvantage" and referred to the current structure as "simply bad tax policy."
The benefit of the change, which has the support of the Greater Providence Chamber of Commerce, if approved is that financial institutions will receive "the certainty that Rhode Island tax policy will continue to incentivize rather than penalize banks to invest in Rhode Island jobs and property," Knipper said.
Citizens Bank spokesperson Rory Sheehan on Thursday declined to comment over whether the change would influence employee levels within Rhode Island but said amending the excise tax would make Rhode Island more competitive with Massachusetts by taxing banks "under the same structure an overwhelming majority of Rhode Island corporations are taxed today.”
Administration officials said if enacted, the tax amendment would result in $7.7 million in lost revenue this fiscal year, growing to $15.6 million over the full fiscal 2025.
Rep. George A. Nardone, R-Coventry, questioned how such a significant change to the tax code appeared before the committee only weeks before the General Assembly begins deliberating the fiscal 2025 state budget.
"This seems like something that was put in the budget the final hour," he said.
Included in the proposal is a requirement that the tax administrator conduct a "combined reporting study" to assess the impacts, due by March 2027.
State Rep. Teresa A. Tanzi, D-South Kingstown, questioned the logic of implementing a tax reform before knowing its long-term impacts on state revenues, citing the budget deficits likely facing Rhode Island in the coming years.
When it comes to corporate tax incentives, "It seems we just set it and forget it," she said.
As for the proposal to purchase the Tripp’s Lane building from Citizens – the former location of the bank's One Home Loan Center – the administration claims the state could save $39 million over 10 years, mainly by ridding itself of costly lease agreements.
The total expenditure, funded through $33.7 million in borrowing, could grow to $44.5 million after factoring in an estimated 5.5% interest rate over a 10-year period.
The state is currently liable for $10.7 million in annual lease payments for a total of 569,745 square feet of office space among varying agencies, and another $684,586 on 73,770 square feet of warehouse space, according to the presentation provided by the House fiscal office.
Rebecca Webber, R.I. Department of Administration deputy director of performance and projects, said the property had originally been listed for $27 million and that East Providence stands to lose roughly $400,000 in annual property taxes if the state was to take over the site, which is currently assessed at $16.9 million. She declined to disclose the value determined by a third-party appraiser.
Before the hearing, Sheehan said the bank's real estate broker had shown the property "to several potential buyers" since listing it two years ago.
The move to sell was spurred by post-pandemic changes in workforce trends that accelerated the use of remote work.
Larry Berman, spokesperson for House Speaker K. Joseph Shekarchi, said the leadership will “review the testimony taken at the hearings and will consult with the respective chairmen before taking a position on the proposal.
"If anything is done, it will be part of the budget being voted on in the coming weeks," he said.
Correction: An earlier version of this story misidentified state Rep. Teresa A. Tanzi as another legislator.
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com.
