At Symposium Books Inc. in downtown Providence, the property making up the store’s physical backbone – its numerous bookcases, for instance, or the computers needed to manage operations and its digital presence – comes with a price tag that goes well beyond initial sales costs.
Like the vast majority of Rhode Island businesses, the longtime bookshop, which specializes in books and vinyl records, has paid what economic observers such as the Rhode Island Public Expenditure Council have characterized as a “very onerous” tax on these tangible assets each year.
Symposium co-owner Scott McCullough gives that tax a similar characterization.
“It’s a killer,” McCullough said. “To get taxed for stuff that’s not doing anything is killer.”
But starting in January, businesses have some long-awaited relief from this tax. Earlier this year, the state passed legislation that exempts businesses from the first $50,000 they would typically owe in tangible asset taxes. Under these regulations, officials say, three-quarters of Rhode Island businesses will owe no tangible asset taxes.
For small-business owners, that money goes a long way, McCullough says. At Symposium, for instance, McCullough says he’ll be able to stock the store with more books and records of higher value. The benefits extend beyond business owners to employees and community members as well, he notes.
“It’s a nice sum of money that you can put towards other things that generate even more revenue and excitement in the state,” McCullough said.
“You can pay employees a little more at raise time, [giving them] a little extra money in the budget,” he added. “Then they’re going to spend more in the local economy.”
For Melissa Travis, vice president of the Rhode Island Business Coalition and CEO and president of the Rhode Island Society of Certified Public Accountants, the legislation marks a significant step forward in repairing Rhode Island’s reputation as a state where it’s difficult to do business.
The tax exemption not only eases financial burdens on businesses, Travis says, but mostly eliminates a common source of confusion and frustration.
Much of this confusion stems from the tax’s inconsistent application throughout the state, Travis says, and the new legislation will level the playing field for municipal business environments and business owners throughout the state.
In 2022, the average tangible tax rate statewide sat at $37.60 per $1,000 of assessed valuation, according to RISCPA’s presentation through the Rhode Island Business Forum – more than double the average residential property tax rate of $16.07, and 1.5 times greater than the $24.43 commercial property tax rate.
But this tangible tax rate is higher in some communities – in North Providence, for instance, it’s $64.78 per $1,000, while Providence’s rate is $55.80 per $1,000.
For businesses with locations spread across more than one community, this inconsistency is a particular hassle, Travis says. And on top of that, many are confused about how to file the tax.
“Most small businesses don’t know where to begin,” Travis said. “I think most didn’t even understand how to do the reporting … just because there was a general misunderstanding of who does what and how to file.”
Sorting through this confusion also puts extra stress on municipalities, Travis says, and with many city and town offices struggling with staffing shortages, some lack the resources to enforce the tax.
Meanwhile, nine Rhode Island communities had already voluntarily chosen to eliminate the tax prior to the statewide legislation’s passage.
And Senate President Domenic J. Ruggerio, who unveiled the most recent plan, which was later formally proposed by Sen. Melissa A. Murray, D-Woonsocket, had initially advocated for an exemption on the first $100,000 of tangible asset taxes, which would have eliminated all related expenses for an estimated 85% of Ocean State businesses.
But even the $50,000 cap makes a big difference, observers say, with 75% of businesses set to become entirely exempt from the tax when the legislation kicks in next year.
While the tax exemption came up in statewide conversations for years, it previously stalled over questions of funding. Under the legislation, the state will reimburse municipalities for revenue they otherwise would have collected through the tangible asset tax. According to RIPEC, the state will lose $36 million annually in reimbursements to Rhode Island cities and towns.
But the organization and other supporters of the legislation argue that improvements to the state’s business climate far outweighed this expense, and federal funding and Rhode Island’s recent budgetary surplus lit a new fire under the proposal.
Jennifer Brinton, co-owner of Grey Sail Brewing Co. in Westerly, also expressed enthusiasm for the legislation.
While the business’s brewing equipment is already exempt from the tax under state manufacturing regulations, the brewery will no longer pay taxes on furniture and technology equipment, Brinton says, ultimately amounting to zero tangible asset expenses for Grey Sail next tax year.
While “not a huge dollar amount” for her business in particular, Brinton says, some small businesses – which, she noted, make up the majority of Rhode Island companies – will reap substantial relief.
The legislation also makes a statement that Rhode Island supports its small-business community, Brinton says. “I think on the principle, it’s an acknowledgment of the importance and value of small businesses and supporting them,” she said.
