Levy on commercial buildings 50 percent above U.S. average
Despite a recent flurry of investment in commercial buildings in Providence, a study released last week says the city’s high property taxes could stymie the boom.
Rhode Island's Market Has Changed. Developers, Builders, Investors and Sellers Must Change With It.
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The Rhode Island Public Expenditure Council, a business-backed nonprofit dedicated to responsible fiscal policy in the state, and the National Taxpayers Conference, a similar group with a national charter, came out with a survey that says the capital city has the highest commercial property taxes in New England and the third-highest in the nation.
To complete the report, the nonpartisan groups took a survey of tax rates in 53 urban areas in 50 states and the District of Columbia. The study reported that the property tax for a $1.2 million commercial building in Providence was $45,679, which is 38 percent higher than the average commercial rate for a New England city and 50 percent greater than the national average.
Though Providence has lower commercial property costs than Boston, according to the report, the city’s higher tax rate could eventually offset the price difference.
Providence’s effective commercial tax rate, which increased 7.8 percent from 2004 to 2005, is 3.81 percent, compared with 2.97 percent in Boston.
“The bottom line is that one needs to realize that Providence commercial property taxes are higher than other communities, and it’s something to be worried about,” said Gary S. Sasse, executive director of RIPEC.
For a $30 million commercial building, Sasse noted, Providence property taxes are about $250,000 more expensive than in Boston. All other things being equal, he said, the higher property taxes could deter businesses from settling in the capital city.
Richard Galvin, president of Commonwealth Properties, said he is less concerned about Providence’s property taxes given the advantages of the city. “I don’t see it necessarily as a barrier to investment,” he added.
Connecticut-based Commonwealth is among a bevy of out-of-state firms to invest in downtown property in the past few years. Commonwealth is a part-owner of both One Financial Plaza and the GTECH building, under construction across the street from Providence Place mall.
Galvin said Providence real estate is an attractive investment because of its colleges and universities, transportation system and labor pool. “All those things are just as or more important than taxes,” he said.
Meanwhile, Providence’s residential property taxes ranked 21st in the nation and were 2.9 percent lower than the New England average. And though New England’s property taxes remain higher than the rest of the country, the region’s average rate is trending closer to the national average, according to the report.
In terms of industrial property taxes, Providence ranks between 13th and 15th in the nation, according to the study. Its rates are also the highest of any urban area in New England.
“While the property tax classification system adopted by Providence has helped mitigate the tax burden on homeowners,” the study said, “high property tax rates for business-owned property puts Providence at a competitive disadvantage compared to other New England cities and may adversely affect businesses.”
Charles T. Francis, president of CB Richard Ellis/New England’s Providence office, said that while the city’s commercial property taxes are but one part of the “package,” the high rates are a negative.
What also hurts the city is its ranking in studies such as the RIPEC report, he said.
“Why do we always have to wind up as one of the top five when we should be one of the bottom five?” said the commercial real estate broker. Conversely, he said, “Why do we show up in the bottom five when we should be one of the top five?”
Next week, according to RIPEC, the group plans to release a property tax survey of the state’s 39 cities and towns, outlining rate increases and the burden on taxpayers to support local services.
