PROVIDENCE – A new state report on Rhode Island’s Investment Tax Credit shows that between 2019 and 2021 the program did not break even on a “general revenue basis,” with Rhode Island forgoing between $4 million and $8 million in tax revenue in that time.
Released by the R.I. Office of Revenue Analysis on Sept. 29, the report says the state lost more revenue in credits than it gained in economic activity.
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An average of 38 companies representing more than 27,000 employees received an average of $7.2 million in tax credits during the three-year period. And despite more than 67% of recipients operating in manufacturing, close to 95% of the credits were given to companies in other industries.
An overview of the recipients broken down by industry shows that “financial institutions” claimed $19 million of the $21.6 million awarded during the three-year period while representing less than 10 of the total awardees each year. And unlike other tax incentives such as the Jobs Development Act, state law prohibits the reports from identifying the companies.
The incentive provides for up to a 10% write-off for the cost of realty and tangible property in Rhode Island, which may be applied toward a company’s income tax bill. There are no restrictions or requirements for taxpayers to apply and receive certification prior to claiming a credit. They simply complete a form with their state tax returns.
Matt McCabe, chief of the R.I. Office of Revenue Analysis, said despite the revenue loss, the report didn’t recommend ending the program because it still can act as an accelerator for economic growth. Instead, it suggested state officials improve it by returning the criteria to its original intention, adding a sunset provision to establish clearer goals and improve revenue analysts’ ability to assess the program’s performance.
“If all the credits had been given to manufacturing firms … [the data] suggests that a program better targeted at manufacturing firms could break even, and there is room to improve the program rather than eliminating it,” he said. “Credits given to manufacturing firms are assumed to spur more investment and economic activity.”
Joseph Matthews, CEO and president of Maxson Automatic Machinery Co., wasn’t aware of the tax break until asked about the recent report on Monday. He said manufacturers in Rhode Island could benefit more because expensive capital upgrades necessitate greater investments in job training to get employees up to speed on new equipment.
Maxson itself is currently undergoing a multimillion-dollar capital improvement program.
“I find that interesting that 95% of the benefits went to nonmanufacturing [firms],” Matthews said. “Manufacturing is capital intensive. I don’t know how an insurance company is particularly capital intensive. Maybe for a new office.”
Though manufacturing was included within the enabling statute, the eligibility criteria has since been expanded to other industries. The report’s authors write that the economic benefits for nonmanufacturing firms now boils down to “basically a marginal reduction in the cost of doing business” and that “a tax incentive program may simply reward or subsidize behavior that would have occurred anyway.”
Karl Wadensten, CEO and president of manufacturer VIBCO Inc. and a member of the R.I. Commerce Corp. board of directors, said the manufacturing industry is unique for its “multiplier” effect.
“That’s the reason that you target this industry. The people that make things here bring in outside money from other states and other countries and bring it back,” Wadensten said. “We grow our companies and learn how to get better machinery and become more competitive. You sweeten the pot and and it gets rolling.”
Wadensten agreed that legislators should increase oversight and consider making future reports sector-specific to spotlight the pitfalls and merits.
“Rhode Island needs to get more creative,” he said.
Wadensten said the industry often polices itself through the Rhode Island Manufacturers Association, sharing information on which companies are beneficiaries of public subsidies and what the industry is gaining in return.
“Otherwise, you are just taking to reduce your tax liability,” Wadensten said. “We ask, ‘What are you doing to grow the industry?’ ”
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com.
