Rhode Island’s urban businesses are emptying their pockets to pay state taxes and municipal fees, and the burden may increase in years to come, a recent report found.
The Rhode Island Public Expenditure Council released a report Feb. 28 analyzing the 39 municipal property tax burdens, the overall growth in local property taxes and the state’s reliance on those funds in comparison with other states.
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Rhode Island has the fourth-highest state and local tax burden in the nation, and the state’s property tax collections per $1,000 of personal income of $45.86 ranks sixth-highest in the United States and were 43 percent above the U.S. average, RIPEC reports. Rhode Island derives 54 percent of its own revenue from property taxes, compared to 27.1 percent nationally.
Based on a commercial property with $1 million in real estate value and $200,000 in tangible property, the tax burden ranged from $45,679 in Providence to $5,287 in Little Compton. The tax rates range from a high of 3.81 in Providence to .44 in Little Compton, the report shows.
“Our urban centers, where the bulk of Rhode Island’s largest businesses are located, have very high tax burdens. It represents a significant barrier to existing businesses that may want to expand and to potential new businesses,” said Peter Marino, RIPEC director of policy.
Property tax collections of $1.7 billion in 2005 are the single-largest source of state and local tax revenue; collections from personal income and sales taxes combined are expected to total $1.8 billion for fiscal year 2005.
Marino said property tax classifications in Rhode Island cities and towns have shifted the burden away from the rapidly growing residential market onto business owners, and that trend may continue.
Over the next two years, about 20 municipalities will re-evaluate their classifications and they will likely feel pressure to transfer more of the tax burden onto business owners, he said.
Already, the state’s corporate income tax rate of 9 percent is among the highest in the country.
The 2005 budget also included various business tax increases, like the corporation tax increase from $250 to $500, and the repeal of enterprise zone tax credits to give the state an extra $9.3 million this fiscal year, RIPEC reports.
In 2000, RIPEC reported that businesses provided $850 million to state and local governments in direct business taxes, sales and property taxes, not including license costs and other fees. Including these costs, the total was more than $1 billion.
Those costs have increased.
Business owners started paying a 1 percent meals tax in 2004, which brought hundreds of thousands of dollars and millions into communities in the state that year. Businesses that sell liquor also had to pay up to 750 percent more for their license, depending on the city or town.
When the liquor license fee increased last year, Sen. Leonidas Raptakis, a Coventry Democrat, who owns a pizza restaurant that requires more than 14 different licenses, criticized the state for not warning business owners of the hike and introduced legislation to repeal the unanticipated license fees. He also tried to repeal the meals tax, to no avail.
“All of these increases have come in the past couple years, it’s a lot for business owners to handle all at once,” Raptakis said.
Tony Demings, who has six different licenses for his small coffee house in Providence, is angry because the food dispensing license fee doubled from $50 to $100 in 2004, as did the Sunday sales license in Providence – increases that may not break the bank but elicit frustration.
“I feel discriminated against, all these taxes are aimed at business owners. The city is trying to balance its budget on business owners, but we have budgets too,” said Demings, who owns Brooklyn Coffee and Tea House.
Norma Surcluffe, who runs a home-based daycare in Burrillville, went from paying nothing for her license to care for 10 to 12 children to paying $250 when it came time to renew this year. The license for fewer than 10 children is $50.
“I wasn’t informed about this ahead of time. I found out about the increase when it came time to renew my license, so there was no way to fight this,” she said.
Rhode Island Hospitality and Tourism Association President Dale Venturini said the organization fought the license fee increases when it was proposed in the Legislature but could do nothing to prevent the increases when they were included as budget items in 2004.
“There is a general sense of frustration on all of these fronts because it increases the cost of doing business and makes it more difficult for businesses to compete,” said Greater Providence Chamber of Commerce President James Hagan.
Providence City Council President John Lombardi said he is concerned that the small businesses in the city that he said make up the character and fiber of the community are bearing a tax burden while large corporations are being enticed into the city with tax breaks and incentives.
“It’s an issue I’d be willing to tackle on any level,” Lombardi said.
