RIPEC: R.I. backslid in tax rankings, but 2022 presents opportunity for reform

RHODE ISLAND’S corporate tax environment has grown worse according to new national rankings, and the Rhode Island Public Expenditure Council is calling for reform. / COURTESY THE TAX FOUNDATION

PROVIDENCE – Rhode Island has never been considered a national leader for business tax policy, but in recent years its corporate tax environment has grown worse.

A recent analysis by the Rhode Island Public Expenditure Council, based on the Tax Foundation’s annual state tax rankings, found the Ocean State backslid in the last three years, including a drop from No. 38 to No. 40 as of the most recent rankings.

The 2022 State Business Tax Climate Index compares tax policies across 50 states as of July 1 for competitiveness and impact on businesses, scoring each with an overall rank, as well as individual scores based upon corporate, individual income, sales, property and unemployment insurance taxes.

Rhode Island’s worsening position does not reflect changes to its tax policies that make it harder to do business in recent years. Instead, other states have stepped up their game through more business-friendly tax laws, according to RIPEC. And while Rhode Island’s biggest competitors are its neighbors, Massachusetts and Connecticut, keeping up with the other 48 states is also important to attracting and retaining businesses.

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And the time is ripe for change.

“Rhode Island arguably is in the best position in many years to make its tax structure more competitive,” the analysis stated. “Large inflows of federal pandemic relief funding to state and local governments, along with surprisingly strong state general revenues, have greatly improved Rhode Island’s fiscal situation.”

To that end, RIPEC issued a series of recommendations to policymakers to improve the state’s business tax environment. Among them: using pandemic relief funds to build up the state’s unemployment insurance trust fund and shield employers from future rate increases. Rhode Island came in second to last at No. 49 for its unemployment insurance taxes, a reflection of both high minimum and maximum rates and wage bases, as well as more-complicated formulas, according to the Tax Foundation.

Other recommendations made by RIPEC included not increasing commercial property or individual income taxes and considering changes to corporate income taxes such as improving the ability of taxpayers to deduct net operating losses from their total taxable income.

Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.

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