PROVIDENCE – As other states pass tax laws that improve their business climate, Rhode Island is falling farther behind, according to new analysis by the Rhode Island Public Expenditure Council.
RIPEC in a recent policy brief analyzed the reasons behind Rhode Island’s declining ranking in the Tax Foundation’s 2023 State Business Tax Climate Index. The annual rankings, which were published in October 2022, put Rhode Island No. 42, marking the first time the Ocean State has fallen into the bottom 10 since 2015, according to RIPEC.
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The main reason is not that the state’s tax climate has gotten worse, but that other states have made their tax environments better for businesses, according to RIPEC. Case in point: Rhode Island fell two spots from 2022 to 2023, and two states – Arkansas and Louisiana – passed policy reforms that improved elements of their tax structures, RIPEC said.
Rhode Island scored especially poorly in its property and unemployment insurance tax environments, ranked No. 41 and No. 49, respectively. In addition to these categories, the Tax Foundation also evaluates each state for income, sales and property tax policies, using all five to develop an overall ranking.
While Rhode Island still fares better than neighboring Connecticut, which RIPEC called “heartening,’ there is room for major improvements.
“Rhode Island is in a favorable position to make its tax structure more competitive due to large inflows of federal funding and strong state general revenues,” RIPEC CEO and President Michael DiBiase said in a statement.
Regarding property taxes, RIPEC recommended the state “impose guardrails” on cities and towns to prevent them from raising commercial and tangible tax rates too high, while also considering a statewide tangible tax exemption for property below a certain assessed value. Other recommendations included easing certain provisions of corporate income taxes; getting rid of the “marriage penalty” that penalizes married couples who file income taxes jointly; and reforming the unemployment insurance charging method to apply to all employers within a certain time period, rather than only the most recent employer.
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.
