PROVIDENCE – Gov. Daniel J. McKee is still trying to provide tax relief to state business and residents even though he failed to reduce Rhode Island's sales tax last year.
For fiscal 2024, McKee sought to
lower Rhode Island's sales tax from 7% to 6.85%, closer to neighboring states Massachusetts and Connecticut. The current sales tax rate in Massachusetts is at 6.25% and Connecticut is at 6.35%.
However, that plan failed to get past the General Assembly and was eventually removed from the fiscal year 2024 budget.
Last week, McKee did not include a sales tax cut in his proposed fiscal year 2025 proposal. Instead,
the budget summary included language hinting that if the fiscal outlook improves during the revenue estimating conference in May, the administration will explore “potential” sales tax relief, though no specific triggers were included.
McKee spokesperson Olivia DaRocha on Tuesday reaffirmed that despite the failure of previous efforts, reducing the sales tax remains a priority of the administration "should the May [revenue] numbers come back in a positive fashion."
The proposed budget included tax reforms which include raising the exemption for taxable retirement income from $20,000 to $50,000, with double the eligibility amount for joint filers, reducing the taxes of at least 10,000 taxpayers, with an average tax savings of about $500. He is also proposing a reduction in the corporate minimum tax from $400 to $350.
Christopher Carlozzi, the Rhode Island director of the National Federation of Independent Business, said the organization welcomes any tax reduction of any size. Even a nominal cut would “send a message” to business owners both within and out of the state that Rhode Island is becoming more business friendly.
“People shop with their wallets,” he said. "Aspirational as it may be, we still hope that lawmakers are reconsidering their stance on the need for additional tax cuts. Rhode Island needs to be a little bit more competitive with its tax policy. So, this would be a step in the right direction.”
Laurie White, president of the Greater Providence Chamber of Commerce, supports any measure that encourages business growth.
“Putting more money back in the pockets of Rhode Islanders is the right thing to do for residents and businesses. That’s especially true in these inflationary times when many are struggling to make hard financial decisions," she said. "An incremental reduction in the state sales tax will help alleviate some price pressures at the cash register and provide a boost to the customers who support our local small businesses."
Co-owner of Westerly Enterprises Inc. Steven Karageorgos also supports a rate cut. He is familiar with the effects of tax policy on small businesses, particularly those operating on the state border. The business sits about 7 miles from the Pawcatuck River.
While Rhode Island’s sales tax is higher than Connecticut, another difference is the fact the Constitution State, unlike Rhode Island, has no exemption for the sales of bullion.
However, the exemption applies to precious metals "having numismatic, or investment value" and products made of gold, silver, platinum, rhodium and chromium “sold according to its precious metal content and not form," according to state law. It doesn't apply to jewelry and many other items offered at Westerly Enterprises, so customers may or may not be subject to the tax depending on their purchases.
Karageorgos said this difference makes a difference. He’s had many Connecticut customers cross the border to purchase tax-exempt items, likening this to the anecdotal evidence that Connecticut-based boat owners will purchase their vessels in the Ocean State to avoid the reduced 2.99% sales tax rate charged at home.
“It seems that Rhode Island taxes everything except coins and boats,” he said.
Micheal DiBiase, R.I. Public Expenditure Council CEO and president, said because the Revenue Estimating Conference has historically increased revenue estimates in May compared to November estimates, Governors “now routinely signal their priorities as to how they would spend additional revenues if available.”
“These items are often priorities that a governor would have funded in his budget proposal but for revenue constraints,” he said.
While a rate cut would improve the business climate, much of the benefit would go to border retail businesses.
"But it would take a large reduction to even match Massachusetts and Connecticut,” said Dibiase, noting that one percentage point on the sales tax is equivalent to approximately $240 million in annual revenue.
“Even if Rhode Island border businesses would be advantaged as a result of a sales tax cut, it is unclear whether there be more net economic growth or more job opportunities for Rhode Islanders," he said.
Chairman of the R.I. Libertarian Party and President of Shove Insurance William “Billy” Hunt Jr said the state can certainly afford a cut to the sales tax if it reigned in spending, which can "negatively impacts local business owners’ bottom line" and "stifle small businesses in our state."
“New Hampshire does not have a state income tax and Delaware does not have a sales tax, yet both states are able to fund their governments," he said.
Senate President Dominick J. Ruggerio has indicated he supports cutting the sales tax to 6.5% if feasible, telling Providence Business News in December it would “give people the option of not going to Massachusetts to make purchases.”
Spokesperson for House Speaker K. Joseph Shekarchi, Larry Berman, said Tuesday the speaker “awaits the results of the Revenue Estimating Conference in May before speculating further on a sales tax cut that may or may not even be proposed by Governor McKee.”
Carlozzi said business owners remain hopeful the rate-cut will be reconsidered come May.
“We appreciate the tax rollbacks proposed,” he said.” But we feel there needs to something more broadly based and grander of a gesture.”
(UPDATE: Subs 5th paragraph to add comment from governor's spokesperson.)
(UPDATE: Adds comment from president of Providence Chamber of Commerce in 5th paragraph.)
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com.
