Study: Providence has 3rd-highest commercial tax rate

PROVIDENCE HAD THE third-highest commercial tax rate among major cities in each state in 2021, according to a new study from the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence. / PBN FILE PHOTO

PROVIDENCE – Rhode Island’s capital city holds the dubious distinction of charging one of the highest commercial property taxes among major cities nationwide, according to a new study from the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence.

The 3.53% commercial property tax rate for Rhode Island’s capital city was the third-highest when compared with 52 other cities nationwide representing the largest city in each state, plus Washington, D.C., and one additional city each in New York and Illinois, according to the study published on Wednesday. Providence was also one of only three cities, along with Detroit and Chicago, with a commercial tax rate above 3%. 

By comparison, the average commercial tax rate among the cities included in the analysis was 1.86%.

The rankings come on the heels of a new city tax levy for fiscal year 2023 which cut commercial tax rates by 3.5% over the prior year, though property owners will still see their tax bills increase by an average 15% due to higher property values.

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The higher tax rate in Providence reflects, in part, the capital city’s dependence on tax revenue to support its annual spending. Providence ranked fifth among 74 cities – including the largest in each state as well as other major metropolitan cities and select rural municipalities – for its dependence on tax revenue overall, according to the study.

However, the capital city’s residential taxes aren’t quite as onerous, at least for homeowners who live in their own homes and therefore get a tax break under the city’s homestead exemption policy. Providence’s 1.25% tax rate for owner-occupied homes in 2021 ranked 23rd and 25th, respectively, for homes valued at $150,000 and $300,000, when compared with the largest cities in each state.

Meanwhile, Providence’s 1.84% industrial tax rate ranked 12th. Rhode Island also had one the largest disparities in the industrial tax rates of its largest city and a more rural municipality, Hopkinton, with the latter’s tax rate representing a 48% decrease over what Providence charges. The findings echo the conclusions of a report released by the R.I. Public Expenditure Council earlier this year, which highlighted how massive disparities in municipal tax rates and policies across Rhode Island, create imbalances that ultimately hurt communities with lower property wealth.

The Lincoln Institute study cautioned that it’s difficult to compare tax rates across cities and states, since policies around tax breaks for owner-occupied homes and other exemptions can differ. Also playing into the equation are the revenues from local sales and income taxes, which vary or may be absent entirely depending on the jurisdiction. 

Higher tax rates also don’t necessarily translate to bigger tax bills, since municipalities that charge higher rates may do so to offset lower property values, the report noted.

The report analyzed municipal property taxes for different types of properties across three groups: the largest city in each state, along with Washington, D.C., Aurora, Ill. and Buffalo, N.Y. (since Detroit and New York City calculate taxes differently), the 50 largest cities in the country regardless of state, and a rural municipality in each state. 

Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.

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