Cautious optimism on state budget

TAX RELIEF? Lee Johnson, standing, Providence branch manager of staffing agency Addeco, speaks with Cynthia Price. Johnson says that Gov. Chafee's tax proposals scared some customers. /
TAX RELIEF? Lee Johnson, standing, Providence branch manager of staffing agency Addeco, speaks with Cynthia Price. Johnson says that Gov. Chafee's tax proposals scared some customers. /

Conway Tours General Manager David Eaton says the motor-coach business finally has gotten back on track in recent months after a grueling two-year slog through the recession.
But when he learned a new $7.7 billion state budget proposal contained a plan to tax sightseeing package tours at 7 percent, Eaton’s frustration spilled over.
“If [the tax] is truly on tour packages, we’re out of here; we will move our business out of state,” Eaton said last week, noting the Cumberland company is located just a few miles from the Massachusetts border.
While much of the business community last week breathed a sigh of relief that the General Assembly leadership largely discarded Gov. Lincoln D. Chafee’s sales tax expansion plan, some business owners and industry leaders were scrambling to learn how the new proposal – which contained a few new and expanded taxes – would affect them.
Evan Smith, president and CEO of the Newport & Bristol County Convention & Visitor’s Bureau, traded emails with tour companies and state officials in a frustrating attempt to find out who would be subject to a sales tax on sightseeing package tours.
“The travel industry is really fragile right now,” Smith told Providence Business News last week.
Others protested a proposal to tax digital downloads such as music, e-books, videos and ringtones.
Kathleen Kittrick, Verizon’s director of state tax policy in the Northeast, called the plan “problematic,” and asked state lawmakers to hold off until federal legislation addressing download taxes is passed.
Nevertheless, as the full House prepared to vote on the Finance Committee’s version of the budget last week, most business groups were cautiously celebratory – cautious because the budget proposal still faces a Senate vote this week before it is submitted Chafee.
As it stood last week, gone from the budget package was Chafee’s proposal to lower the sales tax from 7 to 6 percent – also adding a 1 percent tier – and broadening the tax to some 80 additional products and services. Gone was the restructuring of the corporate tax and implementing combined reporting – two ideas business leaders had strongly opposed.
The new proposal also would keep the Jobs Development Act tax credit. Chafee had recommended phasing out the credit, which has been used mostly by the state’s largest corporations, such as CVS Caremark Corp. Lawmakers “didn’t want to do anything to exacerbate our already difficult tax burden,” said Laurie White, president of the Greater Providence Chamber of Commerce.
David R. Carlin III, spokesman for the Chamber of Commerce Coalition, a group of 11 Rhode Island-based Chambers, said the reworked budget was the best the group could hope for “given the circumstances the General Assembly finds itself in.”
These are the circumstances: State leaders are grappling with how to close an estimated $302.1 million budget deficit for fiscal 2012. Chafee’s tax-and-spending package unveiled in March relied heavily on a sales tax expansion that the administration said would have brought in an additional $165.8 million.
Instead, the proposal drawn up by the House Finance Committee would use an estimated $57.6 million surplus from this fiscal year and $66.6 million in additional revenue advisers have estimated the state will receive in fiscal 2012 because of improved economic conditions.
The plan also relies on $44.1 million worth of cost-savings initiatives and adjustments in various departments and agencies.
Although Chafee’s sales tax plan, as well as corporate tax restructuring and combined reporting, was eliminated, the budget wasn’t a complete victory for business.
The new plan expanded the 7 percent sales taxes to four new items, and eliminated a key economic-development incentive recently doled out to the likes of Hasbro Inc. and TD Bank.
It also would add limited partnerships and limited-liability partnerships to the business entities subject to the $500 minimum corporate tax. That could affect more than 3,100 business entities, according to data from the secretary of state’s office.
In addition to digitally downloaded materials and sightseeing package tours, the proposed budget added over-the-counter medicines to the list of items subject to the state’s 7 percent sales tax.
The budget also called for an end to R.I. Economic Development Corporation’s project-status program that gives companies sales tax exemptions for purchasing building materials and other items in exchange for a promise to create jobs. Ending the program going forward would save $100,000 in fiscal 2012.
Portions of Chafee’s budget proposal did survive, such as plans to get the state’s bankrupt unemployment-insurance trust fund back in the black by 2015 through a combination of insurance tax increases and benefit reductions. The fix had been panned by business and labor leaders.
Most of the focus last week was on sales tax expansion – or lack of it.
Lee Johnson, Providence branch manager of staffing agency Addeco, said she wouldn’t relax until the fiscal 2012 budget is finalized.
Johnson said her office and other agencies had seen some clients delaying staffing requests following Chafee’s recommendation that such services be subject to the sales tax in his budget package in March.
They’re still holding off or cutting back. In the last month alone, four of Johnson’s clients have said they’ve delayed nine placements. The sales tax could be more than $400 for each permanent job placement.
“They’re waiting until this is over with before they’re moving forward,” she said. “We’ve been in a holding pattern for weeks.”
Karen Oakley was in a holding pattern last week, too, but for a different reason.
The president of Viking Tours of Newport, which operates motor coach and trolley tours around the region, wasn’t sure whether her company would be subject to the expanded tax on sightseeing package tours.
And she wondered whether Newport Harbor tours and walking tours would be taxed, too.
“It seems to have been put in without much thought,” Oakley said.
Paul Dion, chief of revenue analysis at the R.I. Department of Revenue, acknowledged “gray areas” in the legislation. That said, Dion believed the tax is intended for shorter sightseeing trips within Rhode Island, not longer overnight trips. Still, he said that section of the budget proposal could be altered before final passage.
Dion’s interpretation would be good news for Conway Tours, which offers motor coach trips mostly out of state. But Eaton was frustrated last week by the uncertainty.
“We’re finally starting to see the light at the end of the tunnel,” Eaton said. “To be slapped with another tax, it just doesn’t help.” •

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