When East Providence-based Capital Properties Inc. announced a fat dividend of $2.25 per share to be paid on Dec. 27, the company became the latest of scores of businesses large and small locally and across the country responding to potential tax increases that could go into effect in the new year.
“Like everyone else, we’re not certain about what’s going to happen, so we’re looking toward the benefit of our shareholders,” said Capital Properties Treasurer Barbara Dreyer. She said the cash portion of the dividend will be funded by a $3 million loan, added to an existing loan, from Bank Rhode Island.
The financial headaches caused by the possibility of going over a “fiscal cliff” – when Bush-era tax cuts are set to expire, taxes to help fund new health care laws go into effect and significant expenditure cuts are due to take place – have jolted companies ranging from huge retailers to commercial real estate holders and small businesses into action.
Unwilling to wait to find out if the Obama administration and Republicans reach a compromise, many businesses have chosen to be ahead of the curve in dealing with potential tax increases on dividends and capital gains scheduled to go into effect Jan. 1. Special dividends are one of the main lines of defense.
If the current Bush-era tax cuts are not extended, the tax rate on dividends would go up from 15 percent to 39.6 percent. In addition, the previously passed health care reform law calls for a 3.8 percent surtax on most investment income to help fund new regulations.
“On the recommendation of management, the board decided to proceed with this extraordinary dividend in light of the tax change which may take place on Jan. 1, 2013, increasing the dividend rate from its current 15 percent to potentially 43.4 percent,” Capital Properties Chairman Robert Eder said in a Dec. 7 statement.
“Given the company’s consistent cash flow from its real estate operations, the board of directors was convinced that it would benefit shareholders if a portion of the future dividend stream was paid in advance at what is today a favorable tax rate,” Eder said. The company said it will not make its normal January dividend payment and will decide in April whether to pay a dividend (the company’s last regular dividend was 3 cents per share).