House budget a mixed bag for business

THE RHODE ISLAND STATE HOUSE. On Friday, the House Finance Committee approved a $7.7 billion proposed budget for fiscal 2012.
By William Hamilton
PBN Staff Writer
Twitter: @waham
Posted 6/20/11

(Corrected, 3:30 p.m.)

PROVIDENCE – The state's business community appears to have successfully fended off Gov. Lincoln D. Chafee’s proposal to expand the sales tax, as well as his plan to implement combined reporting and a new corporate tax structure.

But the $7.7 billion fiscal 2012 budget package approved by the House Finance Committee last Friday wasn’t a total victory for business.

The budget plan expands the 7 percent sales taxes to four new items, and eliminates 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.

The proposed budget, which is expected to be considered by the full House as early as June 24, adds over-the-counter medicines, digitally downloaded materials and sightseeing package tours to the list of items subject to the state’s 7 percent sales tax.

And the proposal would remove the sales-tax exemption on the value of a totaled or stolen vehicle that is applied to the purchase of a new car.

Those sales-tax changes would bring in an additional $17.06 million in fiscal 2012, according House officials.

The House Finance Committee plan also calls 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.

The EDC recently granted Pawtucket-based toymaker Hasbro up to a $1.63 million tax break if it creates 281 new full-time jobs over the next three years.

Hasbro executives had told state officials that they’ve outgrown offices in Pawtucket and East Providence and were interested in establishing another location in Providence.

Initially, a spokesman for the House leadership said Monday that the Hasbro tax break -- along with other project status designations -- would be eliminated, but spokesman Larry Berman corrected himself hours later, saying that businesses would no longer be given project status, going forward.

Designations granted to Hasbro, and other companies such as TD Bank and Yardney Technical Products Inc., a high-tech battery maker that relocated from Connecticut, would still be honored, Berman said.

Ending the program going forward would save $100,000 in fiscal 2012, but Berman said it’s estimated that it would save $4.4 million by 2014.

While House Finance Committee Chairman Helio Melo, D-East Providence, said legislative leaders turned away Chafee’s plan to restructure the corporate minimum tax – a move that was opposed by business leaders – Melo acknowledged they did like his idea of adding two additional entities to the corporate tax structure.

Making limited partnerships and limited liability partners – otherwise known as LPs and LLPs – subject to the minimum tax would bring in $800,000 for fiscal 2012 and an additional $1.6 million in 2013.

The House rejected Chafee’s combined reporting plan, which would have had Rhode Island companies with operations in other states filing tax returns based on net income derived from both inside and outside the state.

It was an idea opposed by the business community, but Melo said House Finance Committee members want to study it further. The budget plan will require businesses to file combined-reporting paperwork for the next three years so state officials can have a better understanding of its impact, Melo said.

The state of Maryland is undergoing a similar study, he said.

Here is a breakdown of the revenue the House Finance Committee estimates the state will bring in for fiscal 2012 with the four new items subject to the sales tax:

  • Over-the-counter medicines, starting Oct. 1, $8.6 million.

  • Digital downloads, starting Oct. 1, $6.6 million.

  • Sightseeing package tours, starting July 1, $1.1 million.

  • Value of a totaled or stolen vehicle that is applied to the purchase of a new car, starting July 1, $750,000.

    In an earlier version of this article, House spokesman Larry Berman said the project status program would be eliminated retroactively. He later corrected himself, saying the House Finance Committee state budget would prohibit future project status designations.

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