Updated March 30 at 11:45am
public policy

R.I. business tax climate among the worst … again


WASHINGTON – Rhode Island has ranked among the “worst” for its business climate tax on the Tax Foundation’s annual index … again.

Last year, Rhode Island ranked 47th. This year, it sits at No. 46 ahead of: Vermont, California, New York and New Jersey. (The 2012 report revised and back-casted the scores for last year using the most current available data.)

The index’s methodology includes 118 variables in five major component categories: individual income tax, 33.1 percent; sales tax, 21.4 percent; corporate tax, 20.3 percent; property tax, 14.1 percent; and unemployment insurance tax, 11.1 percent.

“Rhode Island made fundamental changes to its individual income tax in 2011. The state formerly had five tax brackets, with rates starting at 3.75 percent and topping out at 9.9 percent. This system also included an optional 6 percent flat tax with few tax preferences,” the report noted.

“The 2011 change replaced this system with a flatter, broad-based three-bracket system with a top rate of 5.99 percent. On net these changes improved the state’s score significantly, but because it is such an outlier, Rhode Island’s rank improved only one place,” it explained.

Rhode Island’s 2012 score included:

  • Corporate tax rank, 40.

  • Individual income tax rank, 36.

  • Sales tax rank, 24.

  • Unemployment insurance tax rank, 50.

  • Property tax rank, 46.

The top-rated states were: Wyoming, South Dakota, Nevada, Alaska and Florida. Massachusetts' overall rank was 24.

“The lesson is simple: a state that raises sufficient revenue without one of the major taxes will, all things being equal, have an advantage over those states that levy every tax in the state tax collector’s arsenal,” economist Mark Robyn said, author of the 2012 State Business Tax Climate Index, which reflect tax systems as of July 1, 2011.

“It is important to remember that even in our global economy, states’ stiffest and most direct competition often comes from other states. The Department of Labor reports that most mass job relocations are from one U.S. state to another, rather than to an overseas location," Robyn said.

“State lawmakers are right to be concerned about how their states rank in the global competition for jobs and capital, but they need to be more concerned with companies moving from Detroit to Dayton, Ohio, rather than from Detroit to New Delhi,” he said.

For the full report, click here.


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