PROVIDENCE, RI – An analysis of the Tax Foundation’s 2023 Business Tax Climate Index (the Index) by the Rhode Island Public Expenditure Council shows Rhode Island entered the bottom ten states for business tax competitiveness for the first time since 2015, ranking 42nd highest (ninth worst) in the nation. The Index annually demonstrates how competitive a state’s business tax climate is and informs the general reputation of a state as friendly or antagonistic to business. Rhode Island fell two spots in 2023, from 40th to 42nd.
“As other states have enacted reforms to make their business tax systems more competitive in the last few years, Rhode Island has stood still, enacting no major reforms,” said RIPEC President and CEO Michael DiBiase. “Rhode Island is in a favorable position to make its tax structure more competitive due to large inflows of federal funding and strong state general revenues.”
Rhode Island’s rank followed a generally positive trajectory between 2014 and 2019, improving from 44th best (or seventh worst) in the country to 38th, before beginning to backslide over the past four years. Regionally, Rhode Island’s business tax climate in 2023 is more competitive than Connecticut’s business tax climate and somewhat more competitive than that of Vermont, but less competitive than that of Maine, Massachusetts, and New Hampshire.
Published each year by the Tax Foundation, a think tank based in Washington D.C., the Index provides a comparative analysis of each state’s business tax climate. A state’s overall score is produced by comparing 125 variables across five major tax categories: individual income, sales, corporate income, property, and unemployment insurance tax. Rhode Island ranks in the bottom half of states for every tax category but sales tax (24th) and in the bottom ten states for property tax (41st) and unemployment insurance tax (49th).
To improve Rhode Island’s business tax competitiveness, RIPEC recommends several priority areas for policymakers to consider
- Rhode Island should improve its property tax structure by resisting efforts to shift a greater proportion of the property tax burden to businesses and reforming its tangible personal property tax.
- Rhode Island should explore changes to make its corporate income tax more favorable to business. The state should at minimum make it easier for taxpayers to deduct net operating losses and should also consider liberalizing the state’s carryforward provision and eliminating its throwback rule.
- Calls to increase individual income tax rates for high wage earners should be resisted and policymakers should consider eliminating the state’s marriage penalty.
- The state should pursue reforms to make the UI tax system fairer and resist increasing its already generous benefit levels.