Businesses in Rhode Island paid 46.0 percent of total state and local taxes according to a study published by Ernst & Young in conjunction with the Council on State Taxes. This RIPEC Comments analyzes the state and local taxes paid by businesses in the Ocean State and compares those tax payments to Massachusetts and Connecticut, as well as to national trends. The report also suggests that business tax changes proposed to help balance the state’s FY 2008 state budget should be evaluated in the context of the state’s long term economic policy objectives.  Highlights in this report include:

• Property taxes on business property in Rhode Island account for the largest share, almost 42.0 percent, of total state and local business taxes;
• Rhode Island businesses paid over 55.0 percent of the total increase in state and local tax collections from FY 2002 to FY 2006; and
• Corporate income taxes represent 12.5 percent of total state and local business taxes in Rhode Island. Nationally it equals 9.4 percent.

Business tax increases proposed in response to the current fiscal situation should be considered in the context of the long-range economic policy objectives of the Ocean State. To help measure the effectiveness of tax and revenue measures, the General Assembly established a Department of Revenues. One of the functions of this new department will be to assess the costs and benefits of various tax expenditures. Are the tax expenditures resulting from the favorable treatment afforded business achieving the objective of stimulating permanent investments and job growth? RIPEC’s analysis of the proposed FY 2008 State Budget (see Summary of the Governor’s FY 2008 Budget
Request – RIPEC Proposed Fiscal Get Well Plan for Rhode Island) commented:

“…existing tax credits should be evaluated to determine if they are achieving their objectives. If they are not, they should be modified and used to help eliminate the structural budget gap.”