Citing the fact that Rhode Island – and the state’s tax policy – has long been viewed negatively in national rankings of business climate studies, RIPEC today urged the General Assembly not to enact Gov. Chafee’s “Combined Reporting” proposal as part of the FY 2012 state budget.

“There is simply too much uncertainty about Combined Reporting for the legislature to prudently enact it this year,” said John Simmons, Executive Director of RIPEC.

Simmons cited the following unknowns regarding the proposal:

• How will these changes affect Rhode Island businesses?
• Which businesses are likely to be most impacted by the changes?
• What will be the impact on the state’s economy and economic recovery?
• How much revenue will the proposal actually generate?
• Does the lack of combined reporting give Rhode Island a competitive edge?
• What are the appropriate apportionment factors?

A recent study in Maryland found that, combined reporting would generate significant revenue.  However, not all companies would be affected equally under the proposal.  The report found that utilities, information technology companies, healthcare entities, and social assistance companies would have saved money under combined reporting. At the same time the study found, manufacturing, retail and financial corporations would have had an increased liability that was greater than the total amount of revenue generated through the implementation of the proposal.  Given that these sectors are integral to the state’s economic recovery, any change that may increase their costs or reduce their competitive position may not be in the state’s best interest.

There are a number of factors that affect an entity’s liability under combined reporting, such as apportionment factors, and the answer to the above questions depends on how – or if – the state elects to implement such a program.  At this juncture, RIPEC cautions against the implementation of combined reporting.  Rather, the state should take the opportunity to further study the short- and long-term effects of changes to the state’s tax structure and work to craft comprehensive and systemic reforms.  It would be in Rhode Island’s best interest to delay sweeping changes to the state’s tax system until the implications are fully understood. The analysis should also examine the impact of the proposals to eliminate the jobs development credits and to institute a modified gross receipts tax.

When contemplating tax changes, policymakers must consider what they would like the Rhode Island of the future to look like.  Reforms must be made to the system; the state’s continual ranking in the bottom ten states for business will continue to affect Rhode Island’s ability to attract business, grow its economy and provide for the basic needs to its citizenry.  However, changes should help move the state and its economy into the 21st century.  The implications should also be known and clearly understood by policymakers and taxpayers alike.  Lastly, any changes should be established on principles that define what constitute sound tax policy and should not be a revenue-generating mechanism.

RIPEC’s recent “Comments” provide an overview of combined reporting and a summary of the issues that should be taken into account as the state contemplates implementation of the program.