Projo Biz Blog

Following is a summary:

Business Taxes: The group is considering a reduction in the state's corporate income-tax rate, to 8 percent from the current 9 percent, to make it more competitive with that of neighboring states, said Rhode Island Tax Administrator David M. Sullivan.

At the same time, the group is considering the elimination of all business-related tax credits except for the jobs development credit, which generally cuts the rate of tax a business pays for new jobs the business creates; the investment tax credit; and business research and development credits.

The existing franchise tax would be retained (essentially a minimum annual tax of $500).

Individual Taxes: The panel is considering implementation of four tax brackets for individuals, compared with five now. Tax rates would range from 3.95 percent to 5.5 percent, compared with a range of 3.75 percent to 9.9 percent now.

The proposals could also affect taxpayers who claim the lump-sum deduction, known as the standard deduction, instead of making a separate list of all their deductions, a process known as itemizing.

For example, under one plan, a married couple filing a joint return would be able to claim a standard deduction of $15,000 (up from the current $9,100); a single taxpayer generally would claim a standard deduction of $7,500 (up from the current $5,450), said Paul L. Dion, chief of the state Department of Revenue's Office of Revenue Analysis.

In addition, the top tax rate would kick in at a lower level of a taxpayer's taxable income than it does now, Dion said.

Capital gains (which essentially means profit on the sale of stock and other such assets) would be treated as ordinary income, such as wages, for tax purposes. (Currently, the maximum capital-gains rate can run as low as 1.67 percent, or even 0.83 percent in some circumstances.)

Most tax credits would be eliminated, but the following would be retained: a credit for taxes paid to other states; the statewide property-tax relief rebate (technically a tax credit); a credit for the abatement of lead paint; and an expanded earned income credit (essentially a tax break for the working poor).

The panel is also considering changes to the Rhode Island estate tax, also known as the state death tax. Under current law, the tax generally can be triggered if the value of a decedent's estate exceeds $675,000, one of the lowest such thresholds in the nation.

The panel is considering increasing the threshold to either $1 million or $3 million, said Edward J. Cooney, who is a member of the group and vice president and treasurer of Nortek Inc. of Providence, a maker of building products.

The group may also recommend reducing the statewide sales-and-use tax rate to 5 percent from the current 7 percent. (Under one scenario, the number of categories to which the tax rate applies - the sales tax "base" - would be retained; under another scenario, it would be broadened.)

Property Taxes: The group is considering reducing the sizeable gap that exists in a number of cities and towns between the tax rates charged on business property and the tax rates charged on residential property.

In addition, the panel is considering a change to the complex appeals process for local property-tax and state-tax issues. Possibilities include creating a Tax Court, or designating a judge or court to handle tax appeals cases on a regular basis, perhaps on certain dates each month.

Big Picture: Overall, the panel needs to focus on improving Rhode Island's competitive position with respect to other states, said Alfred J. Verrecchia, a panel member and chairman of Hasbro Inc. of Pawtucket, a global maker of toys and games.

"I keep looking at all these charts" in various studies that rank Rhode Island among the most heavily taxed states in the nation, he said.

From that standpoint, "We are a laughingstock," said Leonard P. Lardaro, professor of economics at the University of Rhode Island.

Verrecchia said that Rhode Island must move toward a point at which taxes are "not a disincentive" for businesses that want to remain and expand in Rhode Island, people who want to create new businesses in the state, and businesses that may be considering moving to Rhode Island.

And, amid a recession and high unemployment, the panel also must address issues related to job creation and job retention, Sasse said.

Panel Schedule: The panel was originally scheduled to complete its work this month, but faces a delay of about 30 days partly because of the complexity of the issues involved, and the time it takes to develop computer-based models and manage large amounts of data, Sasse said.

"To us, it seems it's worth the 30 days to get it right," Sasse said. (State officials have also been focused on other issues brought on by the national and state economic troubles, Dion said.)

The panel is considering holding two more meetings, both next month, before issuing its final recommendations, probably by the end of next month, Sasse said.

The panel is formally known as the Governor's Strategic Tax Policy Workgroup; meeting minutes, agendas and other information is on the Department of Revenue Web site.