The Intangibles of Rhode Island
Justin Katz
With taxpayers — especially business taxpayers — beginning to get uppity, one often hears the invocation of Rhode Island's Political Knot. Nothing objectionable is anybody's fault; it's all a natural construct that can't be changed... at least by the person to whom one would turn for relief.
Take the "tangible tax." I know of at least one local business owner who complained that the "tangible property tax" collected by the town was doing palpable harm to his business and whom the Tiverton Tax Assessor informed that the town has no choice: State law compels him to assess and collect the tax. Presumably, he's referring to Rhode Island General Law 44-3-1:
Real and personal property subject to taxation. – All real property in the state, and all personal property belonging to the inhabitants of the state, whether individuals, partnerships or corporations, and all tangible personal property located in the state belonging to nonresidents, are liable to taxation unless otherwise specially provided.
The rest of Chapter 44-3 is essentially a list of exemptions, but I see no provision requiring "specially provided" to be an action of the General Assembly. Indeed, turning to 44-3-3.1:
Exemption of office equipment used for manufacturing or commercial purposes. – (a) The city or town council of any municipality may by ordinance wholly or partially exempt from taxation for a period of up to twenty-five (25) years any items of office equipment, which include, but are not limited to, computers, telephone equipment, and any other items of personal property used in an office and/or any leasehold improvements which are not exempt and are used for manufacturing or commercial purposes and may by ordinance establish the procedures for taxpayers to avail themselves of the benefit of any exemption permitted under this section.
In other words, the town could opt to gut the tangible property tax on business if it chose to do so. Note, also, that the law places no requirements or limits on the rate. My understanding is that a town or city could set its tangible property tax rate to 0%, effectively eliminating it.
Now that we've cleared up the confusion, town councils across Rhode Island can feel free embark on business-saving changes to local tax codes.
ADDENDUM:
According John, in the comments, RI law prevents a town from charging a greater than 50% higher rate for any class of tax than any other, so zeroing one rate would require zeroing them all.
That factor does not appear to affect the possibility of exempting businesses from tangible property taxes for a period of 25 years.
Great idea. It was done by the GA when they exempted wholesale inventories some years ago. As to your proposition being local, I wish that it were so. Under the law governing classification, no tax rate can exceed 50% more than any other classification, so if a council lowered their tangible rate to zero, they would have to lower every other rate to zero, unless they got a law passed providing for a special exemption for their town.
§ 44-5-11.8 Tax classification. – (a) Upon the completion of any comprehensive revaluation or any update, in accordance with § 44-5-11.6, any city or town may adopt a tax classification plan, by ordinance, with the following limitations:
(1) The designated classes of property shall be limited to the four classes as defined in subsection (b) of this section.
(2) The effective tax rate applicable to any class excluding class 4 shall not exceed by fifty percent (50%) the rate applicable to any other class, except in the city of Providence, and the town of Glocester; however, in the year following a revaluation or statistical revaluation or update, the city or town council of any municipality may, by ordinance, adopt tax rates for the property class for all ratable tangible personal property no greater than twice the rate applicable to any other class provided that the municipality documents to, and receives written approval from the office of municipal affairs that the rate difference is necessary to ensure that the estimated tax levy on the property class for all ratable tangible personal property is not reduced from the prior year as a result of the revaluation or statistical revaluation.
(1) Class 1: Residential real estate
(2) Class 2: Commercial and industrial real estate,
(3) Class 3: All ratable tangible personal property
(4) Class 4: Motor vehicles and trailers
If they don't choose a classification plan, then everything is taxed at the same rate without exceptions.
This is clearly something under the control of the GA
Is this the same as the inventory tax? I didn't realize it extended to just about everything that doesn't move.
Of all the taxes in effect in this state, the inventory tax has always struck me as the most perplexing and most damaging of all. It's like the business owner gets a double whammy.
"Oh, you didn't sell these items? And they're still in your storeroom? And your gross revenue is lower as a result? Well, we're going to tax you on that inventory that you didn't sell. Seems like a good thing to do, what with your revenue down and all."
Taxes on any kind of revenue are already bad enough in this state. Must we also tax where there is no revenue?
Justin,
Thank you for raising this issue and thanks also to "John" for his very insightful comments. Based on this thread, I plan to file legislation to enable local communities to forgo the tangible property tax if their councils see fit in order to spur economic development. This should provide even greater clarity in addition to the 25 year exemption.
Thanks again,
John
John J. Loughlin II
Rhode Island House of Representatives
Portsmouth, Tiverton, Little Compton
(401) 625-9889 - home
(401) 523-9700 - cell
www.johnloughlin.org
rep-john@cox.net
Oh this tax is one of the worst things we have for small business. I had a computer training business a few years ago with a partner in Warwick. Shortly after opening the doors, we're told that we'll be getting a visit from the state so they can inventory everything in our location and then tax us on it. Down to every last whiteboard, computer, desk, chair, books, even clocks!
I really think what we need is for the state to have some sort of grace period for small business with this tax. Clearly, it's something that a GTech or CVS can afford, or if a similar sized company moves into RI, they can afford it too. But when you're trying to start from scratch, throwing together every penny you got just to open the doors and get started, and then they throw this tax bill at you, it gets a bit crazy and can drive a business owner out of business. It's idiotic. My thought was to change the law so that the inventory tax is waived for either a period of 3 years or when the company's revenues exceed a certain threshold. So at least this way, the small business is given time to get its feet under it, start making some money, and then pay the tax. Or again, if it is a large enough company or starts making a bunch of money right off the bat, they can afford their fair share.
It's kind of like expecting an infant to start working in the factories. Give 'em some time, nurture and then take what's needed at least.
Patrick,
You should have opened in Seekonk!
Any business with a choice of location is nuts to locate in Rhode Island.
Like many of us, me included, you've unfortunately had to learn that the hard way.
The best we can do now is to help our fellow man (who is in business) and keep spreading the word to avoid Rhode Island so that they can learn from our mistake.
If Rhode Island ever gets its act together, this state would boom and become fantastically prosperous. But that would require major changes by the General Assembly, which in turn will require major changes in the composition of the currently Democrat General Assembly.
But the Democrats are beholden to the public unions and poverty industry, and so are hostile to business and taxpayers and average citizens. So no brighter day for Rhode Island appears to be dawning on the horizon. We are still in darkness, and look to remain in the dark for the foreseeable future.
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Great idea. It was done by the GA when they exempted wholesale inventories some years ago. As to your proposition being local, I wish that it were so. Under the law governing classification, no tax rate can exceed 50% more than any other classification, so if a council lowered their tangible rate to zero, they would have to lower every other rate to zero, unless they got a law passed providing for a special exemption for their town.
§ 44-5-11.8 Tax classification. – (a) Upon the completion of any comprehensive revaluation or any update, in accordance with § 44-5-11.6, any city or town may adopt a tax classification plan, by ordinance, with the following limitations:
(1) The designated classes of property shall be limited to the four classes as defined in subsection (b) of this section.
(2) The effective tax rate applicable to any class excluding class 4 shall not exceed by fifty percent (50%) the rate applicable to any other class, except in the city of Providence, and the town of Glocester; however, in the year following a revaluation or statistical revaluation or update, the city or town council of any municipality may, by ordinance, adopt tax rates for the property class for all ratable tangible personal property no greater than twice the rate applicable to any other class provided that the municipality documents to, and receives written approval from the office of municipal affairs that the rate difference is necessary to ensure that the estimated tax levy on the property class for all ratable tangible personal property is not reduced from the prior year as a result of the revaluation or statistical revaluation.
(1) Class 1: Residential real estate
(2) Class 2: Commercial and industrial real estate,
(3) Class 3: All ratable tangible personal property
(4) Class 4: Motor vehicles and trailers
If they don't choose a classification plan, then everything is taxed at the same rate without exceptions.
This is clearly something under the control of the GA
Posted by: John at January 13, 2009 7:34 AMIs this the same as the inventory tax? I didn't realize it extended to just about everything that doesn't move.
Of all the taxes in effect in this state, the inventory tax has always struck me as the most perplexing and most damaging of all. It's like the business owner gets a double whammy.
"Oh, you didn't sell these items? And they're still in your storeroom? And your gross revenue is lower as a result? Well, we're going to tax you on that inventory that you didn't sell. Seems like a good thing to do, what with your revenue down and all."
Taxes on any kind of revenue are already bad enough in this state. Must we also tax where there is no revenue?
Posted by: Monique at January 13, 2009 8:54 AMJustin,
Thank you for raising this issue and thanks also to "John" for his very insightful comments. Based on this thread, I plan to file legislation to enable local communities to forgo the tangible property tax if their councils see fit in order to spur economic development. This should provide even greater clarity in addition to the 25 year exemption.
Thanks again,
John
John J. Loughlin II
Posted by: John Loughlin at January 13, 2009 11:25 AMRhode Island House of Representatives
Portsmouth, Tiverton, Little Compton
(401) 625-9889 - home
(401) 523-9700 - cell
www.johnloughlin.org
rep-john@cox.net
Oh this tax is one of the worst things we have for small business. I had a computer training business a few years ago with a partner in Warwick. Shortly after opening the doors, we're told that we'll be getting a visit from the state so they can inventory everything in our location and then tax us on it. Down to every last whiteboard, computer, desk, chair, books, even clocks!
I really think what we need is for the state to have some sort of grace period for small business with this tax. Clearly, it's something that a GTech or CVS can afford, or if a similar sized company moves into RI, they can afford it too. But when you're trying to start from scratch, throwing together every penny you got just to open the doors and get started, and then they throw this tax bill at you, it gets a bit crazy and can drive a business owner out of business. It's idiotic. My thought was to change the law so that the inventory tax is waived for either a period of 3 years or when the company's revenues exceed a certain threshold. So at least this way, the small business is given time to get its feet under it, start making some money, and then pay the tax. Or again, if it is a large enough company or starts making a bunch of money right off the bat, they can afford their fair share.
It's kind of like expecting an infant to start working in the factories. Give 'em some time, nurture and then take what's needed at least.
Posted by: patrick at January 13, 2009 12:41 PMPatrick,
You should have opened in Seekonk!
Any business with a choice of location is nuts to locate in Rhode Island.
Like many of us, me included, you've unfortunately had to learn that the hard way.
The best we can do now is to help our fellow man (who is in business) and keep spreading the word to avoid Rhode Island so that they can learn from our mistake.
If Rhode Island ever gets its act together, this state would boom and become fantastically prosperous. But that would require major changes by the General Assembly, which in turn will require major changes in the composition of the currently Democrat General Assembly.
But the Democrats are beholden to the public unions and poverty industry, and so are hostile to business and taxpayers and average citizens. So no brighter day for Rhode Island appears to be dawning on the horizon. We are still in darkness, and look to remain in the dark for the foreseeable future.
Posted by: Tom W at January 14, 2009 8:44 AM