Governor's Tax Policy Workgroup Report

Governor Carcieri's Tax Policy Strategy Workgroup has released it's report (short version; long version). The ProJo has a story on the report and another on the impact that tax cuts will have on the budget deficit. They even have a poll asking, "Can Rhode Island afford to cut taxes now?" Funny, I don't recall any polls over the last decade or so asking, "Can Rhode Island afford to continually increase spending and grow government?" Anyway, here are the highlights of the committee's recommendations.

{All text taken directly from the summary report}

INDIVIDUAL TAXES

The starting point for the state’s personal income tax system be Federal Adjusted Gross Income (AGI) but that the number of modifications to Federal AGI that are made to determine Rhode Island Adjusted Gross Income be reduced.

The personal income tax system allow a state determined standard deduction and state determined personal and dependent exemptions, both indexed for inflation, as the only deductions from Rhode Island AGI in determining Rhode Island taxable income.
The personal income tax system consist of four taxable income brackets with a top marginal tax rate of 5.5 percent.

The personal income tax system tax income from capital gains at ordinary income tax rates regardless of how long an asset has been held before sale or what type of asset is being sold.

The personal income tax system allow only four tax credits: a refundable Earned Income Tax Credit, a Property Tax Relief Credit, a Lead Paint Abatement Credit, and Credit for Income Taxes Paid to Other States.

The Rhode Island estate tax exemption be raised immediately to $1.0 million and be gradually increased to match the federal estate tax exemption which in 2009 is $3.5 million.

Any expansion in the state’s sales tax base must be accompanied by a reduction in Rhode Island’s sales tax rate and a thorough assessment of the impact of such an expansion on small business.

BUSINESS TAXES

The Tax Policy Strategy Workgroup offers two options for consideration in the reform of the Business Corporation Tax. The first option would:

Eliminate the Business Corporation Tax and replace the current Franchise Tax system with a tiered system according to corporations’ net income.

Reduce the Business Corporation Tax rate to 8.0 percent, eliminate all but three tax credits, and maintain the current Franchise Tax system.

The restructuring of the tax appeals process by moving tax appeals to a tax calendar in Superior Court. Also, the requirement to pay the tax assessment in full prior to the appeal would be eliminated.

PROPERTY TAXES

Move toward standardization of tangible property tax rates, commercial and industrial property tax rates and maximum tangible property and commercial property tax rates in every municipality. Tangible property tax rates should be capped at no more than double residential property tax rates while commercial property tax rates should be capped at no more than 50.0 percent greater than owner-occupied residential property tax rates.

Move toward standardization of motor vehicle excise rates among municipalities while maintaining or expanding the current state $6,000 vehicle exemption. The standard rate would be $25 per thousand.

Limit personal property tax exemptions to a fixed 2.0 percent of the total municipal levy. These exemptions will also be limited by a statewide personal income and a residency qualifier.

Retain current statutory tax exempt standards, however, give tax assessors the authority to limit or eliminate the exemption based upon substantial and material unrelated business taxable income, as defined by the Internal Revenue Code, associated with any particular parcel owned by a tax exempt organization.

Guarantee state involvement in the assessment of certain types of property such as public utility or affordable housing property.

Develop statutory incentives that encourage municipalities to comply with state property tax policy.

Expedite the tax appeal dispute resolution process within municipalities before going to court and establish a state tax court or special calendar in Superior Court to hear commercial real estate and residential property appeals which exceed a certain threshold. Fine tune the appeal process in other ways to expedite the process.