| Dear Neighbors:
I hope you enjoy Father’s Day. In this week’s letter, I discuss the legislation passed by the General Assembly to change the bank tax.
1. The Policy Basis for the Change
This past Tuesday, the Finance Committee conducted its initial hearing of S-3152, a bill designed to reform the State tax on banks. The timing was unusual, coming after the House of Representatives passed the State budget and just two days before the conclusion of this year’s General Assembly session.
The bill’s proponents advocated for the tax change to align Rhode Island’s bank tax with that of other states. Rhode Island’s previous formula taxed banks on a combination of three factors, namely sales, property and payroll. In contrast, Massachusetts (effective January 1), Connecticut and many other states assess bank taxes based upon a single one of the three factors. The existing Rhode Island program provided a disincentive for banks to locate administrative offices and operations in our State, as they would be taxed on payroll in Rhode Island but not elsewhere.
2. The Practical Impetus for the Change
Citizens Bank urged the General Assembly to consider the tax change at this time. For many years, Citizens had gained a tax break from the Jobs Development Act (JDA), based on the number of resident employees. With the arrival of the pandemic, many Citizens employees opted to work remotely, reducing and ultimately ending its JDA tax credit. Having lost its Rhode tax credits, Citizens advocated for Rhode Island to change its tax burden to match other states so that Citizens was not effectively penalized for its large Rhode Island payroll.
At the hearing, the President of the Greater Providence Chamber of Commerce testified that Massachusetts was recruiting Citizens to move its headquarters and administrative offices to the Bay State, using a combination of incentives and its more favorable “single factor” tax program. The Chamber President urged the Committee to approve the tax change to save the Citizens jobs that Massachusetts could take away.
At the hearing, Citizens identified how many jobs were at risk if they left the State. Citizens currently employs around 4,200 people in its Rhode Island offices, of which around 1,000 work in branches, and around 3,400 work in administrative offices that could be moved out of state. Citizens also indicated that approximately 600 of its employees who work in Rhode Island live out of state. While the 1,000 branch office jobs will always remain in Rhode Island, the other 3,200 jobs are not anchored in our State, of which more than 2,500 are currently held by Rhode Island residents.
3. Conclusion
The last-minute timing of this request was unusual and, in my opinion, unseemly. Despite this, I and the majority of my colleagues felt we had no choice but to approve the tax change with its annual fiscal impact of $15 million. The State applied one-time funds to cover this year’s tax expenditure of $7.6 million (which will begin on January 1), but this will add another burden to the task of balancing next year’s budget.
I asked the Chamber of Commerce President if the business community would work with the General Assembly next year to find alternative sources of revenue to replace the $15 million loss that she advocated. I received a non-committal response, which was disappointing. With that said, I hope my question will help the business community understand the consequences of its last-minute push, as this tax expenditure is but the latest of a series of stresses that will make next year’s budget more difficult to balance in a fiscally responsible manner. |
