1 / 67

Presentation of the Individual, Business and Property Taxes Subgroups January 20, 2009

Governor’s Strategic Tax Policy Workgroup. Presentation of the Individual, Business and Property Taxes Subgroups January 20, 2009. Governor’s Strategic Tax Policy Workgroup. Individual Taxes Subgroup. Individual Taxation Subgroup Findings. Key Findings: Personal Income Tax

sean-francis
Download Presentation

Presentation of the Individual, Business and Property Taxes Subgroups January 20, 2009

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Governor’sStrategic Tax Policy Workgroup Presentation of the Individual, Business and Property Taxes Subgroups January 20, 2009

  2. Governor’sStrategic Tax Policy Workgroup Individual Taxes Subgroup

  3. Individual Taxation Subgroup Findings Key Findings: Personal Income Tax • High marginal tax rates make RI an outlier in southern New England • Reduction of marginal income tax rates is necessary to improve Rhode Island’s competitive position • RI offers numerous tax credits and other incentives to offset high marginal tax rates • Reducing marginal income tax rates devalues tax credits and other incentives • RI’s use of tax credits and other incentives makes RI’s tax code complicated and opaque • Elimination of tax credits and incentives will make RI’s personal income tax code simpler, more transparent, easier to administer and enhance compliance

  4. Individual Taxation Subgroup Findings Key Findings: Personal Income Tax • RI’s income tax code needs to provide income support to low income taxpayers • A fully refundable earned income tax credit will increase the take home pay of low wage workers while providing appropriate incentives for work • The current property tax relief program will provide needed property tax relief to seniors, the disabled and low income residents • RI’s preferential tax treatment of capital gains income may not be necessary if marginal tax rates are lowered

  5. Individual Taxation Revenue Analysis Modified RI Income Tax System • Standard Deduction Only / No Itemization • Married Filing Jointly: $15,000 • Single / Married Filing Separate: $7,500 • Head of Household / Widow: $11,250 • Personal/Dependent Exemption: $2,100 • Tax capital gains as ordinary income • Implement four taxable income brackets with a top marginal tax rate of 5.5 percent as follows:

  6. Individual Taxation Revenue Analysis Modified RI Income Tax System RI Taxable IncomeMarginal Tax Rate $0.01 to $52,499.99 3.80% $52,500 to $99,999.99 4.25% $100,000 to $149,999.99 4.75% $150,000 and above 5.50%

  7. Individual Taxation Revenue Analysis Modified RI Income Tax System, TY 2006 Data

  8. Individual Taxation Revenue Analysis Modified RI Income Tax System, TY 2006 Data

  9. Individual Taxation Revenue Analysis Modified RI Income Tax System, TY 2006 Data

  10. Individual Taxation Incidence Analysis Modified RI Income Tax System, TY 2006 Data

  11. Individual Taxation Revenue Analysis Modified RI Income Tax System • Normalizing the estimates based on TY 2006 data to FY 2009 yields the following estimates: • FY 2009 PIT Revenue Estimate: $1,011,000,000 • Projected change in PIT revenue: 0.7% • ∆ in FY 2009 PIT revenue estimate: $7,077,000

  12. Individual Taxation Incidence Analysis Modified RI Income Tax System

  13. Individual Taxation Incidence Analysis Current RI Income Tax System

  14. Individual Taxation Incidence Analysis RI Alternative Flat Tax System

  15. Individual Taxation Incidence Analysis Modified RI Income Tax System

  16. Individual Taxation Subgroup Findings Key Findings: Consumption Tax Rates • Of the 45 states that have a state sales tax, RI’s 7.0 percent rate is the 2nd highest (tied with five other states) • Incorporating local option sales taxes reduces RI’s sales tax rate ranking to 18th highest (tied with 8 other states) • RI’s 7.0 percent state sales tax rate is the highest among the six New England states

  17. Individual Taxation Subgroup Findings Key Findings: Consumption Tax Base • Of the 45 states that levy a sales tax, • 30 states, including RI, exempt food • 44 states, including RI, exempt prescription drugs • 12 states, including RI, exempt OTC drugs • 8 states, including RI, exempt clothing at some amount • 7 states, including RI, do not exempt 100% of the trade-in allowance on motor vehicles

  18. Individual Taxation Subgroup Findings Key Findings: Consumption Tax Base • Of the 45 states that levy a sales tax, at least 20 states (excluding RI) tax • Landscaping and typesetting services • Residential electricity, natural gas, and other fuel (including heating oil) • Diaper, garment, gift wrapping, health clubs, laundry and dry cleaning, shoe repair, and tuxedo rental services

  19. Individual Taxation Subgroup Findings Key Findings: Consumption Tax Base • Of the 45 states that levy a sales tax, at least 20 states (excluding RI) tax • Commercial linen supply, exterminating and tire recapping and repair services • Automotive washing, waxing, painting, lube, rust-proofing, and undercoating and parking lots and garages

  20. Individual Taxation Subgroup Findings Key Findings: Consumption Tax Base • Of the 45 states that levy a sales tax, at least 20 states (excluding RI) tax • Amusement park admission & rides, billiard parlors, bowling alleys, circuses and fairs -- admissions and games • Admissions to professional/college/school sports events, cultural events and private club membership fees • Aircraft rental to individual pilots, and trailer parks -- overnight

  21. Individual Taxation Subgroup Findings Key Findings: Consumption Tax Base • Of the 45 states that levy a sales tax, at least 20 states (excluding RI) tax • Labor charges generally, on repairs to intrastate vessels, motor vehicles, radio/TV and other electronic equipment, and other tangible property • Service contracts, installation charges, custom meat slaughtering, cutting and wrapping, and welding labor

  22. Individual Taxation Revenue Analysis Modified RI Sales Tax System • Decrease sales tax rate to 5.0 percent • Broaden the sales tax base to include: • Consumer purchases not currently taxed, except clothing and food • Some personal services • Admissions • Some intermediate business purchases • Some business services

  23. Individual Taxation Revenue Analysis Modified RI Sales Tax System, FY 2009 Est. • Net Sales Tax Revenue Impact (in millions $) • Business Investment Purchases: $(20.07) • Business Intermediate Purchases: $ 82.59 • Consumer Purchases: $(58.20) • Durable Goods: $(57.99) • Non-Durable Goods: $(62.60) • Services: $62.39 • Grand Total: $ 4.32

  24. Individual Taxation Revenue Analysis Modified RI Sales Tax System, FY 2009 Est. • New Taxable Consumer Purchases (in millions $) • Nonprescription Drugs: 9.81 • Newspapers: 3.82 • Moving and storage: 2.78 • Rug & furniture cleaning: 0.71 • Electrical repair: 0.28 • Reupholster & furniture repair: 0.17 • Household operation services: 3.87 • Motor vehicle repair : 10.15 • Other motor vehicle services: 2.78

  25. Individual Taxation Revenue Analysis Modified RI Sales Tax System, FY 2009 Est. • New Taxable Consumer Purchases (in millions $) • Legitimate theaters and opera: 5.89 • Spectator sports: 1.18 • Radio & television repair: 0.14 • Clubs and fraternal organizations: 4.24 • Sightseeing: 1.89 • Private flying: 0.19 • Bowling and billiards: 0.57 • Other commercial participant amusements: 7.21 • Pets and pets services: 0.99

  26. Individual Taxation Revenue Analysis Modified RI Sales Tax System, FY 2009 Est. • New Taxable Consumer Purchases (in millions $) • Veterinarians: 3.11 • Photo studios: 1.41 • Sporting and recreational camp: 0.33 • Other commercial amusements: 5.80 • Dry cleaning: 1.23 • Laundry and garment repair: 1.46 • Beauty shops: 10.18 • Barber shops: 0.52 • Miscellaneous personal services: 8.86

  27. Individual Taxation Revenue Analysis Modified RI Sales Tax System, FY 2009 Est. • New Taxable Consumer Purchases (in millions $) • Employment agency fees: 0.57 • Money orders: 0.38 • Classified ads: 0.14 • Tax return preparation services: 1.46 • Motion picture theaters: 1.32 Grand Total: $93.42

  28. Individual Taxation Revenue Analysis Modified RI Sales Tax System, FY 2009 Est. • New Taxable Business Purchases (in millions $) • Non-residential maintenance and repair: 18.44 • Residential maintenance and repairs: 1.61 • Truck transportation: 5.46 • Transit & ground passenger transportation: 3.86 • Scenic & sightseeing transportation: 5.25 • Couriers and messengers: 8.45 • Warehousing and storage: 8.63 • Data processing, hosting & related services: 11.22 • Facilities support services: 2.77

  29. Individual Taxation Revenue Analysis Modified RI Sales Tax System, FY 2009 Est. • New Taxable Business Purchases (in millions $) • Business support services: 9.70 • Services to buildings and dwellings: 16.12 • Employment services: 25.93 • Travel arrangement and reservations: 3.55 • Waste management & remediation: 11.41 • Car washes: 0.27 Grand Total: $132.67

  30. Individual Taxation Incidence Analysis Modified RI Sales Tax System, FY 2009 Est.

  31. Individual Taxation Incidence Analysis RI Estate Tax System, TY 2008 • Rhode Island’s estate tax exemption of $675,000 is one of the lowest in the country • A $1.0 million exemption would decrease estate tax revenue by 10.0 percent and reduce the number of resident returns filed by 44.8 percent • A $3.0 million exemption would decrease estate tax revenue by 42.1 percent and reduce the number of resident returns filed by 92.0 percent

  32. Individual Taxation Subgroup Findings Key Findings: Estate Tax • RI is one of only four states that levies an estate tax that is similar to the pre-2001 federal estate pick-up tax • RI’s estate tax exemption of $675,000 is the lowest granted by any state • By 2010, RI will be one of only 18 states that imposes a state estate tax

  33. Individual Taxation Incidence Analysis RI Estate Tax System, TY 2008

  34. Individual Taxation Incidence Analysis RI Estate Tax System, TY 2008

  35. Individual Taxation Incidence Analysis RI Estate Tax System, TY 2008

  36. Individual Taxation Revenue Analysis RI Estate Tax System, FY 2009 Estimate • Normalizing the estimates for a $1.0 million exemption amount based on TY 2008 data to FY 2009 yields the following estimates: • FY 2009 Estate Tax Revenue estimate: $28,000,000 • Projected change in Estate Tax revenue: (10.6)% • ∆ in FY 2009 Estate Tax revenue est.: $(2,968,000)

  37. Individual Taxation Revenue Analysis RI Estate Tax System, FY 2009 Estimate • Normalizing the estimates for a $3.0 million exemption based on TY 2008 data to FY 2009 yields the following estimates: • FY 2009 Estate Tax Revenue estimate: $28,000,000 • Projected change in Estate Tax revenue: (46.5)% • ∆ in FY 2009 Estate Tax revenue est.: $(13,020,000)

  38. Individual Taxation Revenue Analysis Reformed RI Tax System, FY 2009 Estimate • Net Revenue Impacts • Modified RI Income Tax System: $7,077,000 • Modified RI Sales Tax System: $4,320,000 Sub-total: $11,397,000 • Estate Tax Exemption to $1.0 million: $(2,968,000) Net Change: $8,429,000 • Estate Tax Exemption to $3.0 million: $(13,020,000) Net Change: $(1,623,000)

  39. Governor’sStrategic Tax Policy Workgroup Business Taxes Subgroup

  40. Business Taxes Key Findings: • Businesses pay 46% of all state and local taxes in Rhode Island • The corporate income tax rate is currently second highest in New England and scheduled to be highest in 2010 • The corporate income tax system has too many tax credits and their cost effectiveness are uncertain • Corporate income tax system allows multi-state corporations the ability to shift income out of state and lower tax liability in Rhode Island • Administrative process is burdensome and costly

  41. Business Taxes Key Findings (cont…): • Rhode Island’s Business taxes paid as a share of State GDP is 22% above national average: * Ernst & Young, Council on State Taxation Report

  42. Business Taxes – Overview of Sub-Group’s Consensus • Maintain current Franchise Tax Laws • Reduce Corporate Income Tax rate to 8.0% • Eliminate all credits except for Jobs Development Tax Credit, Investment Tax Credit and Research & Development Tax Credits • Implement Combined Reporting • Do not implement gross receipts or modified gross receipts tax

  43. Business Taxes – Overview of Sub-Groups Consensus • Restructure appeals process • Move appeals to Superior Court and create a tax calendar • Eliminate requirement to pay assessment in full prior to appealing to independent court • Restructure Jobs Development Tax Credit: • Modify the eligible employee requirement to include full-time employees (at least 30 hours per week), with benefits and a minimum salary of at least 250% of the hourly minimum wage prescribed by Rhode Island law

  44. Business Taxes Subgroup Justification Reduce Corporate Income Tax rate to 8.0% • The corporate income tax rate is currently second highest in New England and scheduled to be highest in 2010. By lowering corporate income tax rate Rhode Island would be more competitive with surrounding states.

  45. Business Taxes Subgroup Justification Eliminate all credits except for Jobs Development Tax Credit, Investment Tax Credit and Research & Development Tax Credits • Credit to be eliminated: • EDUCATIONAL ASSISTANCE AND DEVELOPMENT CREDIT – (44- 42) • ADULT EDUCATION TAX CREDIT – (44- 46) • HAZARDOUS WASTE FACILITIES AMORTIZATION - (44-11-11.2) • CREDIT FOR ARTWORK EXHIBITION - (44-30-24) • HISTORICAL RESIDENCE CREDIT - (44-33.1) • EMPLOYERS APPRENTICESHIP TAX CREDIT - (44-11-41) • CREDITS FOR DAYCARE ASSISTANCE AND DEVELOPMENT - (44-47) • ENTERPRISE ZONE TAX BENEFITS - (42- 64.3) • S.B.A. GUARANTY FEE CREDIT - (44-43.1) • NEW EMPLOYMENT INCENTIVE - (44-55) • DISABILITY ACCESS CREDITS FOR SMALL BUSINESSES - (44-54) • ISO CERTIFICATION CREDIT - (44-11) • CREDIT FOR JOB TRAINING EXPENSES - (42-64.6) • RENEWABLE ENERGY SYSTEMS CREDIT - (44-57) • MOTION PICTURE PRODUCTION TAX CREDIT - (44-31.2) • TUTION TAX CREDIT – (44-62) • Elimination of tax credits will make Rhode Island’s tax code simpler and more transparent

  46. Business Taxes Tax Credits:

  47. Business Taxes Subgroup Justification Implement Combined Reporting • Corporate income tax system allows multi-state corporations the ability to shift income out of state and lower tax liability in Rhode Island • Determines tax liability based on business activity in the state and not by the business’s organizational structure

  48. Business Taxes Subgroup Justification Do not implement gross receipts or modified gross receipts tax • Pure gross receipts system causes pyramiding of tax rates • Would create a new tax for pass-through entities • Would require business entities for have a zero net income or have loss to still pay a tax

  49. Business Taxes Subgroup Justification Restructure appeals process • Rhode Island is one of only nine states that require full payment of assessment prior to an appeal to court • Creation of a tax calendar in Superior Court would improve appeals process by having judges that are specifically trained in tax law

  50. Business Taxes Subgroup Justification Restructure Jobs Development Tax Credit • Current law is not in line with economic development goals in Rhode Island • Current law defines eligible employee requirement to include full-time employees and a minimum salary of at least 150% of the hourly minimum wage prescribed by Rhode Island law or $11.10. Increasing the minimum wage requirement would encourage businesses to create higher paying jobs with appropriate health benefits.

More Related