With budget looming, RI biz leaders assail State House tax hike proposals

Politics

CRANSTON, R.I. (WPRI) — Rhode Island business leaders rallied Monday to fight multiple tax-hike proposals at the State House, arguing lawmakers should avoid any such moves when the state has a large surplus and the pandemic is only starting to ease.

During a news conference organized by the Rhode Island Business Coalition inside a Cranston building owned by Dean Warehouse, more than a dozen speakers took aim at Gov. Dan McKee’s plan to tax some Payroll Protection Program (PPP) loan proceeds as well as other proposals to add a new income tax bracket on the wealthy.

“The business community needs to show that we are no longer rolling over,” David Chenevert, executive director of the Rhode Island Manufacturers Association and chairman of the Business Coalition, told the over 100 attendees. “This press conference is to show that we want to be at the table – and not on the menu.”

Melissa Travis, president and CEO of the Rhode Island Society of Certified Public Accountants, suggested the concerns of business leaders have been “falling on deaf ears” at the State House, adding, “I think we’ve become an easy target.”

The event was held at the same time Democrats on Smith Hill are deep in final deliberations over the state budget for the fiscal year that begins July 1. Their compromise tax-and-spending plan could be released as soon as next week.

The final budget bill is expected to differ considerably from the $11.2 billion plan that McKee proposed back in March, since he was barely a week into the job of governor at the time and revenue has soared since then due to improving economic conditions.

Congress voted last December to exclude forgiven PPP loan proceeds from being taxed as income. Since Rhode Island generally follows the federal tax code at the state level, the change was estimated to cost the state $133 million in revenue over two fiscal years if no action was taken.

While most states have gone along with the federal policy and are leaving PPP proceeds untaxed, McKee has proposed taxing loan amounts above $150,000, which would let the state keep nearly $68 million of that foregone revenue, according to a Senate Fiscal Office analysis.

“First of all, we exempted the first $150,000, so we gave $70 million of tax relief to the small businesses,” McKee said in March on WPRI 12’s Newsmakers. “And then as far as the other — if you made money, you pay taxes. If you didn’t make money, you’re not going to pay taxes on the over $150,000.”

Speakers at Monday’s news conference pushed back at McKee. John Simmons, president of the Business Coalition, said between 3,700 and 3,900 Rhode Island employers that received PPP loans would be hit by the tax on their proceeds, and Chenevert estimated about two-thirds of them employ 50 or fewer workers.

A separate Target 12 analysis of PPP loans made during 2020 shows 2,472 Rhode Island companies received loans exceeding $150,000 through November.


Search the table below to see which RI companies received PPP loans above $150K last year


John Hazen White, chairman of the manufacturing company Taco, said he and other industry leaders met with McKee in his office last week and “had some passionate moments” as they debated the merits of the PPP tax plan. He warned that changes in tax policy could lead businesses to relocate.

Taco received an $8.2 million PPP loan, the third-largest amount of any employer in Rhode Island, according to Small Business Administration data. The top two recipients were Coastal Medical Inc. and Brown Medicine.

Spokespersons for House Speaker Joe Shekarchi and Senate President Dominick Ruggerio issued a statement giving a sense of their current thinking, indicating they see the merits in McKee’s proposal.

“The state tax on PPP loans only applies to a very small number of companies that received forgivable loans over $150,000 and recorded a profit,” the statement said. “Those companies that did not record a profit would not be taxed.”

While McKee and legislative leaders appear to be aligned on the PPP loan tax, there is more uncertainty around whether the final budget will include any increase in the income tax.

Rhode Island’s current top bracket is 5.99% on income over $150,550, but various legislators have introduced competing bills to raise that. One would create a new 6.99% bracket on income over $500,000 earmarked for education, while others would add a new bracket of either 8.99% or 10.99% on income over $475,000.

A coalition called Revenue for Rhode Island, supported by labor unions and progressive groups, has been lobbying lawmakers to back the 8.99% proposal, estimating it would generate $128 million in additional revenue.

“It’s time, as a state, that we recalibrate our priorities, start ensuring those making more than $475,000 contribute their fair share, and make our budget work for all Rhode Islanders,” Rhode Island AFL-CIO President George Nee said in February.

But Laurie White, head of the Greater Providence Chamber of Commerce, characterized the income tax proposals as “an assault on neighborhood small businesses.” She pointed to the fact that many small business owners in Rhode Island avoid paying the corporate tax by instead setting up their companies to be taxed at the personal income tax rate.

Chenevert said McKee has told him he would veto any budget raising the income tax. McKee spokesperson Alana O’Hare would neither confirm nor deny that, saying, “The governor has said publicly that he does not support income tax increases at this time. … If an income [tax] increase came to his desk, he would review the budget or bill and make a determination at that time.”

Multiple speakers noted that the state is currently awash in money, with well over $400 million — and by some estimates, over $500 million — more revenue available than McKee’s budget had anticipated a few months ago. The state is also slated to receive $1.1 billion from President Biden’s American Rescue Plan Act. (However, the state is still facing large deficits in future years.)

“It’s not the moment to create more barriers for our businesses,” said Oscar Mejias, president of the Rhode Island Hispanic Chamber of Commerce, noting that the coronavirus pandemic has hit the Latino community particularly hard. “It’s not the moment to create more difficulties.”

A number of elected officials were on hand for the news conference, including Cranston Mayor Ken Hopkins, a Republican, and three Democratic state representatives, Stephen Casey, Robert Phillips and Mary Ann Shallcross Smith.

Pointing to the income tax proposals, Casey offered a warning to those in attendance that alluded to the growing influence of progressives in the General Assembly.

“You guys really need to know that the face of the House and Senate is changing dramatically — for better or for worse, that’s your decision to make,” he said. “You can hire all the best lobbyists, and you have … but if they don’t have anybody to talk to at the State House, the bottom line is, your bottom line isn’t going to be there.”

Ted Nesi (tnesi@wpri.com) is a Target 12 investigative reporter and 12 News politics/business editor. He co-hosts Newsmakers and writes Nesi’s Notes on Saturdays. Connect with him on Twitter, Facebook, LinkedIn and Instagram

Eli Sherman and Ryan Welch contributed to this report.

Copyright 2021 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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