Responsible Revenue Raisers and Ending Corporate Tax Giveaways

This is the year to close corporate tax loopholes, level the playing field between local small businesses and large multi-state corporations, and create sustainable solutions for our state's revenue crisis.

Combined Reporting

• Under current state law, large multi-state corporations use tax avoidance gimmicks to artificially shift profits that are earned in RI into states to avoid paying taxes in RI.

• Combined reporting would require that corporations add profits from the in-state and out-of-state subsidiaries together, and then pay taxes on proportion business activity conducted in Rhode Island.

• Combined reporting will level the playing field for RI small businesses—who don't have teams of accountants and lawyers to find loopholes in the tax code. It will also ensure that large multi-state corporations pay their fair share in Rhode Island.

• The RI Division of Taxation estimates that combined reporting would generate an additional $10 - $15 million in business corporation tax revenue in the state.

Small Business Tax Relief via the Graduated Corporate Minimum

• Right now, all RI corporations who are not showing profits, regardless of size, pay a corporate minimum tax of $500.

• Of the 44,250 Rhode Island businesses that filed the business corporation tax in 2008, 94.8% of them paid only the minimum tax of $500.

• A graduated corporate minimum would allow businesses with low gross receipts to pay a smaller minimum tax—easing the tax burden on start-ups and small businesses and gradually increase so that corporations with higher gross receipts pay their fair share.

Domestic Production Deduction:

• Rhode Island is losing approximately $5 million annually in revenue because we have failed to decouple from a federal tax credit called the Domestic Production Deduction (DPD).

• DPD allows companies to claim a tax credit on profits from "qualified production activities" that go well beyond traditional manufacturing to include a large share of the state's tax base.

• Twenty-five states have already decoupled from the DPD. Since multi-state corporations can claim the deduction on activities in other states DPD does little to create jobs in Rhode Island.

Transparency and Accountability in Tax Expenditures

• Rhode Island lost nearly $1.7 billion in revenue through tax expenditures last year—these are tax credits, exemptions, and tax breaks that reduce taxes for select firms or individuals. Exempt items range from food and utilities, to aircraft parts and boats.

• Unlike other expenditures through the state budget, these tax exemptions become a permanent part of state law, and are NOT re-evaluated each year to see whether they are serving their intended purpose, such as creating jobs.

• We need to increase the accountability for these tax expenditures, so that we can clearly see what's working and what's not. We should be expanding expenditures that create jobs and ending expenditures that don't help Rhode Island families.

The Patriot Tax (Surtax on Personal Incomes Over $500,000):

• Tough economic times call for shared sacrifice. We must all do our part to close the budget gap.

• OSA is proposing 2% surtax on incomes over $500,000 which would generate $88 million in revenue in FY 2012.