Following meetings with dozens of business leaders from a cross section of industries, I submitted legislation this session to reduce the corporate tax from 9.0 percent to 7.0 percent. By working with Rhode Island Public Expenditure Council Executive Director John Simmons, the RIPEC staff and the Senate Fiscal Office, we developed a fair bill aimed at making the state more competitive. I have made this a focus of my legislative activities for the past three years. 

Working with many individuals and groups, all interested in moving the Rhode Island economy in a positive direction, we were successful when the legislation was passed as part of the 2015 state budget.  Many of the stakeholders that I have spoken to feel that these changes, along with others, represent concrete efforts to make Rhode Island a better and easier place to do business. 

In addition to reducing the corporate tax, the new law also shifts the state to a formula that provides an incentive for investment here by multi-state corporations, while instituting a “combined reporting” method of taxation that ensures multi-state corporations don’t shift profits out of state to avoid paying their fair share.

The combined reporting initiative began three years ago with a proposal in the Governor’s budget. Hearing the concerns of the business community at the time, the General Assembly required a study be conducted to assess its impact. While multi-state companies paid their taxes just as they always had, they also filed pro-forma documents to show what they would have paid if combined reporting were in place.

The results of that two-year study were presented to the Senate Finance Committee in March, and then we worked together with numerous partners and stakeholders to design a system that encourages investment in the state while making Rhode Island more competitive.

The recently enacted legislation does three things:

First, it lowers the corporate tax rate from 9.0 percent to 7.0 percent as of January 1, 2015. This dramatically increases our competitive position, taking us from among the highest corporate tax rates in the nation to the lowest in New England and in the north-east, when compared to New York, New Jersey and Pennsylvania.

Second, the legislation shifts the state away from an apportionment formula that could be seen as a disincentive for businesses investing in Rhode Island. Under the previous formula, companies would have to pay more taxes if they increased the number of their workforce and their physical presence in the state.

The new law shifts to a single-sales factor apportionment formula, calculating taxes owed based on Rhode Island sales. This change removes a punitive disincentive for investment in payroll and property in Rhode Island.

Finally, the law institutes a combined reporting method of taxing multi-state companies. By adopting this combination of single sales and combined reporting, Rhode Island not only has a corporate tax structure that recognizes the modern economy, but also sends a strong message to businesses and investors that we want them to grow and expand their presence and number of employees here.

I look forward to continuing to work together with all interested parties to make Rhode Island a more attractive place to have a business. We must provide an economic and regulatory climate that promotes growth and investment in order to provide the economic and career opportunities that our citizens deserve.

Senator Daniel Da Ponte, a Democrat representing District 14 in East Providence, is Chairman of the Senate Finance Committee.