Rhode Island Governor Proposes Tax Hikes on Sales, Tobacco, Lodging, Vehicle License Fees, Kitchen Sink

February 01, 2012

Gov. Chafee (I) of Rhode Island proposed a budget yesterday that would cobble together $92 million from arbitrary places, with an effort to increase spending on education. He announced parts of his proposal in his State of the State address (summary here).

Here are the tax highlights of the proposal (full analysis at Tax Analysts, subscription required):

  • Increase statewide meal and beverage tax from 1 percent to 3 percent.
  • Expand 13 percent lodging tax to vacation home rentals and bed-and-breakfasts.
  • Remove the sales tax exemption on clothing items selling for more than $175.
  • Broaden base of Rhode Island's 7 percent sales tax to apply to taxi operators, moving services, non-veterinary pet services, and car washes.
  • Increase cigarette tax from $3.46 to $3.50 per pack.
  • Doubling the cigar tax from $0.50 to $1.00.
  • Move up scheduled fee increases of $30 on vehicle registrations and driver's licenses.

The total budget is estimated at $7.9 billion, which is a 3.1 percent more than last year's budget.

These sorts of budget proposals highlight the need for fundamental tax reform. They go against the principle of neutrality, which states that governments should not construct taxes that preference one industry over another. While Chafee's budget has some elements of base-broadening, there is no effort to lower rates accordingly, and the base-broadening essentially just snipes off specific industries like taxis or car washes and taxes them because they are politically expedient.

If you must raise taxes, raise them on everyone, don't pick and choose winners through the tax code.

More on Rhode Island here.

Learn how Rhode Island's tax climate ranks here.

Follow Scott Drenkard on Twitter @ScottDrenkard.

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