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

1 min readBy: Scott Drenkard

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 taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. 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 exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. on clothing items selling for more than $175.
  • Broaden base of Rhode Island’s 7 percent sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. 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.