House Speaker Gordon Fox issued a statement on Wednesday evening rejecting Governor Lincoln Chafee’s sales tax expansion plan after scores of business leaders swarmed the House Committee on Finance to testify against the plan on Wednesday.
“I have been extremely troubled by this sales tax plan since its submission on March 8," said Fox in his statement, "However, I wanted to give our House Finance Committee and fiscal staff the opportunity to carefully review it and provide the public with an opportunity to weigh in, which was done today. There has also been overwhelming opposition expressed to me by House members, the business community, and by thousands of average citizens who have contacted the offices of House Leadership and Finance Committee Chairman Helio Melo.”
It was obvious at Wednesday’s public hearing in front of the House Finance Committee that Rhode Island’s business leaders were not happy about the effects Chafee’s plan could have.
Chafee’s proposal called for a reduction in the state sales tax from 7 percent to 6 percent, but would significantly widen the base of taxable items by including previously untaxed goods, services, recreation and entertainment tickets, maintenance and repair labor and professional organization dues. The proposal also includes a new 1 percent tax applied to a laundry list of previously untaxed goods such as aircraft, boats, building materials, clothing, coins, heating fuel, horse food, sales by writers and composers, textbooks and even water, among many other things.
“This is a tax increase of historic proportions,” said Gary Sasse, director of the Bryant Institute for Public Leadership at the public hearing.
Sasse said that most states that have increased sales tax on items have done so incrementally and that broad-reaching proposals like the Governor’s have been unsuccessful in gaining passage in other states.
He said that in 1987 massive sales tax regulations were implemented in Florida, but repealed 7 months later. In 2007 Michigan extended taxes to include a number of services, but repealed it the day it was supposed to go into effect. Maryland also attempted a reform similar to this proposal, which was repealed before it was enacted, according to Sasse.
Business leaders from vastly different sectors were united in their opposition of the new tax plan.
“I’m here to say emphatically no to this sales tax proposal,” said Laurie White, the President of the Providence Chamber of Commerce, “Six percent there and one percent here tends to add up.”
“What you’re basically doing is telling people to go to Massachusetts to get your car fixed,” said Bob Tasca, owner of Tasca Automotive Group and President of the RI Automobile Dealers Association, regarding the proposed 6 percent tax on automotive repair.
“The heart and soul of a dealer’s income is fixed operation; parts and service,” said Tasca.
The recreation and entertainment industry would see a 6 percent tax increase on ticket sales at amusement parks, live entertainment events, movie theatres, museums and spectator sports.
“We’re in the most competitive entertainment area in the country,” said Lynn Singleton, president of the Providence Performing Arts Center. He said that other nearby venues like the Wang Theatre in Boston, the Hanover Theatre in Worcester and the casinos in Connecticut do not charge admission taxes to their shows. Chafee’s plan would place a 6 percent tax on live entertainment. Singleton said the tax would “Immediately place PPAC in a very non-competitive situation."
Newspapers would also be affected. Chafee’s proposal places a 6 percent tax on subscriptions as well as individual newspaper sales.
“This tax adds another burden on our business,” said John Howell Jr., the publisher of the Warwick Beacon and Cranston Herald. He said he can’t charge readers an additional 3 cents for each paper sold out of a vending machine, meaning his business would have to “eat” these tax increases.
Marcia Blount, an executive manager at Blount Maritime Company in Warren said that Chafee’s tax proposal has specifically targeted her shipyard, which employs 115 people. The 1 percent sales tax on commercial vessels over 50 tons applies only to Blount Maritime, the only commercial shipyard left in RI. She said this would affect her ability to compete with Louisiana shipyards that have no sales tax and low utility costs.
Salons United against Taxing Services also made presentations to the committee. Salon owner Lyn Jennings said the new 6 percent tax on hairdressing salons and grooming salons would reduce the number of customers and create a new layer of overhead that salon managers will have to deal with.
Tammy Stewart, a hairdresser, said that the new tax would cost her $600 per year.
Speaker after speaker at the hearing, which lasted all day, criticized the Governor’s proposal.
In the end, the plan failed dramatically, with Speaker Fox rejecting the plan the same day public testimony was heard. The plan was Chafee’s attempt to fix a projected $331 million deficit. Fox has offered to help Chafee construct a new plan to deal with the deficit.
"The House will not pass the budget in its current form,” said Fox in a statement, “We will instead develop alternatives to this proposal and will continue to work with the Governor to amend his budget submission."