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Wednesday, February 15, 2012

Don't just read the headline

Despite headline, RI actually has moderate sales tax rates

If you only read the headline from the Projo today you’d think Rhode Island has again, as the common talking point goes, landed on the losing end of a list of worst states as far as taxes go.

“RI tax burden still among highest in U.S.,” reads the headline.

However, if you took the time to read even the first sentence you’d learn that, actually, the Ocean State is somewhere in the middle of the pack nationwide as far as sales tax rates people pay state to state.

“Yet another ranking of the states’ tax burdens puts Rhode Island at the bottom in New England and in the middle of the U.S.,” reports John Kostrzewa.

The study, by The Tax Foundation, actually ranked Rhode Island 20th in terms of effective sales tax rates that a person would pay in a given state.

While Rhode Island’s state sales tax rate is tied for the second highest in the nation, when local sales taxes are factored in we drop down considerably. It’s an important distinction because it matters little what one jurisdiction or another may charge for a sales tax compared to what the consumer pays in actual retail sales taxes. There are 36 states that have local sales taxes and RI is not one of them.

“A state with a moderate state sales tax rate could actually have a very high combined state-local rate compared to other states,” according to The Tax Foundation’s report.

Kostrzewa makes an interesting point in his article that could actually, if The Tax Foundation factored it in, drop Rhode Island even lower on the list of states with high sales tax burdens.

“There is no mention in the report that Rhode Island’s 7 percent tax is not charged on all items,” he reports, “or that Governor Chafee has proposed that the sales tax be extended to taxicab and limousine rides, car washes, pet grooming and shoes and clothing that costs more than $175 an item. Or that the 8 percent meals and beverage tax be hiked by 2 percent under Chafee’s plan.”

The first clause of his sentence proves Rhode Island’s sales tax burden is actually lower than it may appear in the study (although this may be the case in other states, as well). The second part absolutely doesn’t belong in the study because it is not a part of Rhode Island’s tax system and it’s entirely likely these potential new sales taxes will never become reality. Somewhat similar ideas were cut from the proposed budget last year.

It’s important that Rhode Island discuss its taxing obligations in an honest and fair way, and as a community we aren’t always great at that. We’ve all heard the talking point that people routinely relocate away from Rhode Island because of high taxes and low marks in tax surveys.

On the other hand, just today, as it happens, the Providence Journal also ran a letter from the tax-hating former conservative senate candidate Bob Tingle on why perhaps we shouldn’t worry about those who threaten to flee the state for fiscal reasons. Tingle moved to Florida about a year ago but then decided to move back.

Rhode Island has its faults, as does everywhere else,” he wrote about his homecoming. “But, Rhode Island is a beautiful and wonderful place. I am proud to be a Rhode Islander and I am extremely happy and grateful that my children grew up here. God Bless our beautiful Ocean State.”