In our last article, “Strengthening Rhode Island’s Business Community,” we spoke about what business owners look for in deciding where to set up or keep their companies, Rhode Island’s allure, and some of the programs our state has invested in to entice and retain these businesses. Although there is much to brag about when it comes to our fair state, Rhode Island’s tax structure and processes have proved challenging.
Historically, Rhode Island has been at the lower end of the scale in state rankings regarding having a business-friendly culture. However, the state is working to change that image, and you could be a beneficiary of this new welcoming attitude.
Over the past few years, the state has addressed the issue of income tax rates. The corporate tax rate has been reduced to 7%, and the franchise tax, based upon the number of shares issued, has been eliminated. The maximum individual tax rate is 5.99%, something to consider if you own a pass-through entity. Presently, the state is phasing in a lower minimum business tax. The former annual minimum tax of $500 is being reduced by $50 per year until it reaches $250 in the year 2020. These changes to reduce the tax burden gives Rhode Island a more competitive position within the region. Additionally, as of January 2017, Rhode Island has dropped one tier on the scale used to assess the state unemployment insurance tax (SUTA). The Governor’s office estimates this rating change will reduce costs for businesses by $77 per employee. The decreasing tax rate is one indicator of how the state is working to attract new business.
Starting or relocating a business is a process known for being mired in red tape. Talk to someone that has started a business, moved, or expanded to a location outside of their home state, and they will tell you of the myriad of hurdles they needed to clear to successfully open that business. This red tape seems to occur in any location; however, the state of Rhode Island is trying to make that process easier.
Much of the legwork can now be done right from your computer, and both the Secretary of State’s and the Commerce Corporation’s websites are designed to be user-friendly. The revised Secretary of State’s website makes it easier to get all the forms, business resources links, tutorials and other necessary tools to plan, start, or maintain your business. Prospective businesses can simply log on to the Secretary of State’s website, click on the business portal link, and proceed to the “Start or qualify a business” tab. It takes just a few minutes to walk through the online process, and it takes much of the guesswork out of questions such as: What forms do I need to complete? How much are all the fees to register my business?
The Rhode Island Commerce Corporation’s website provides a one-stop shop to see all the available state-level incentives for current Rhode Island businesses as well as those considering a move to the Ocean State. For companies already established in Rhode Island, there is the “Grow My Business” page and for those relocating here, just go to the “Relocate” page. You will see information about the tax credits, grants, financing and additional resources the state offers to encourage business growth in Rhode Island. Rhode Island presently has 20 different business credits available to offset the state income tax. Key among these credits for existing businesses are several labor-based credits for increasing your workforce. For businesses relocating to Rhode Island, there is the Qualified Jobs Incentive Tax Credit and Tax Increment Financing Program (for tax rebates). Beyond the tax credits, there are other incentive programs available to businesses through grant and financing programs. The tax stabilization program is an incentive provided to cities and towns that enter into property tax stabilization agreements with businesses. One of these programs may provide the right financing for your business.
To show how serious the state is about encouraging businesses to move to and/ or expand in Rhode Island, the Commerce Corporation has formed a relocation team. This relocation team is symbolic of the state’s welcoming attitude for new business. Rhode Island has recognized the challenges that business owners face in starting a business in a new location and the team’s purpose is to smooth out that process. There are many economic factors to consider when evaluating business relocation or expansion into a new state. The lower tax rate, tax credits, grants, and other incentive programs may help you to finance your way to Rhode Island and stay here.
There is much uncertainty concerning the future tax structure for individuals and businesses. As these tax proposals on the federal and state level develop, we will analyze the effect on Rhode Island businesses in our continuing series.
Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.