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Expert recommends RI look at tax changes

November 20, 2013

PROVIDENCE— The Special Joint Legislative Commission to Study the Sales Tax Repeal met for the fifth time last night and heard some informational testimony regarding the elimination of the sales tax in Rhode Island.

Joseph Henchman, Policy Analyst for the Tax Foundation in Washington D.C., spoke to members of the commission about Rhode Island’s high sales tax and compared it to other states throughout the country.

Currently, he said, there are five states that do not have a sales tax and prior to 80 years ago, no state had a sales tax.

“They came about as a crash implementation during the middle of a crisis—The Great Depression.,” he added. “And Mississippi was the first to adopt a sales tax.”

He explained that when finance experts think of a sales tax, they think it should be a tax on all final sales, exempting business input.
Rhode Island, like most states, do the “exact” opposite, he explained to the commission.

“Many goods and nearly all services are exempted from sales taxes while many business purchases are taxed,” he emphasized.

Rhode Island currently has one of the highest sales tax both nationally and compared to neighboring states. On top of that, he said, Rhode Island has the narrowest tax base in the country.

“Only 25 percent of the goods and services people buy is subject to Rhode Island’s sales tax,” he said. “Only Illinois, Massachusetts and New Jersey have a narrower sales tax. You are exempting 75 percent of the economy from the sales tax and you impose a higher rate on the rest. I would say reform of some kind is needed.”

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