PROVIDENCE – The Tax Foundation, a nonpartisan tax policy research group on Tuesday released its 2024 State Business Tax Climate Index, showing a slight improvement for Rhode Island, which the organization says is now faring better than neighboring Massachusetts and Connecticut regarding tax competitiveness.
The index measures each state’s taxation structure and is meant to inform policymakers, business leaders, and taxpayers on how they stack up against their peers across more than 120 variables. In addition to an overall ranking, the study breaks down tax codes across five sub-indexes: corporate taxes, individual income taxes, sales and excise taxes, property and wealth, and unemployment insurance taxes.
Rhode Island’s overall ranking moved from 42nd to 41st while its property tax component ranking moved from 41st to 35th. Massachusetts and Connecticut’s overall ranking was 46th and 47th, respectively.
Massachusetts’s overall ranking fell 12 spots in the most recent report, more than any other state. The researchers attribute this mostly to a decline in “tax competitiveness” that resulted from the adoption of a November 2022 ballot measure that amended the state’s constitution by imposing a 4% surtax on income over $1 million; and raising the top marginal individual income tax rate from 5% to 9%.
The Bay State’s individual taxation ranking fell 33 spots over 2023.
“This policy change represents a stark contrast from the recent reforms to reduce rates while consolidating brackets in many other states,” the authors noted.
The report included Rhode Island in its “notable rankings changes,” citing the inclusion in the fiscal 2024 budget of a $50,000 exemption to the tangible property tax paid by businesses on equipment and other connected assets.
Rhode Island currently has graduated individual income tax rates that range from 3.75% to 5.99 percent, a flat 7% corporate levy, and a 7% state sales tax.
On Wednesday, a spokesperson for Gov. Daniel J. McKee, Matt Sheaff, lauded the report, which the administration views is result of policies like the phase-out of the car tax, elimination of the litter tax and a $100 million investment to shore up the state’s unemployment insurance trust fund.
“While there’s more to do, Rhode Island continues to make progress on these national rankings which reflects the work that our Administration has done in partnership with the General Assembly to improve Rhode Island’s business climate,” he said.
Sheaff said the state has also improved its rankings in other national studies, such as a CEO Magazine survey which ranked Rhode Island 25th among states to do business, and a recent U.S. News & World report that listed it 9th in “business environment.”
An overview of how Rhode Island fared within the Tax Foundation’s subcategories placed it 49th for unemployment insurance taxes; 35th for property taxes; and 22nd for sales taxes. The index also shows each state’s performance over the previous decade. Since 2014, Rhode Island’s best overall ranking was 38th, logged in both 2018 and 2019.
University of Rhode Island business professor Edward M. Mazze said the state’s regulatory structure and its “cost of doing business” has improved in recent years.
“There have been changes in the tax structure which have been helpful to businesses,” he said. “But we still have work to do to become more competitive.”
Wyoming ranked first overall and has the best individual taxation polices, according to the foundation.
The report’s summary says the lowest ranked states “tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates.”
(UPDATE: Adds comment from McKee spokesman in 9th, 10th, 11th and 12th paragraphs)
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com.