FY2012 Budget Sales Tax M odernization as Proposed by the Governor - PDF document

FY2012 Budget Sales Tax M odernization as Proposed by the Governor Senate Fiscal Office April 14, 2011 www.rilin.state.ri.us/ SenateFinance Overview of Presentation FY 2012 Budget Context Overview of Proposal Three Components to Proposal Tax Rate Reduction Base Broadening New 1.0 Percent Sales Tax M AST and TAP Selected Issues to Consider 2 www.rilin.state.ri.us/ SenateFinance Embargoed until 2:30 PM on April 14, 2011

FY2012 Budget Context FY2012 – Overview – Deficit Solution FY2012 – Overview – Deficit Solution Expenditure M odifications, 12.2% Shifts to Other Funds, 21.2% Ongoing Revenues, 59.4% One-time Revenues, 7.2% 4 www.rilin.state.ri.us/ SenateFinance Embargoed until 2:30 PM on April 14, 2011

Sales Tax Collections Current sales tax rate is 7.0 percent of the retail price of certain goods, exempting nearly all services and sales on food, clothing and medications. FY2012 sales tax collections estimated at $824.0 million and represents 28.0 percent of total revenue collections ($2,938.0 million). S ales tax collections peaked in FY2007 at $873.2 million S ales tax collections dropped to $803.4 million in FY2010 Governor’s Budget solution relies heavily on Sales Tax proposal to close deficit. Total sales tax collections would exceed projected income tax collections if enacted, becoming the largest single tax revenue source to the State. www.rilin.state.ri.us/ SenateFinance 5 Sales Tax Collections $900 8.0% $873.2 $869.2 6.0% $847.7 $845.4 $850 $824.0 $822.9 4.0% $808.1 $805.5 hange $803.4 $800 Millions 2.0% $777.4 Percent C 0.0% $745.9 $750 -2.0% $700 -4.0% $650 -6.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 S ales Tax Collections Change in Collections 6 www.rilin.state.ri.us/ SenateFinance Embargoed until 2:30 PM on April 14, 2011

Overview of Proposal FY2012 – Governor’s Sales Tax Proposal The Governor includes a sales tax proposal that results in net revenue of $164.9 million to balance the FY2012 budget. The legislation: Reduces the sales tax rate from 7.0 percent to 6.0 percent; Expands the 6.0 percent tax base to certain additional goods and services; and Creates a new 1.0 percent tax rate applied to additional goods and services. Food, prescription medications, and gasoline remain exempt under the Governor’s proposal. 8 www.rilin.state.ri.us/ SenateFinance Embargoed until 2:30 PM on April 14, 2011

Revenue Impact of Sales Tax Proposals FY2012 FY2013 FY2014 Sales Tax Rate at 6.0% ($117,714,286) ($120,734,637) ($121,584,056) Base Expansion at 6.0% 197,594,235 203,174,625 204,604,423 1.0% Tax on Certain Items 85,000,451 87,238,907 87,865,310 Total $164,880,400 $169,678,895 $170,885,677 www.rilin.state.ri.us/ SenateFinance 9 Three Components to Sales Tax Proposal Embargoed until 2:30 PM on April 14, 2011

Sales Tax Proposal – Part One Rate reduction from 7.0 percent to 6.0 percent would begin July 1, 2011, resulting in $117.7 million less in revenue. Goods that would have a reduction in tax rate include, but are not limited to: Input purchases by non-manufacturing; Automobiles including leasing and motorcycles; Tangible personal goods; Package store purchases; Telecommunications/ wireless equipment; Household appliances, electronic equipment, computers; Electricity, gas and water. www.rilin.state.ri.us/ SenateFinance 11 Sales Tax Proposal – NE Sales Tax Rates 8.00% 7.00% 6.25% 7.00% 6.35% 6.00% 6.00% 6.00% 6.00% 5.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 0.00% CT CT ME MA NH RI RI VT (Current) (Proposed) (Current) (Proposed) 12 www.rilin.state.ri.us/ SenateFinance Embargoed until 2:30 PM on April 14, 2011

Sales Tax Proposal – Part Two Base expansion to tax at the 6.0 percent rate would result in an estimated $197.6 million in net new revenue. Goods currently exempt from tax: Newspapers; Nonprescription drugs; Medical marijuana; Pre-written computer software delivered electronically; Insurance proceeds from destroyed passenger cars as trade in allowance. www.rilin.state.ri.us/ SenateFinance 13 Sales Tax Proposal – Part Two (continued) Services/Goods currently not subject to tax include, but are not limited to: Domicile related services (i.e. Amusement parks and other recreation services; landscaping extermination) Membership clubs and Employment agency services; professional associations; Personal care services; Live entertainment (excludes Investigation and security promoters of performances); services; Motor vehicle maintenance, Business support services; including car washes; Clothing, electronics, appliances, M oving and storage services; watch and jewelry repair. Laundry and dry cleaning services; Pet services. 14 www.rilin.state.ri.us/ SenateFinance Embargoed until 2:30 PM on April 14, 2011

Sales Tax Proposal – Part Three New 1.0 percent sales tax rate for Includes, but not limited to: certain items, projected to Purchases for manufacturing generate $85.0 million in net new purposes and manufacturing revenue. equipment; Charitable, educational and Assumes collections on a number religious organizations; of items where no specific estimate Clothing and footwear; could be determined. Home heating oil and water for residential use; Includes $1.8 million revenue loss Aircraft and aircraft parts; for non-compliance with Boats brought in for storage, sale, Streamlined Sales and Use Tax or repair or sold to non-residents; Agreement. Equipment used for research and development. www.rilin.state.ri.us/ SenateFinance 15 M AST and TAP Embargoed until 2:30 PM on April 14, 2011

M unicipal Accountability, Stability and Transparency (M AST) Program Provides $19.3 million to encourage fiscal M AST and TAP tax illustration best practices for municipalities. Requirements increase over time: 1% 1% 1% FY2012: Requires enhanced reporting from municipalities, such as 5-year forecasts FY2013: Must fund pension ARC over 5 7% years; additional requirement for systems 6% less than 50.0 percent funded FY2014: Must fund OPEB ARC over 10 years; must join multiple employer trust if established State share MAST/ TAP Local share www.rilin.state.ri.us/ SenateFinance 17 Tourism Asset Protection (TAP) Program The local Hotel Tax rate would increase from 1.0 percent to 2.0 percent beginning M AST and TAP tax illustration July 1, 2011, generating $2.6 million in 1% 1% FY2012. 1% This increase is coupled with the decrease in the sales tax by 1.0 percent, resulting in no net tax increase for hotel 7% accommodations. 6% The additional 1.0 percent would be deposited into a new restricted receipt Tourism Asset Protection (TAP) Fund and State share MAST/ TAP Local share dedicated to S tate-owned tourism assets. 18 www.rilin.state.ri.us/ SenateFinance Embargoed until 2:30 PM on April 14, 2011

Selected Issues to Consider: Not withstanding the larger issue of whether changes in sales tax policy are warranted to resolve the budget deficit, the following questions should be considered as your review the proposal before you. Fairness/Equity Competitiveness Administration Transparency Revenue Product Alternative Choices www.rilin.state.ri.us/ SenateFinance 19 Thank you www.rilin.state.ri.us/ SenateFinance Embargoed until 2:30 PM on April 14, 2011