(Source: Providence Journal)
By Neil Downing, The Providence Journal, R.I.
March 05--LITTLE COMPTON
Tyler Young's family farm is spread across 180 acres off West Main Road, just east of the Sakonnet River.
His income is mainly from the sale of potatoes, butternut squash, sweet corn and other crops.
The land itself generates no income. But he holds it in a separate company -- a limited liability company, or LLC -- to help protect his family from potential legal claims that may arise in the ordinary course of business.
Young is frustrated that he must pay to Rhode Island a minimum corporate tax of $500 a year on that LLC -- even though it generates no income and exists solely to hold his land.
And he is not alone. Across Rhode Island, tens of thousands of businesses -- restaurants and bakeries, machine shops and beauty salons -- have placed some assets, such as buildings or land, into separate LLCs, upon the advice of their lawyers and accountants.
Profits from the businesses themselves are taxed, either at the corporate level or at the individual shareholder level, depending on how the business is organized, said John C. Simmons, executive director of the Rhode Island Public Expenditure Council, of Providence, a business-backed group that monitors state finances.
But if the business generates little or no profit -- or suffers a loss -- it must still pay the $500 annual minimum tax (also known as the corporate minimum tax).
That rankles a lot of business owners, said Bill Vernon, the Rhode Island director of the National Federation of Independent Business, which represents small businesses.
Their concerns are being heard. At a Greater Providence Chamber of Commerce meeting last month, legislative leaders discussed reducing or even repealing the tax.
If the tax were cut in half, the state would miss out on about $11.5 million in revenue a year. Scrapping it altogether would mean giving up about $23 million in revenue a year, said House Speaker Gordon D. Fox, D-Providence.
But Fox shared the frustration of business owners, saying that the $500 corporate minimum tax is due even in a year in which a small business is just starting up or has otherwise suffered a loss and does not have the means to pay. Such a requirement is "almost un-American," he said.
The House Finance Committee heard bills on Wednesday that would end, reduce or somehow restructure the tax. And Governor Chafee's proposed state budget currently includes a provision that would alter the tax.