Rhode Island businesses have received approximately 17,282 federal Paycheck Protection Program, or PPP, loans totaling more than $1 billion, according to the U.S. Small Business Administration.
Gov. Dan McKee has proposed taxing loans over a certain threshold, while a large segment of Rhode Island’s business community has united against it.
More than 100 business owners and a handful of legislators gathered at a Plainfield Pike warehouse Monday morning as part of an event organized by the Rhode Island Business Coalition.
Some are threatening to leave the Ocean State if the business tax climate doesn’t improve. Most say the past year’s pandemic has almost shuttered their operations, and a swelling tax burden may break them.
“I love Rhode Island,” said John Hazen White, CEO of Taco Comfort Solutions. “Whether I can stay here, I don’t know.”
Cranston-based Taco received the third largest PPP loan in the state, $8,158,133, according to the SBA. The company employs 478 in Rhode Island. The loan enabled the company to keep all 478 employees on the payroll. Taco also owns a factory in Fall River.
Rhode Island business community representatives have offered testimony during legislative hearings and publicly voiced opposition to a set of proposed tax increases on businesses and individuals.
Shared worries, and the coalition, brought them together Monday for the press conference at Dean Warehouse, located at 2000 Plainfield Pike in Cranston.
If the governor’s proposal passes, Taco could be on the hook to pay around $500,000 to $750,000 in state taxes on the federal loans, White estimates.
“That is the $64 million question,” White said Tuesday morning. “We took that money and put it in a special bank account. One hundred percent was used for payroll. We kept our people employed.”
The business, which manufactures heating and air-condition valves and pumps, was deemed essential during the pandemic.
“We had to make some sacrifices,” White said. “We did a tremendous amount of cost reduction to stay in business. And unfortunately, without that loan, it would have cost some jobs, like a lot of jobs.”
The details of the proposed PPP loan tax have changed several times, and the exact language has not been finalized. Legislators are working to finalize the state budget now.
McKee has proposed taxing PPP loans amounts exceeding $150,000, if the receiving business was able to turn a profit during the pandemic. Most states, and the federal government, have opted not to tax any of the loan amounts.
In response to an inquiry, the governor’s office provided the following statement Tuesday: “The Governor recently had a productive meeting with members of the Rhode Island Business Coalition, during which he heard various suggestions and opinions on his proposal. He is meeting with groups and stakeholders and continuing discussions on the matter.”
It adds: “The Governor has said publicly that he does not support income tax increases at this time. If an income tax increase came to his desk, he would review the budget or bill and make a determination at that time.”
“The issue of taxing PPP loans was proposed in Governor McKee’s budget and is being considered as part of the budget deliberations,” House Speaker K. Joseph Shekarchi said in a statement last week. “The state tax only applies to a very small number of companies that received forgivable loans over $150,000 and recorded a profit. Those companies that did not record a profit would not be taxed.”
Business organizations from across Rhode Island have been railing against proposed tax increases for weeks.
“If I knew then what I know now, I perhaps would not have taken this loan,” White said. “The rules kept changing.”
White further clarified his statements at the press conference, and said his decision to leave Rhode Island would be more closely tied to estate taxes than the proposed PPP loan tax.
He said his company will not leave the Ocean State, but he might need to change his residence before he dies.
He has considered states like Florida and New Hampshire, which do not have estate taxes.
Several speakers also mentioned a reduction in the Rhode Island estate tax Monday, as well as a proposed increase in the state’s top income tax bracket.
Although pending bills differ somewhat, one proposal calls for adding a new tax bracket for the state’s top earners making more than $475,000 annually, increasing their income tax rate from 5.99 to 8.99 percent.
“The tax on high-wage earners is under consideration and the House Finance Committee has heard lots of testimony, both pro and con,” Shekarchi said. “I applaud all advocates for getting involved in the legislative process and we value the opinion of the business community.”
Cranston Mayor Ken Hopkins addressed the crowd Monday.
“The business community is the engine of our economic progress,” he said. “It’s the heart and soul of the community, but it is getting crushed.”
McKee’s initial suggestion to tax PPP loans coincided with a large projected state budget deficit. Next year’s budget outlook, however, has improved greatly as the economy reopens.
“Recent announcements by the Office of Management and Budget now project a budget surplus in excess of $550 million, which does not include PPP loan forgiveness or new tax revenues,” according to a statement from the RIBC. “Further, the numbers do not include the massive $1.78B in federal stimulus funding Rhode Island has received from the American Rescue Plan Act. This is not the time for the State to raise taxes.”
White hopes to convey a positive message as he asks legislators to consider a friendlier business tax climate in his home state.
“All of us have to be a part of the solution,” he said. “We all have to work together.”
No comments on this item Please log in to comment by clicking here