An idea that grew from the Small Business Association’s annual economic summit has Rep. Patricia A. Serpa (D – Dist. 27, West Warwick, Coventry, Warwick) pushing hard for Rhode Island to implement a capital gains tax exemption that will make the state more attractive for new businesses and entrepreneurs.
“Stability and an alluring tax policy are enough to begin building a more solid economic foundation here in Rhode Island,” Representative Serpa said. “We have to put ourselves in the place of outside investors and ask, ‘Why would I want to start a business here?’ The capital gains tax exemption applies to new investments in Rhode Island businesses, and it doesn’t allow loopholes for existing businesses to sell out and take advantage of the exemption. This state should be doing everything it can to not only attract companies, but to keep them here.”
The exemption only applies to new investments. If an employer builds a business and it fails, there will be no sale of that business, thus no capital gains tax exemption at the expense of taxpayers. Under provisions of the bill, all capital assets purchased after Jan. 1, 2012 and sold after Jan. 1, 2015 shall have a holding period of three years, beginning at the date of the purchase. For tax years beginning in 2015, a taxpayer shall be exempt from all gains from the sale of a capital asset, provided that:
- The capital asset represents ownership interest in an entity incorporated and having its headquarters located in Rhode Island;
- The taxpayer didn’t have a previous ownership interest in the entity;
- The capital asset was in the minimum amount of $10,000 and represented newly issued capital of the Rhode Island entity;
- The capital asset was owned by the taxpayer for at least three uninterrupted years prior to the sale or transaction that created the capital gain.
Representative Serpa said she has already seen proof this tactic works in states like New Hampshire, which after removing its capital gains tax saw an increase in economic development. Members of the Rhode Island House of Representatives also discussed possible benefits of a change in the capital gains tax during its economic summit, which House leadership hosted this month at Rhode Island College.
“With every meeting we have with local business owners, it becomes more and more clear that we must rebrand Rhode Island and change the way we think about economic development,” said Representative Serpa. “This legislation will help us do that a lot faster. Companies will give Rhode Island a second look and we can create some real progress in building a competitive, sustainable job market.”
Cosponsors of the bill (2013-H 5194) include Representatives Agostinho F. Silva (D – Dist. 56,Central Falls), Joseph M. McNamara (D – Dist. 19, Warwick, Cranston), K. Joseph Shekarchi (D – Dist. 23, Warwick) and Patricia L. Morgan (R – Rep. 26, West Warwick, Coventry, Warwick). The legislation has been referred to the House Finance Committee.
Sen. David E. Bates (R – Dist. 32, Barrington, Bristol, East Providence) is the sponsor of its companion legislation (2013-S 0023), which the Senate Finance Committee held for further study this week. Its cosponsors include Senators William A. Walaska (D – Dist. 30, Warwick), Christopher S. Ottiano (R – Dist. 11, Portsmouth, Bristol), Marc A. Cote (D – Dist. 24,Woonsocket, North Smithfield), Dawson T. Hodgson (R – Dist. 35, North Kingstown, East Greenwich, Narragansett, South Kingstown).