Serpa Bill Could Attract Outside Businesses to RI

Building upon her experience at the annual Small Business Economic Summit held in January, Rep. Patricia A. Serpa (D-Dist. 27, West Warwick, Coventry, Warwick) has introduced a tax policy bill to make Rhode Island more attractive for new businesses and to further invest in existing businesses.

 “Consistency, stability and tax policy are the main considerations when companies and investors look to open businesses here,” the representative said. “This bill would provide an exemption on the capital gains for new investments in Rhode Island businesses made after Jan. 1, 2012 and going into the future. Many entrepreneurs look to establish successful businesses, sell them at a profit and move onto other initiatives. My legislation encourages that strategy.”

The legislation (2012-H 8057) does not allow loopholes for existing businesses to sell out and take advantage of the exemption on capital gains. The bill could serve the state well, Representative Serpa said, as lawmakers continue to look for ways to assist in the expansion of the job market.

“Companies would give Rhode Island a second look with a capital gains exemption,” she said. “Creating jobs results in a domino effect – Rhode Islanders would have more disposable income to buy local products, which would enrich our current business landscape. We would also see an increase in personal income, corporate and property tax revenues. The message we have been hearing on Smith Hill for years is that we need to create an environment where businesses want to set up shop here. We’re not seeing ideal progress in the job market right now, and it is my hope that my colleagues in both chambers will seriously consider all of the positive impacts this legislation could have for no short-term cost to the state budget.”

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 grown concerned with the lack of uniform planning when it comes to the state’s approach to attracting more business.

 “The state shouldn’t be cherry picking businesses and pushing them to succeed,” Representative Serpa said. “We need to cast a wider net, and of course we need to keep in mind the businesses that are already here and have the desire to expand. Proof of the success of this type of bill has already been seen in places like New Hampshire, which after removing its capital gains tax saw a spike in business because of its favorable tax policy.”

Co-sponsors of the bill, which the House Finance Committee held a hearing for this month, include Representatives Donna M. Walsh (D-Dist. 36, Charlestown, New Shoreham, South Kingstown, Westerly), Arthur J. Corvese (D-Dist. 55, North Providence), Cale P. Keable (D-Dist. 47, Burrillville, Glocester) and Deborah Ruggiero (D-Dist. 74, Jamestown, Middletown). Sen. David E. Bates (R-Dist. 32, Barrington, Bristol) is the sponsor of its companion legislation (2012-S 2883).