State Senate Approves Sales Tax Exemption Bill for Travel and Tourism

The following is a press release from the State Senate:

The Rhode Island Senate Tuesday passed legislation to restore the sales tax exemption on scenic tour and transportation services. The bipartisan legislation, 2012-S-2049, is sponsored by Newport County’s delegation to the Senate: President of the Senate M. Teresa Paiva Weed and Senators Louis P. DiPalma, Christopher Scott Ottiano, David E. Bates and Walter S. Felag, Jr.

The legislation was promised by the Newport delegation – President Paiva Weed and Senator DiPalma – in August following meetings during which members of the tourism industry expressed their concerns that the new tax placed them at a competitive disadvantage.

The senators noted that the provision impacts one of the state’s most important industries: travel and tourism. The 2011 budget extended the state’s 7 percent sales tax to package tours and scenic and sightseeing transportation services that take place in whole or in part in Rhode Island, effective as of October 1, 2011. (Transportation that does not involve sightseeing is not subject to the tax.)

The Senate weighs the merits of the state budget in its entirety, and the sales tax expansion was among the package of tough decisions included.

“This revenue helped to close the budget gap and was one of many very difficult decisions," said President Paiva Weed. "But in the months since its enactment we have heard from many in the tourism industry about the unintended consequences of this provision. This legislation removes a potential impediment to our vital tourism industry."

“Travel and tourism represent five percent of Rhode Island’s gross domestic product and 9.2 percent of total employment,” she continued. “More than 42,000 jobs were created directly and indirectly by travel and tourism, according to a Global Insight tourism study. We should be doing everything we can to support this vital industry. Instituting a tax detrimental to tourism makes no sense.”

“The beauty and charm of Newport and our whole state is unparalleled, so it is little wonder that tourism is one of our major industries,” said Senator DiPalma. “Investment in this industry pays dividends as dollars from out of state flow into our world class destinations and support local and state priorities while alleviating pressure on local and state taxpayers. The tax on tour packages presents a disadvantage to local tour companies when we should be giving them every advantage we can.”

If tourism didn’t exist in Rhode Island, each household would pay $1,349 more in taxes to maintain the current level of state and local tax receipts, the Global Insight study concludes. Each visitor creates about $134 in tax receipts, $78 of which go to state and local authorities. It takes only 185 visitors to pay for one Rhode Island public school student for a year.

Evan Smith, President of the Newport & Bristol County Convention and Visitors Bureau, said when the action was announced in August that he appreciates the response from Newport’s Senate delegation.

“This tax puts Rhode Island at a marketing disadvantage in the highly competitive travel industry," he said. "Our elected officials have a challenging job. I appreciate the responsiveness of Senate President Paiva Weed and Senator DiPalma and look forward to working together with them in a team effort to address our concerns.”

Massachusetts levies a similar tax, applicable to packaged tours in Boston, at a rate of 5.0 percent. Vermont also levies a similar tax, at a rate of 6.0 percent. Connecticut, Maine and New Hampshire do not levy a sales tax on packaged tours.