Failed during budget negotiations, Citizens Bank bill revived • Rhode Island Current

Speaker of the House of Representatives, K. Joseph Shekarchi, assured Reporter Friday Night that a proposed tax Change in the law The restructuring requested by Citizens Bank was not dead, despite its glaring absence in the revised 2025 budget.

Less than 72 hours later, the Democrat from Warwick presented the proof: revised legislation authorizing the change in the calculation of income taxes for state banks. Hearings were held before the Finance Committees of both houses on Tuesday.

What has changed?

“It wasn’t ready,” Shekarchi told reporters at the State House on Monday afternoon. “The IRS was against it. The government was against it. I certainly didn’t want to put it in the budget to debate it. Now those two priorities of the House of Representatives have been met.”

He added: “I wanted to make sure the taxpayer was protected.”

McKee is pushing for a state tax overhaul to keep Citizens Bank in Rhode Island. But will it work?

The updated accompanying invoices, The proposal, sponsored by Rep. Joe Solomon (D-Warwick) and Sen. Lou DiPalma (D-Middletown), came after months of behind-the-scenes negotiations between state officials and bank executives dating back to before Christmas, Shekarchi said.

The tax change essentially gives banks the ability to calculate their taxable income based only on in-state sales, replacing the longstanding “three-factor” calculation that includes in-state sales, property and payroll. Although the proposal does not specifically apply to Citizens, the financial services giant stands to gain the most from the proposal. Unlike other banks in Rhode Island, Citizens makes most of its money from services outside the state’s borders, but its physical presence and payroll are focused on the Ocean State.

Other states, including neighboring Massachusettshave already moved to a similar tax calculation method, a trend pointed out by Mike Knipper, executive vice president and head of real estate and procurement at Citizens Financial Group Inc. in an April letter to the state legislature.

Knipper warned in his letter that without a similar tax update in Rhode Island, the company “would seriously consider expanding its corporate presence and employee base outside of Rhode Island due to the differing tax treatment in each state.”

On May 10 Governor Dan McKee suggested a budget amendment that provides for the requested rewrite of the calculation of the bank income tax, with an estimated loss of $15.6 million in state tax revenue for the full fiscal year.

However, McKee’s proposal was not taken into account when lawmakers presented their revised 2025 budget on May 31. Shekarchi quotes Lack of details and time to review the proposal before finalizing the state budget.

But Shekarchi also said he would not be responsible for the loss of one of the state’s largest employers, which employs 4,200 people in the state and operates its $285 million headquarters in Johnston.

Negotiations have intensified over the past week and a half. Shekarchi sent text messages to key players on the tax bill from the budget debate podium on Friday evening. A weekend of closed-door meetings and phone calls later, the deal was reached.

Key to Shekarchi’s change of heart was the approval of the Rhode Island Tax Commission, which had initially expressed concerns about the bill when Solomon first introduced it in March. Tax officials gave the revised proposal the green light on Sunday, Shekarchi said.

The updated legislation clarifies the way taxes are calculated to avoid double taxation – a concern of Citizens – and refines the information the state tax agency must collect and verify. A report detailing the impact of the tax change is expected to be submitted to lawmakers no later than March 2027.

“The citizens are encouraged by the recent progress and greatly appreciate the leadership of Governor McKee, Speaker Shekarchi, Senate President Ruggerio and everyone else involved,” said Keith Kelly, president of Citizens Bank Rhode Island, in a statement. “We look forward to continuing to work closely with the state to achieve an outcome that is a win-win for both the business community and Rhode Island.”

Citizens declined to comment further on Monday.

From left: House Majority Whip Katherine Kazarian, House Speaker K. Joseph Shekarchi and Rep. Joe Solomon speak to reporters at the State House on Monday, June 10, 2024. (Nancy Lavin/Rhode Island Current)

“Energetic and robust debate”

The change in tax calculation is expected to reduce state tax revenues by $7.5 million in fiscal year 2025, with a revenue loss of $15 million projected for fiscal year 2026. Although the measure is not reflected in the state budget for fiscal year 2025, there will be no cuts or structural imbalances, Shekarchi said.

Instead, the state will take $6.5 million in fiscal year 2024 from the $55 million set aside for an additional emergency fund, and another $1 million will be diverted from state surpluses to make up for expected revenue shortfalls in fiscal year 2025.

“It was a discretionary decision,” Shekarchi said, explaining his decision not to include the policy change in the 2025 budget. “I did not want this one unresolved item to be the focus of the budget.”

However, he stressed several times that lawmakers have enough time to thoroughly examine the proposal. A version of the tax change will be discussed for the third time at the House Finance Committee hearing on Tuesday. There were previous hearings on Solomon’s bill and the governor’s budget amendment.

“There will be a lively and intense debate,” Shekarchi said.

There is still no guarantee that the hours of negotiations behind closed doors will prevent the Citizens from packing up their tents anyway, Shekarchi admitted.

However, he added: “I think the Citizens would find it difficult to move. They really wanted to.”

Concerns raised by some lawmakers that changing state tax law in favor of one company would set a precedent for other companies, but Shekarchi rejected that logic.

“In my opinion, there is no precedent for this,” he said. “Just because you do it for one person doesn’t mean you’ll do it for the other.”

McKee and Senate President Dominick Ruggerio also expressed their support for the tax deal in statements on Monday and stressed the importance of parity between Rhode Island and Massachusetts, where the switch to the single-factor tax calculation is planned from January 1.

Laurie White, president of the Greater Providence Chamber of Commerce, also welcomed the revival of the tax change after an email alert last week when it appeared that the measure would not make it into the 2025 budget.

“I am pleased that all sides are working toward a solution,” White said in a text message on Monday. “I applaud the progress being made by Governor Dan McKee, Speaker Shekarchi, President Ruggerio and the citizens.”

If the tax change comes into force, it will take effect on January 1.

The House Finance Committee will consider the revised tax reform at 3:30 p.m. Tuesday in the State House. The Senate Finance Committee will follow with a hearing on accompanying legislation. Tuesday night.

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