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Meal tax hike plan gets cold shoulder

March 8, 2012

PROVIDENCE – Instead of the “year of the cities and towns” that Gov. Lincoln Chafee called for in his State of the State speech, restaurateur Robert Burke said 2012 should be “the year of the long-suffering Rhode Island taxpayer.”
Burke led a long parade of his fellow businessmen and women before the House Finance Committee Wednesday, objecting to various changes in the state’s sales taxes recommended by the governor. Most opposed the proposal to increase the state’s meals and beverage tax from 8 percent to 10 percent, but others spoke against the plan to expand the hotel tax to bed and breakfast inns and people who rent their homes to vacationers and some protested expanding the sales tax to freight, storage and warehouse operations, limousines and taxis, car washes and pet care services.
Burke said the legislature is “the perfect place” for taxpayers to find a champion, “because they are clearly not finding a champion in the executive.”
“One of the things you will do if you vote for this meals tax is that you will hurt the working poor,” he asserted. “The failure to graduate, the failure to get a college education is a huge problem in Rhode Island. You know who employs these people who the system has failed?” He said the restaurant industry “is hiring the dropouts; we’re hiring the working poor. We’re giving that entry-level job to people who wouldn’t otherwise get it. Hurting our industry is not the way to help them more.”
Comparing Rhode Island’s nationally popular restaurant industry to a horse in the Kentucky Derby that finds itself coming to the finish line 10 lengths in the lead, Burke said Rhode Island would find a way to stop the horse, tie cinderblocks to each of its legs, “then whip it to death for not running fast enough.”
William Kitsilis, owner of Cumberland’s Angelo’s Palace Pizza, agreed, noting that his restaurants hired 25 full-time and 35 part-time employees “a lot of those employees are the people Mr. Burke talked about, college dropouts, kids with teenage pregnancies coming to work for us needing to make ends meet and a lot of hard-working adults needing to support their families.
“We’re creating jobs for you,” Kitsilis told committee members. “Let us help you by helping us. Don’t pass the meals tax increase.”
Kitsilis said his restaurant is slightly more than a mile from the Attleboro border but, “we lost those Attleboro customers when we went to 8 percent (the current tax on meals) and they were at 5 percent. It’s just a perception, it’s slight, its not big dollars. When we talk about raising 5, 10, 15 cents an item, those pennies add up. Those pennies help us pay our bills, pay our employees and give us the hope to expand.”
Director of Administration Richard Licht started the meeting by telling the lawmakers that “the way we fund education needed to change.” He said city and town leaders had told the governor that the best way to help them was to accelerate funding under the state education aid formula and the meals and beverage tax was the best way to come up with nearly $40 million to do that.
Of the additional school aid allocated from the $39.5 million – that money is not restricted to school aid in the budget, but Licht and Chafee have said that is the intention -- Licht said $4 million would go to Pawtucket, $1.8 million to Woonsocket and $11.5 million to Providence.
Licht noted that Chafee has said on several occasions that if revenue estimates in May come in higher than the ones he had to work with in November, then reducing or rescinding the meals tax increase would be a possibility. Licht warned that the governor might not want to get rid of the entire increase because there are some cuts to social service programs that he might want to reconsider as well.
One of the most dramatic points of the four-hour hearing was a set-to between Licht and Warren Rep. Jan Malik.
Speaking to Licht and other Chafee administration officials, Malik fumed, “I don’t know if I should commend you people for having the courage for being in front of us today to present this proposal or to ask you all to submit to an I.Q. test.” (A few minutes later, after considerable argument, Licht told Malik, “I think we’d pass an I.Q. test.”)
Malik insisted “We have to find an alternative way to raise taxes” for cities and towns. “The problem in the communities is we’re not giving them another way to tax. If they have to raise revenue, we give them one method: raise property taxes. Let’s find another method. Maybe that whole meals tax – where it is now, not expanding it – give it back to the communities where it is generated.”
He said the state is not giving the cities and towns any option for raising revenue except by taxing people’s homes.
Licht answered that “the governor would welcome an opportunity to work with the General Assembly to find alternatives to the property tax.” He said allowing communities to keep all of the meals tax revenue would mean that communities like Providence, Newport, Warwick and Cranston would get the lion’s share of the money, and smaller communities with fewer restaurants would lose out.
Acting Chairman Raymond Gallison called for calm when the discussion between Malik and Licht got heated, prompting Malik to explain, “I’m a full-bred Polak and I get excited about this stuff.”
Noting that Licht was an attorney before entering government, Malik said “I have never seen you guys propose a tax on attorneys yet. Why? Why? Put yourself at the disadvantage to Massachusetts like we have or (pointing to the restaurant owners waiting to testify) that they have.”
As an example of the way a tax can hurt a business, Malik, who owns a liquor store, said his business has fallen 14 percent because Rhode Island has a sales tax on liquor and Massachusetts doesn’t. He said Massachusetts “saw what sales tax does to them on the New Hampshire border (New Hampshire does not tax liquor) and what revenue they increased” on the Rhode Island border when they eliminated the tax.
“In my industry, all the way from Woonsocket down to the Tiverton border, we’re all hurting,” he said.

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