Equalizing home, business taxes aim of Donovan resolution
Ward 7 Councilman CJ Donovan hopes to restore equity in taxation between residential and commercial property owners; and, in the process, attract additional businesses to Warwick by lowering taxes for both groups.
It’s a dream many would like to see come true, but realists believe it is next to impossible to accomplish.
Presently, the commercial tax rate is 150 percent of the residential rate. This produces an additional $23 million annually that would have to be absorbed by residential ratepayers, if everything remains equal.
Donovan is not looking to lighten the tax burden on businesses at the expense of residents. His hope is that, by restoring equity, the city would send a message that Warwick is a business-friendly community. He hopes that will result in more businesses locating here and add investments by existing businesses that would broaden the tax base and increase revenues, all without hiking rates.
“I’m hoping that, if you strengthen the business community in Warwick and made it more attractive for businesses to come in, it would have an effect on lowering the residential rate as well. By trying to equalize the two, we might have a favorable impact on both,” he said last week.
Donovan has introduced a resolution calling for the creation of a nine-member committee to study the ramifications of equalizing the two rates. He’s suggesting the panel consist of members of the city administration, the council, the Central Rhode Island Chamber of Commerce, Warwick Rotary Club and the AFL-CIO.
“That way, we’ll have all stakeholders sitting at the table,” Donovan said, noting that it also would be beneficial to look at nearby cities and towns to see what they are doing and possibly learn from them.
“I want to recognize the difference in tax structure, and then set goals such as, ‘How do we strengthen the business community in Warwick?’ By sitting down and learning about the different tax structures, we can see if there’s a way we can equalize it.”
City Tax Collector and Assessor Ken Mallette thinks equalization is an admirable goal, although politically difficult to achieve.
Presently, the city collects $110 million in residential taxes and another $69 million in commercial taxes. Assuming there was no offset by a growth in business, he said taxes on the average Warwick home valued at $208,600 would increase from $3,784 to $4,322 if the rates were equalized. The burden on the homeowner would climb to $4,497.90 if the city were to also equalize the tangible rate paid by businesses. The rate is levied on business furniture, computers and other tangibles.
The city turned to the tiered tax system in the wake of the 1997 revaluation, when commercial valuations plummeted. Commercial property dropped from 32 percent of all property valuations to 20 percent. To raise the same tax revenues, homeowners would have had to make up the difference. Initially, the difference in rates was about 25 percent and rose to 75 percent following the 2004 revaluation under specially approved legislation. It has since dropped back to 50 percent, the cap set by state law.
If the business rate were cut, Mallette points out, there are no guarantees that the money will go back into the business.
“You don’t know if it’s going to go into the CEO’s pocket,” he said.
Likewise, he questions what the impact on residential property values and sales would be if those taxes increased dramatically.
And he asks if elected officials would do it.
“I don’t know if you could get it through the council, if you were going to increase taxes by $2,” he said.