PROVIDENCE –– Faced with exploding budget deficits, key lawmakers are seriously considering taxing movie tickets, newspapers, haircuts, car repairs, and even bowling, among a host of goods and services currently exempt from the state’s 7 percent sales tax.

The expansion would probably include an across-the-board reduction of the tax rate to 5 percent, which policymakers believe would make Rhode Island more competitive with its neighbors while giving the state slightly more money to help close near-record budget deficits.

The idea has been debated on Smith Hill for nearly 20 years, but this year, more than ever, the sales-tax expansion may come to fruition, according to key lawmakers and business leaders interviewed this week.

“That is definitely something we will look at,” House Speaker William J. Murphy said. “In tough economic times, you’re more likely to see changes that would not have occurred during good times.”

Murphy said he has recently met a few times to discuss budget issues with Governor Carcieri, who is in the midst of drafting a budget-balancing plan to close a current-year shortfall of $357 million. In the coming months, the governor will release a separate plan to fill an even larger hole for the next fiscal year.

The sales-tax change “is something that we’re looking at and, obviously, we know they’re looking at. So that would be something that could be before us before the year is out,” Murphy said.

It’s no secret that Carcieri is seriously considering amending Rhode Island’s tax structure. He had assembled a “tax policy strategy workgroup” that has spent months crunching numbers to prepare several specific recommendations.

The Rhode Island sales tax –– currently the highest in New England –– is being considered, as is the income tax, capital-gains tax and all tax-credit programs.

But the workgroup isn’t expected to make formal recommendations to the governor until the end of January. That may be too late for Carcieri, who is expected to release a current-year plan before the end of the year.

Reached Thursday evening, the governor said he hadn’t decided whether to include the sales-tax change in the budget-balancing plan, known as the “supplemental budget.”

“It may be in the ’10 [fiscal year budget], not in the supplemental,” Carcieri said. “I think we need to bring the nominal rate down. And I would be supportive of that. It’s a matter of how you do it so it’s revenue neutral.”

And of course, to be “revenue neutral” –– ensuring the state won’t lose money by lowering the sales tax –– lawmakers would have to agree to tax things that haven’t been taxed before.

Carcieri said he hadn’t personally examined which items he may target.

The tax-policy workgroup found the state could generate more than $200 million by taxing goods and services that are currently exempt. They include non-prescription drugs, car washes, spectator sports, theater, dry cleaning, business-support services and travel arrangements.

The net impact of the sales tax expansion and rate reduction, according to the tax-policy workgroup, would be a $4.3-million increase in sales tax revenue for the state’s coffers.

MEMBERS of the business community, which strongly fought such proposals when they surfaced in the early 1990s, were generally reserved when asked to comment on the proposal.

“We intend to evaluate the entire package as a whole [not judge each element in isolation] to determine if real gains can be achieved to make Rhode Island more tax competitive, which is the single biggest deterrent to economic development and job creation today,” said Laurie White, president of the Greater Providence Chamber of Commerce. “The reduction of the sales tax rate from 7 percent to 5 percent could be a vehicle to deliver tax relief to the middle class to offset some tax increase as a consequence of a flattening of the income tax.”

Indeed, the tax policy workgroup determined that a sales-tax expansion could create a new burden for some taxpayers, but the vast majority of households would actually pay less sales tax over the course of the year because of the across-the-board reduction to 5 percent.

Still, that doesn’t mean that businesses that fall into the new tax categories will be happy. When a similar proposal was discussed before the House Finance Committee last legislative session, dozens of small-business owners testified late into the night blasting the plan.

But business leaders acknowledge that a rebalancing of the sales tax is preferable to increased business taxes, or other broad-base tax increases being considered across the nation.

“The chamber realizes that because of state budget concerns, there will be a great deal more pressure in the coming legislative session than there has been in the past,” said John C. Gregory, president and CEO of the Northern Rhode Island Chamber of Commerce. “We will approach that process much like we approach the process of evaluating legislation … Is the end product more positive or more negative for our members and the business community?”Proposed new taxable consumer purchases

Category

Projected revenue

in millions

Over-the-counter drugs

$9.81

Newspapers

3.82

Moving, storage

2.78

Rug, furniture cleaning

.71

Electrical repair

.28

Reupholstering,

furniture repair

.17

Household services

3.87

Motor-vehicle repair

10.15

Motor-vehicle services

2.78

Theater, opera

5.89

Spectator sports

1.18

Radio, television repair

.14

Clubs, fraternal groups

4.24

Sightseeing

1.89

Private flights

.19

Bowling, billiards

.57

Other participant activities

7.21

Pets, pet services

.99

Veterinary services

3.11

Photography studios

1.41

Sporting, recreational camps

.33

Commercial amusements

5.80

Dry cleaning

1.23

Laundry, garment repair

1.46

Beauty shops

10.18

Barber shops

.52

Misc. personal service

8.86

Employment-agency fees

.57

Money orders

.38

Classified ads

.14

Tax-return preparation

1.46

Theater movies

1.32

Total

$93.42 million

Source: R.I. Office of Revenue Analysis

speoples@projo.com