A legislative spokesman says Rhode Island would have lost more than $5 million in taxes during a two-day holiday, too much to give up.

01:00 AM EDT on Thursday, July 20, 2006

BY PAUL GRIMALDI
Journal Staff Writer

Rhode Islanders will have to wait at least another year before they catch a break on the state's sales tax.

Legislative proposals to create a state sales-tax holiday died by the end of the recent General Assembly session, -- victims of the state's budget problems.

Meanwhile, the fate of the two-year-old Massachusetts tax holiday that spurred plans here is in question.

Sales-tax holidays are red-letter days in some parts of the country.

More than a dozen states designate anywhere from a day to a week each year when taxes are waived on select items, usually back-to-school supplies and clothing.

Connecticut waived collections for the whole month of June on items purchased to improve residential energy efficiency. That tax break is in addition to the August week each year when that state waives levies on some apparel items.

Four states that didn't hold tax holidays last year -- Alabama, Maryland, Tennessee and Virginia -- have set tax-free shopping days this year.

Rhode Island didn't join the trend.

Politicians here introduced competing tax-holiday proposals this year, spurred by the popularity of the annual tax holiday in the Bay State, and the Rhode Island Retail Federation backed the idea.

But at least one powerful legislative leader opposed the initiatives -- Sen. Stephen D. Alves, D-West Warwick, who chairs the Senate Finance Committee.

"That didn't pass because of the fiscal impact," said Paul DeRoche, executive director of the Rhode Island Retail Federation.

Projections showed that the state would forgo more than $5 million in taxes during a two-day holiday, he said.

That was too much money to give up, said a legislative spokesman.

"It was an extremely difficult budget year," said Larry Berman, House spokesman. "That was the thing that didn't make the cut at the end."

Ultimately, the General Assembly and the governor agreed on a $6.66-billion budget that included three other tax-reduction items: reducing the cap on property-tax increases, lowering a key income-tax rate and easing the limit on motor-vehicle exemptions.

Rep. Joseph McNamara, D-Warwick, has introduced tax-holiday bills two years running, only to see them whither away.

"It's about Rhode Island being competitive with our neighbors in terms of tax policy," he said.

The effects of the Bay State's breaks reached into the heart of Rhode Island's commercial districts, he said, noting that he has fielded calls from home-goods and computer businesses in his city.

"These individuals were greatly affected," McNamara said.

Massachusetts gave up $15 million in tax revenue last year during its two-day tax holiday in mid-August, said a spokesman for that state's Department of Revenue. Projections this year place the revenue hit at $16 million.

Whether that comes to pass is unsure.

Bay State legislative leaders have failed so far to agree on legislation authorizing a tax holiday for this year, proposed for Aug. 12-13. They have until July 31 to authorize the event.

If the holiday slips away this year, "There would be a lot of disappointed merchants and consumers," said Jon Hurst, president of the Retailers Association of Massachusetts.

Legislators may take up the proposal today, Hurst said.

Massachusetts Governor Romney, a Republican, is sure to sign the bill if it makes it out of the legislature, said a spokesman.

"The governor is a fan of tax cuts," said Felix Brown, a Romney press aide.

He also has more room to maneuver on taxes. Massachusetts collected a record-high $18.5 billion in tax revenues in the fiscal year that ended last month, according to the state's revenue department. That's up $1.4 billion from the previous year.

The idea is likely to get another hearing in Rhode Island next year, people here said.

"In better economic times, it'll get resurrected," said DeRoche, of the retail federation.

pgrimald@projo.com / (401)-277-7356