PROVIDENCE — Rhode Island’s corporate income tax rate is 9 percent.

But pharmacy giant CVS Caremark Corp., of Woonsocket, pays at a rate of 4.25 percent.

In other words, the state tax rate that applies to CVS — one of Rhode Island’s largest corporations — is less than half the official rate that many other corporations must pay.

The reason has to do with a little-publicized tax break that the state makes available to businesses to encourage them to create jobs.

Create enough of them, state law says, and your tax rate will drop.

Maintain that higher level of employment and your tax rate will remain low — perhaps forever, the law says.

CVS has created hundreds of new jobs over the last decade, and has maintained a high level of employment, so its tax rate has fallen accordingly — and stayed there.

As a result, CVS’ Rhode Island tax bill is sharply lower than it otherwise would be. The company saved nearly $14 million in Rhode Island income tax for the year ended June 30, 2008, according to a statistical report compiled by the state Division of Taxation.

For that same year, 11 companies took advantage of the break, many of them well-known names such as Bank of America, the Electric Boat unit of General Dynamics Corp., and FMR Corp., better known as Fidelity Investments.

Altogether, the companies saved more than $16.2 million in Rhode Island tax through the tax break, according to the state report.

But the tax break, created in the 1990s under Rhode Island’s Jobs Development Act, has come under scrutiny as the state faces a $590-million budget deficit for fiscal 2010, and legislators demand greater accountability for tax breaks granted in the name of economic development. Already, the state has set strict limits on certain tax breaks, including one for the production of movies and TV shows in the state, and another for the rehabilitation of historic buildings.

Now, the General Assembly is considering a measure that would give the jobs development tax break only to those businesses that create higher-paying jobs.

In general, current law allows a reduction of one-quarter of a percentage point off of the 9-percent corporate income tax rate for every 50 jobs that a big business creates, or every 10 jobs that a small business creates. (The rate reduction cannot exceed 6 percentage points. A small business generally means one with fewer than 100 employees.)

But the jobs must pay enough money.

Current law generally allows the tax break only if a business creates jobs that pay at least $11 an hour or so (about $22,900 or so a year, based on a 40-hour workweek).

The proposed legislation would allow the break only if a business creates jobs that pay at least $18.50 an hour or so (about $38,500 a year).

State Rep. Steven M. Costantino, D-Providence, chairman of the powerful House Finance Committee, and chief sponsor of the bill (H 6164), said, “I think we all want [more] jobs. But in order to get a credit, I think you have to have a higher threshold.”

Businesses would continue to be free to create jobs at various pay levels, Costantino stressed.

But in order to claim the tax break, they would have to create jobs that pay more money than the law currently requires — and also carry health insurance and retirement benefits, according to the bill.

For businesses that claim the credit, and reap the resulting drop in their state income tax, “There should be some giveback to the state” through the creation of higher-paying jobs with benefits, Costantino said in an interview at the State House.

A tax-reform panel formed by Governor Carcieri reached a similar conclusion. “The question is, if Rhode Island is going to give a tax credit for creating jobs, what kind of job development behavior does the state want to reward? Should it not be creating higher-paying jobs with benefits?” the panel said.

But the way the bill is currently worded could affect companies that currently pay tax at a lower rate because of the number of jobs they have already created.

Take CVS. In July 1998, the company had the equivalent of 2,480 full-time jobs in Rhode Island.

As of March 2009, CVS had the equivalent of 4,132 full-time employees in Rhode Island.

In other words, CVS’ Rhode Island work force has jumped by 1,652 jobs — about 67 percent — in about 10 years, according to figures the company presented at a recent House Finance Committee hearing.

CVS’ increase in Rhode Island employment has resulted in a reduction of 4.75 percentage points in the company’s Rhode Island corporate income tax rate, CVS vice president Michael Golub said.

But if the bill passes as written, it is “highly likely” that CVS would lose the benefits of the tax break over time, Golub said.

Costantino appeared open to changes. At the hearing, he invited Golub to suggest ways on how certain terms of the bill might be written. Afterward, Costantino said, “CVS has been a very good partner with the state.”

The statistical report issued by the state tax agency showed that CVS saved about $13.88 million in Rhode Island corporate income tax through the jobs development tax break for the year ended June 30, 2008.

This suggests that CVS’ Rhode Island taxable income for that year was about $292 million. Based on that figure, CVS’ Rhode Island tax liability would have been about $26.3 million at the standard 9-percent tax rate, but was actually $12.4 million at the 4.25-percent rate. Thus, the company saved about $13.88 million in Rhode Island tax.

Gary S. Sasse, director of the state Department of Revenue, and the chairman of Carcieri’s tax-reform panel, said that, “While the intent of [Costantino’s] bill is commendable,” revising the jobs development tax break “is a very complicated issue” that warrants further study.

Among the complicating factors, Sasse said, is that the state’s unemployment rate has risen, to 11.1 percent, and that the bulk of the jobs development tax break currently goes to a single company. (Of the $16.2 million that 11 companies saved in Rhode Island taxes last year through the job-creation tax break, 85 percent of the benefit went to CVS.)

The state thus far has not studied in detail the benefits that the job-creation or other such tax breaks provide to the state, cities and towns, such as tax payments made by the job holders or other economic benefits.

CVS spokeswoman Carolyn Castel said that the combination of state and local taxes paid by CVS, along with income tax payroll withholdings, totaled about $50 million last year.

She also said that, since qualifying for the jobs-creation tax break, CVS has added the equivalent of more than 600 additional employees — for which CVS has not received income tax benefits under the jobs-creation tax break — “and we expect to continue adding good jobs to our Rhode Island employment base.”

In addition, the company awarded nearly $2 million in grants from the CVS Caremark Charitable Trust to organizations in Rhode Island that support children with disabilities and those who are under-insured or uninsured, she said.An incentive to hire

Here is a list of companies and the amount they saved in taxes in fiscal 2008 based on a provision in the law that allows them to lower their tax rate based on the number of jobs they create in the state.

•CVS: $13,877,240

•Bank of America: $1,742,621

•Electric Boat: $275,372

•AAA Southern New England: $169.057

•FMR Corp. (Fidelity): $86,818

•Onefed Leasing: $38,812

•Fleet Venture Resources: $36,057

•Fleet Growth Resources IV: $14,083

•Fleet Growth Resources II: $5.249

•Rite-Solutions: $2,492

•AAA Southern New England Bank: $516

ndowning@projo.com