2013 -- H 5742

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LC01323

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2013

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A N A C T

RELATING TO TAXATION -- TAX EXPENDITURE EVALUATION ACT

     Introduced By: Representatives Tanzi, Walsh, O`Grady, Valencia, and Ferri

     Date Introduced: February 28, 2013

     Referred To: House Finance

It is enacted by the General Assembly as follows:

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     SECTION 1. Title 44 of the General Laws entitled "TAXATION" is hereby amended by

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adding thereto the following chapter:

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     CHAPTER 48.2

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TAX EXPENDITURE EVALUATION ACT

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     44-48.2-1. Findings and purpose. -- The legislature finds that existing law allows for a

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variety of provisions, known as tax expenditures, that reduce taxpayer liability in order to pursue

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a broad range of policy objectives.

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     The legislature further finds that these tax expenditures result in a significant amount of

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foregone tax revenue for this state, and that tax expenditures are a major part of the government's

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involvement in a large number of policy areas.

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     The legislature further finds that the state lacks a systematic approach for identifying the

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purposes of tax expenditures, rigorously evaluating whether those purposes are being fulfilled in a

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cost-effective manner, and ensuring that impartial evaluations are given sufficient attention

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during the budget and policymaking processes.

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     Therefore, in order to evaluate and improve the government's effectiveness in serving the

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citizens of this state, the legislature finds it necessary to provide for the systematic and

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comprehensive analysis of tax expenditures by analysts, economists, and other professionals, and

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for those analyses to be incorporated into the budget and policymaking processes via the use of

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sunset provisions and other means.

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     44-48.2-2. Definitions. -- As used in this chapter:

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     (1) "Evaluation body" means the office of revenue analysis.

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     (2) "Tax expenditure" means any law of the federal government or this state that exempts,

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in whole or in part, certain persons, businesses, income, goods, services, or property from the

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impact of established taxes in this state, including, but not limited to, tax exclusions, tax

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subtractions, tax exemptions, tax deductions, preferential tax rates, tax credits, and tax deferrals.

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The term "tax expenditure" also refers to exclusion or exemption of services from the sales tax.

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     44-48.2-3. Sunsets and statement of purpose. -- Notwithstanding any statute or law to

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the contrary, any act enacted after July 1, 2013, that would create a tax expenditure, renew an

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existing tax expenditure, or modify an existing tax expenditure shall contain an expiration date of

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not longer than seven (7) years from the effective date of the new, renewed, or modified tax

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expenditure. Such acts shall also contain a statement of intent that clearly provides the purpose

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and objectives of the tax expenditure, including measurable goals in cases where the objectives of

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the tax expenditure lend themselves to measurement. Any act that is enacted without the

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provisions required by this section shall not take effect.

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     44-48.2-4. Analysis of tax expenditures. -- (a) If the revenue loss associated with a tax

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expenditure exceeds five hundred thousand dollars ($500,000) in fiscal year 2013 or a succeeding

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fiscal year, the office of revenue analysis, with the cooperation of the division of taxation, office

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of management and budget (OMB), shall analyze the use of the tax expenditure on the following

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schedule to determine to what extent the statute authorizing the tax expenditure has achieved any

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or all of the purposes identified under subsection (b) of this section:

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     (1) Analyses of tax expenditures existing on July 1, 2013, shall be completed and

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released under subsection (h) of this section at least once between July 1, 2013 and June 30, 2020,

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and no less than once every seven (7) years thereafter;

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     (2) Analyses of any tax expenditure created after July 1, 2013, shall be completed and

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released under subsection (h) of this section within seven (7) years of taking effect, and no less

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than once every seven (7) years thereafter;

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     (3) Analyses of any tax expenditure with a termination date provided for by law shall be

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completed and released under subsection (h) of this section between eighteen (18) and thirty-six

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(36) months before the effective date of termination;

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     (4) Analyses of tax expenditures with similar purposes or objectives shall be scheduled to

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occur concurrently or in succession, to the extent that doing so does not conflict with the

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scheduling restrictions outlined under subdivisions (1) through (3) of this section.

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     (b) The analyses under subsection (a) of this section shall, at a minimum, report the

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following information to the extent that the office of revenue analysis is able to obtain that

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information on its own or with the cooperation of the division of taxation and other government

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entities under subsection (g) of this section, and to the extent that reporting such information does

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not constitute a breach of this state's taxpayer confidentiality laws:

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     (1) The statutory authority for the tax expenditure;

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     (2) The year in which the tax expenditure was enacted;

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     (3) The statement of purpose of the tax expenditure, if one was included in legislation;

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     (4) The likely purpose or purposes of the tax expenditure, based on legislative history and

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other sources, if the statement of purpose in legislation was absent or vague;

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     (5) A description of the tax expenditure;

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     (6) The state revenue foregone directly as a result of the tax expenditure in the prior fiscal

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year, as well as estimates of the state revenue that will be foregone in the current and subsequent

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fiscal years;

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     (7) The local revenue foregone, if any, directly as a result of the tax expenditure in the

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prior fiscal year, as well as estimates of the local revenue that will be foregone in the current and

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subsequent fiscal years;

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     (8) The total number of taxpayers who directly benefitted from the tax expenditure in the

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prior fiscal year;

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     (9) The classes of individuals, types of organizations, or types of industries whose state

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tax liabilities are directly affected by the tax expenditure;

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     (10) The distribution of the direct benefits of the tax expenditure by taxpayer income

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level or size of business.

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     (c) The analyses under subsection (a) of this section shall, at a minimum:

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     (1) Present evidence as to whether or not the existence of the tax expenditure has

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contributed to the achievement of any or all of the purposes identified under subsection (b) of this

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section;

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     (2) Evaluate the tax expenditure's cost-effectiveness in achieving any or all of the

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purposes identified under subsection (b) of this section;

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     (3) Identify any unintended effects or beneficiaries of the tax expenditure that are useful

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in understanding the tax expenditure's overall value and cost-effectiveness;

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     (4) Evaluate the relationship and interactions of the tax expenditure with other tax

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expenditures or direct spending programs in the same or related budget function.

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     (d) In the case of tax expenditures that the office of revenue analysis determines to be

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intended to benefit this state's economy, the analyses under subsection (a) of this section shall, at

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a minimum, also address the following considerations:

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     (1) The extent to which the tax expenditure encouraged beneficial new behavior as

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opposed to subsidizing behavior that would have occurred regardless of the tax expenditure;

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     (2) Whether and to what extent the tax expenditure may have displaced existing in-state

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economic activity or harmed existing in-state businesses;

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     (3) The extent to which benefits of the tax expenditure flowed outside the state;

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     (4) The extent to which the economic impact of the tax expenditure remained in state, and

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the extent to which that in-state impact resulted in further in-state economic gains;

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     (5) The adverse economic impacts associated with other budgetary options that were

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foregone as a result of offering the tax expenditure.

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     (e) The analyses under subsection (a) of this section shall include specific

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recommendations to the legislature and the governor as to whether the tax expenditure should be

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continued without modification, modified, or terminated. Those recommendations shall take into

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consideration the following:

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     (1) The extent to which continuation of the tax expenditure in its current or modified

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form would contribute to any or all of the purposes identified under (b) of this section;

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     (2) Whether the tax expenditure could achieve any or all of the purposes identified under

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subsection (b) of this section in a more cost-effective manner if it were modified, and what those

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modifications would be;

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     (3) Whether the tax expenditure could be administered more efficiently or enforced more

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effectively if it were modified;

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     (4) Whether any or all of the purposes identified under subsection (b) of this section

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could be accomplished in a more cost-effective manner by an alternative policy;

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     (5) Whether the revenue foregone as a result of the tax expenditure is expected to change

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significantly in future years, and how that change might affect the tax expenditure's cost-

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effectiveness;

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     (6) Whether the social or economic benefits of the tax expenditure are expected to change

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significantly in future years, and how that change might affect the tax expenditure's cost-

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effectiveness;

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     (7) In the case of tax expenditures that the office of revenue analysis recommends for

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termination, whether that termination should be immediate, delayed, or phased-in gradually;

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     (8) In the case of tax expenditures where the analysis under subsection (a) of this section

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is significantly limited due to data constraints, whether any changes in statute would facilitate

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data collection in a way that would allow the office of revenue analysis to better gauge the extent

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to which the tax expenditure is achieving the purposes under subsection (b) of this section;

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     (9) In the case of tax expenditures where the analysis under subsection (a) of this section

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is significantly limited due to uncertainty of the purpose of the tax expenditure, whether the

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effectiveness of the tax expenditure could be determined more definitively if the legislature were

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to clarify the tax expenditure's intended purpose.

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     (f) To the extent that any of the analyses under subsection (a) of this section are

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significantly limited due to data constraints, the office of revenue analysis shall, in addition to any

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changes in statutes recommended under subsection (e) of this section, develop and publish with

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the analyses under subsection (a) of this section a plan for improving the government's data

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collection and compilation efforts in a way that will allow the office revenue analysis to conduct a

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full evaluation that can better gauge the extent to which the tax expenditure is achieving the

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purposes under subsection (b) of this section, and said expenditure shall be resubmitted for

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analysis under subsection (a) of this subsection the following year and every subsequent year

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until full evaluation can be made. Under no circumstances shall the tax expenditure go longer

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than seven (7) years without receiving a full evaluation under subsection (a) of this section.

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     (g) Pursuant to an analysis under subsection (a) of this section, the recipient of a tax

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expenditure shall:

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     (1) Provide promptly any information that the office of revenue analysis requests, so long

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as that request does not conflict with existing taxpayer confidentiality laws;

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     (2) Analyze data in the manner requested by the office of revenue analysis in instances

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where taxpayer confidentiality laws prevent the recipient of a tax expenditure from sharing

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information requested by the office of revenue analysis;

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     (3) Otherwise cooperate with the office of revenue analysis.

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     (h) Analyses under subsection (a) of this section must be submitted to the legislature and

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the governor, and made available on the evaluating body's public website no later than the date

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specified under subsection (a) of this section.

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     44-48.2-5. Consideration by the governor. -- The governor's budget submission as

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required under chapter 35-3 shall identify each tax expenditure for which an analysis was

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completed in accordance with this chapter in the period since the governor's previous budget

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submission in one separate budget article. For each tax expenditure, the governor's budget

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submission shall include a recommendation as to whether the tax expenditure should be

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continued without modification, modified, or terminated. Where the governor's recommendation

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differs from those made by the office of revenue analysis in accordance with this chapter, the

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budget submission shall provide the reasoning behind the governor's recommendation.

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     44-48.2-6. Legislative consideration. -- No later than the twentieth (20th) day of the first

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regular legislative session following the release of the analyses in accordance with this chapter,

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the house finance committee and the senate finance committee shall hold at least one public

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hearing to receive testimony regarding the tax expenditures analyzed in accordance with this

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chapter from the office of management and budget and the general public.

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     SECTION 2. This act shall take effect sixty (60) days after passage.

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LC01323

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO TAXATION -- TAX EXPENDITURE EVALUATION ACT

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     This act would impose a procedure for the analysis and evaluation of tax expenditures by

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the office of revenue analysis.

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     This act would take effect sixty (60) days after passage.

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LC01323

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