RI rental home tax falls more than $1M short

Eyewitness News has learned the state missed the mark big time on a new tax of vacation home rentals in Rhode Island.

When it went into effect in July, Governor Raimondo said the tax would raise $5 million this year alone. But we’ve learned the tax is off to a rough start; falling more than a million dollars short of those projections in just the first month.

So we went to the state to see why the numbers are so far off.

Governor Raimondo wanted to jumpstart a new multi-million dollar campaign to sell Rhode Island to the rest of the country. And she came up with a way to pay for it. But we found after just one month, money is already being shuffled around to make up for a million dollar misstep in projections.

A new makeover is coming to Rhode Island’s tourism campaign. And one of the ways to pay for it is through tourists. This year, Governor Raimondo’s budget added a new tax to renters of vacation homes, totaling 8 percent in state and local fees.

The pitch; the new tax would raise more than $5 million a year. Some of it would be set aside to pay for a new $5 million tourism campaign. We obtained the monthly projections for the new tax from the governor’s office.

This July when it went into effect, the state projected $1,377,802 in revenue. That’s tied for the most lucrative month of the year for the vacation rental tax. But we checked with the Division of Taxation, and found the state only collected $61,500. That means the state’s projection was off by a stunning 96 percent.

With a miss that big, we went to the state house; sitting down with Rhode Island Commerce Secretary Stefan Pryor to see what went wrong.

“I do think it’s very reasonable to expect that these numbers will go up,” said Pryor. “In the early going people have to learn how the system works, what’s the right way to file.”

Pryor blames the lack of revenue on that learning curve, and a policy that allowed renters to avoid the new tax if they paid up front before the new fiscal year. Still, there’s a million dollars less in the bank to pay for things like Governor Raimondo’s new tourism budget.

“Maybe we have excess revenue in one place and lower than expected revenue in another, and these things are worked out,” said Pryor. “Not to diminish it but in the scheme of a budget, this is not a lot of money. It’s certainly is to you and me, it’s a lot of money.”

Pryor said the shortfall will not directly affect the new tourism campaign, explaining “That’s not the way an item is budgeted. In fact some of the revenues we’re talking about go into the general fund, rather than the tourism campaign. Inside a budget, to a certain extent, money is fungible.”

We asked the state for the tourism tax revenues from August, when they projected another $1.4 million in revenue. They tell us those numbers aren’t available yet. Pryor says he can’t predict if the tax will meet or exceed projections at any point, but believes it will bring more revenue over time.

“What’s important is that there are new sources of revenue and there is activity underway,” said Pryor.

Pryor said, don’t judge the revenue from the tax on renters of vacation homes for a while. He said they need two full summers of revenue to determine if it will meet projections.

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