Rhode Island Considers Local Government Endowment Tax
Rhode Island is considering its own version of IRC 4968, imposing a federal endowment tax on the wealthiest private colleges and universities. The effect of that tax continues to be criticized as inconsequential either on Universities’ operations or government revenues. There are 13 colleges and universities in tiny Rhode Island, including Brown University, Providence College, and Johnson & Wales.
None of the other R.I. schools come close to Brown’s $7 billion endowment, and Brown is the only candidate to pay the federal endowment tax. Now, Rhode Island legislators have introduced a bill to impose a 2% tax on all college and university endowments. Here is what one sponsor said in justification:
Wealthy private universities have taken advantage of our community by continuously expanding their tax-exempt footprint, which in turn has led to gentrification, the displacement of working people, and most of all, forcing Providence to manage essential city services … with a limited tax base.
Right in Fox Point, for decades and decades there was a vibrant community of Irish, Portuguese and Cape Verdean immigrants,” Goncalves said. “The majority of those families, including my own, that lived in that neighborhood for decades are completely gone. They’ve been priced out of the neighborhood by college students, and as a byproduct of unbounded university expansion.”
It is hard to resist that sort of populist rhetoric, especially, as with Brown and most other ivies, local students are hardly admitted. Unsurprisingly, though not without justification, Brown and the other private colleges tout their community benefit creds. As for the tax’s expected impact:
As of October, the university’s endowment had a market value of $6.9 billion. A 2% tax would generate $138 million for the city. Citing the latest property valuations, Morales said Brown would pay $49 million in property taxes if it was not tax-exempt. Other institutions would generate far less. As of fiscal year 2021, the Rhode Island School of Design, which Morales said would owe $11 million in property tax if it was not tax-exempt, had a nearly $443 million endowment. Providence College, which Morales said would owe $16.2 million in property tax, had an endowment totaling more than $294 million as of April 2021. No recent valuation was immediately available for Johnson & Wales University, which Morales said would owe roughly $12.5 million in property tax.
Here is the House Bill:
2023 — S 0859
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STATE OF RHODE ISLAND
IN GENERAL ASSEMBLY
JANUARY SESSION, A.D. 2023
____________
AN ACT RELATING TO TAXATION — PROPERTY SUBJECT TO TAXATION
Introduced By: Senators Mack, Zurier, and Bell
Date Introduced: March 30, 2023
Referred To: Senate Finance
It is enacted by the General Assembly as follows:
SECTION 1.
Chapter 44-3 of the General Laws entitled “Property Subject to Taxation” is hereby amended by adding thereto the following section:
44-3-67. Imposition of tax on higher education private institution endowments by 3 municipalities.
(a) Each city and town, by resolution or ordinance adopted by the city or town council, may wholly or partially impose a tax, of not more than two percent (2%), on the endowment of a private institution of higher education located in that city or town.
(b) All tax revenues generated pursuant to this section shall be deposited in a restricted receipt account by the city or town to be used only for the public school district of that municipality.
SECTION 2.
This act shall take effect upon passage.
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darryll jones