By Katherine Gregg
Journal State House Bureau

PROVIDENCE, R.I. -- On closer look, the proposed $7.7 billion state budget headed for a vote by the Rhode Island House of Representatives on Friday paves the way for a possible sales tax cut, after all.

In the event of any federal action that "requires remote sellers to collect and remit taxes,'' the state's 7 percent sales tax would drop to 6.5 percent, according to a provision buried on Page 238 of the 292-page budget bill crafted by the legislature's Democratic leaders.

The House debate is scheduled to start at 1 p.m.

When the previously unseen bill emerged from the House Finance Committee a week ago, it appeared that Governor Chafee had lost his bid to raise an estimated $165 million in net new revenues by expanding the tax to a slew of currently exempt items and service, such as home heating oil and car-repair bills.

He would have dropped the rate to 6 percent on most items, and to 1 percent on others. But he also sought to lay the groundwork for repeal of the new 1 percent tax if a federal law passed that would require remote sellers to collect sales and use taxes on purchases by state residents.

State officials estimated a federal law of this kind would enable the state to capture as much as $70 million in sales and use tax revenues that are currently lost to remote sellers.

The budget bill headed for a House vote takes a slightly different approach.

As interpreted by Paul Dion, the state's chief of revenue analysis, "It states that if the federal government acts...then the state sales tax rate would be reduced from 7.0 percent to 6.5 percent. This would decrease revenue by approximately $60 million which would be offset by the increased sales and use tax revenue that results from the requirement that remote sellers collect and remit sales taxes to the state on purchases by state residents. ''

In response to further questions, Dion said: "It would not necessarily be an act of Congress. It could also be a U.S. Supreme Court ruling. Remote sellers that currently have nexus in the state already have to collect sales tax on sales to RI residents. This section generally applies to remote sellers without nexus in the state such as Amazon.com, Overstock.com, etc.''

This section of the proposed budget "also increases the local hotel and local meals and beverage tax rates from 1.0 percent to 1.5 percent provided that the state's sales tax rate is lowered to 6.5 percent.''

The bill calls for $7,702,169,075 in state spending during the new fiscal year that begins on July 1. That is roughly $40.9 million more than Chafee proposed spending.

The budget bill has evolved into a repository for all sorts of bills that relate directly - and indirectly - to state and local spending.

It includes, for example, all of the wording of a controversial bill - opposed by the attorney general - to allow "medical parole'' for seriously ill prisoners, regardless of the severity of their crimes, "when their treatment causes the state to incur exorbitant expenses.''

House spokesman Larry Berman said the contents of the bill, requested by the Department of Corrections, "was placed in the budget to ensure that it is enacted...There are no immediate savings estimates, but it is all tied into the $6 million in savings from prison consolidation and population reduction in the Department of Corrections budget.''

Another bill rolled into the budget would relieve school committees of having to publish their meeting notices in a newspaper, a cost-saving move premised on the assumption that everyone has a computer and checks on-line regularly for notice of meetings that might interest them.

It remains unclear, but appears likely that House leaders will also try to append a bill calling for a casino referendum in November 2012 to the budget bill.