Rhode Island businesses could soon face an uphill battle competing with Massachusetts.
The Bay State already has a lower sales tax than the Ocean State, but now Governor Deval Patrick wants to drop it down much further, bringing it from 6.25% to 4.5%
Right now the reduction is just a proposal, but if it happens, it would make Rhode Island's 7%sales tax, look high, and that could put a real damper on business.
"Retailers are not going to come into Rhode Island if they know they're at a disadvantage." said Rhode Island Retail Federation head, Paul DeRoche.
Deroche and the businesses he represents as head of the Rhode Island Retail Federation are fearful of Massachusetts Governor Deval Patrick's proposal to drop his state's sales tax, and they believe such a change would spell disaster for many Rhode Island businesses.
"The sales tax in Rhode Island is 7% is high, but it'll look higher now, if you have 4.5% next door to us." said DeRoche.
A different tax reduction in Massachusetts has already hit some Rhode Island businesses.
Many stores that sell alcohol in the Ocean State, say that they have seen a big drop in business, ever since Massachusetts repealed it's tax on alcohol in 2011. That's because in Rhode Island, shoppers have to pay a 7% tax, on alcohol.
"My business alone here is down around 18% over the last 2-years." said Malik's Liquors owner, Jan Malik.
Malik, who's also a state rep in Rhode Island, believes that a reduction of the overall sales tax in Massachusetts, would be bad news for businesses, across that border.
"People are going to shop in Massachusetts." said Malik.
Rhode Island's Governor Lincoln Chafee says that the news of a potential sales tax reduction in the Bay State, took him by surprise.
"I'm surprised, I'll be frank, that (Governor Patrick) chosen to look at raising the income tax and lowering the sales tax." said Governor Chafee.
If the proposal becomes a reality, Governor Chafee says he's ready to consider any plan, that would help to keep Rhode Island residents from doing the majority of their shopping across the border in Massachusetts.
"We do want to look across our borders and make sure we're staying competitive." said Governor Chafee.
Governor Chafee did propose a 1% cut to the state sales tax in his fiscal year 2012-budget.
Statehouse Republicans meanwhile are pushing reduce or eliminate the sales tax altogether during the 2013 legislative session.