Newport business owner frustrated state is taxing donations

“There are many, many great causes on this island,” said John Callaghan.who owns Bellevue Wine & Spirits. “There are a lot of charities on this island and we like to support them.” (WJAR)

Newport has been good to John Callaghan.

His liquor store, Bellevue Wine & Spirits, sees brisk business, year-round.

Callaghan likes to give back, often donating bottles of wine and liquor to local charity events.

“There are many, many great causes on this island,” said Callaghan. “There are a lot of charities on this island and we like to support them.”

Callaghan said he was surprised when, during a recent audit, the Rhode Island Division of Taxation informed him he should have paid taxes on those donations.

“They told us that we owed sales tax on all of our donations, plus 18 percent interest going back to 2012,” said Callaghan.

The bill adds up to several thousand dollars.

“I don't understand why a charitable donation should be taxed,” said Callaghan.

NBC 10 News asked the state of Rhode Island.

No one from the Division of Taxation would go on camera, but a spokesperson said that the bottles are taxable, because Callaghan purchased them with the intention of selling them -- and collecting sales tax.

"Deciding not to sell a good that was first intended for resale results in use tax becoming due on the good. Whether that good is used internally or donated by the company is immaterial," according to the Division of Taxation.

“Do you feel like the state is discouraging you from donating to charity?” asked NBC10’s Emily Volz.

“Absolutely,” said Callaghan. “We stopped. We've cut back dramatically.”

The Rhode Island Division of Taxation also argues Bellevue Wine & Spirits should pay taxes because giving to charity benefits its business. The agency claims Callaghan would have saved on income taxes by writing off those donations, and received “goodwill" because of his generosity.

“It's another reason why the business community is so frustrated in the state of Rhode Island,” said Callaghan.

Callaghan said while he's not happy about it, he ended up paying the massive tax bill.

“It's money that should have gone to my daughter's college,” said Callaghan.

State Rep. Lauren Carson introduced a bill that would stop the state from taxing charity donations. It's currently being held for further study.

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