Taxation committee votes on two local option tax bills

Last session, local option tax bill was rejected by Senate, but passed in House
 
One of the more divisive tax issues last session had to deal with allowing municipalities the authority to impose local option sales taxes at the municipal level. Two of the five remaining proposals on this topic were considered as carry over bills by Taxation committee and voted on Tuesday, March 3. The final vote is still being compiled. Those two bills are:

• LD 609, An Act to Provide Municipalities Additional Sales Tax Revenue from Lodging Sales, sponsored by Rep. Maureen Terry (D-Gorham); and,
• LD 1254, An Act to Authorize a Local Option Sales Tax on Meals and Lodging and Provide Funding to Treat Opioid Use Disorder, sponsored by Rep. Michael Sylvester (D-Portland).

 
LD 609 proposes to increase the lodging tax by 1% and would return incremental revenues generated, minus administrative costs for Maine Revenue Services, to the generating municipality.
      
As originally drafted, LD 1254 would have allowed a municipality to impose a year-round or seasonal local option sales tax, if approved by municipal referendum, of no more than 1% on prepared food and short-term lodging. A total of 85% of revenue generated would have been distributed back to the generating municipality and 15% would have been distributed to all other municipalities around the state. The money would have to be used for preventing and treating opioid use.
      
That 2019 version was headed towards a 7-6 “ought-not-to-pass” report in committee. However, in a last-ditch effort to make the bill more politically palatable, Rep. Michael Sylvester (D-Portland) came in with an amendment that changed the distribution formula to 75% back to the generating municipality and 25% to the Maine Rural Development Fund. That ended up securing an extra vote on the committee, and ultimately, the bill received a 7-6 “ought-to-pass-as-amended” report.
      
Last session, LD 1254 made it to the floor for debate and remained a political football between the House and Senate It could not garner the votes in the Senate to pass and it was ultimately recommitted to the Taxation committee in the closing days of the session.
      
The Maine State Chamber has long-opposed local option sales taxes for a variety of reasons, all of which were outlined in its testimony on these bills, including:

• ŸEnacting a local option sales tax increases the total tax burden in the state: This bill would have added another layer of sales tax to items purchased in municipalities in which it had been enacted. While local option taxes are another way to raise revenue for municipalities, but in no way assure that taxes would later be reduced at the local level.
  

• Local option sales taxes hurt small brick and mortar businesses: Many citizens buy local to support their neighbors – owners of small brick-and-mortar businesses in their municipalities. Local businesses located in one locale compete with local businesses in another. Businesses located in towns that enact a local option sales tax will be at a competitive disadvantage with businesses in municipalities that do not enact a local option sales tax. This will pit one community against another. Local brick-and-mortar retail businesses will never be able to compete in that high-taxed environment. The tax will hit their bottom line, and they may not unable to pass the expense on to the consumer. Ultimately, they will lose sales to neighboring towns that don’t have local option sales tax.
  

• Local option sales taxes impact local economic development efforts: Municipalities around the state work hard to try to attract businesses to their locales; many hire economic development directors to do just that. This will do nothing to attract businesses, but instead, would discourage businesses from locating in towns that have additional taxes. This bill will make towns that impose sales taxes less attractive. Once local option taxes are in place, they would be virtually impossible to remove because that municipality would become dependent on the revenue.
  

 
If you have any questions, please contact Linda Caprara by calling (207) 623-4568, ext. 106, or by emailing [email protected].