United States: Tax Reform Proposal In Maine

Last Updated: July 1 2013
Article by John Weaver and Karen J. Baksa

June 2013 Update: Tax reform on hold for now

As expected, the Maine Tax Reform Proposal did not gather enough support, so the plan was turned down earlier this month. Many of the concepts of the tax reform plan are still being discussed, and several have been included in the $6.3 billion compromise budget that was approved by the Maine House and Senate on June 13. The compromise budget will go into effect on July 1 of this year and will remain in effect for two years until June 30, 2015. The budget temporarily raises the state sales tax from 5% to 5.5%, and it raises the sales tax on prepared meals and lodging from 7% to 8%. The compromise budget was vetoed by the governor, but the House and Senate had enough affirmative votes to override the veto and avoid a government shutdown.

May 2013: The original proposal

A group of 11 bipartisan Maine legislators has introduced a proposal for sweeping changes to Maine's tax code. The proposal has already proven to be controversial, with strong voices being raised on both sides of the discussion. The bill, LD1496, is currently a concept draft and the final language has not yet been drafted. If enacted, the tax code changes would yield potentially $700 million in additional sales and excise tax revenue, and, as stated in the draft overview, the intent of the bill is to create "a more attractive tax environment for individuals and businesses to locate in Maine."

The following is a brief summary of the proposal:

Property Tax Reform

  • The homestead property tax exemption would be increased to $50,000 for Maine residents.
  • The Circuit Breaker credit would be replaced with a simplified property tax fairness credit which would be a part of Maine income tax returns.
  • Nonprofit entities other than churches would see a reduction in the allowable exemption from 100 percent to 75 percent for property values in excess of $250,000.
  • Tax on telecommunications personal property would be paid to the municipalities rather than to the state.
  • Business Equipment Tax Reimbursements (BETR) would be allowable for only a 12-year period.

Income Tax and Estate Tax Reform

  • The tax rate for individuals would be reduced to 4 percent, but would apply to the federal adjusted gross income amount. No itemized or standard deductions would be allowed.
  • The new refundable sales tax fairness credit and property tax fairness credit would be available for lower-income taxpayers but would phase-out for higher-income taxpayers.
  • The bill repeals nearly all income tax deductions and tax credits, including the new markets capital investment credit.
  • Corporate income taxes would be reduced to a maximum 7.5 percent with a 3.5 percent rate available for businesses with lower incomes.
  • The Maine estate tax would be repealed.

Sales and Excise Tax Reform

  • The sales tax base would be broadened to include nearly all consumer purchases with the exception of education and health care. This would include amusements, groceries, fuels used for heating and cooking, professional services, and many other categories not currently taxed.
  • The general sales tax rate would increase from 5 percent to 6 percent.
  • The tax on prepared meals would increase from 7 percent to 8 percent.
  • The tax on malt liquor, hard cider and wine would double.
  • The tax rate on automobile rentals would increase from 10 percent to 15 percent.
  • The tax rate on lodging would increase from 7 percent to 8 percent along with an additional 2 percent to be allocated to the tourism promotion fund.
  • A new refundable sales tax fairness credit taken on individual income tax returns (see above) is intended to soften the blow of these changes on lower-income individuals.

Sales Tax Collector Fee

Any business that collects sales taxes would be compensated at a rate of .5 percent of the sales tax collected.

Real Estate Transfer Tax

The real estate transfer tax would increase progressively for properties with higher tax values.

The bill has produced opposition and has yet to receive wide-spread support. The amount of revenue to be generated and the ultimate impact on various groups of taxpayers are two of the contested issues. BerryDunn will be keeping a watchful eye on the progress of the bill.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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