Proposal to change Maine estate taxes raises concern

Posted Feb. 26, 2013, at 6:26 a.m.

AUGUSTA — The Legislature’s Taxation Committee took a look at a bill that would roll back changes made two years ago to the state’s estate tax.

The bill, sponsored by Sen. Christopher Johnson, D-Somerville, would allow only the first $1 million of an estate to be exempt from state income taxes.

The measure is co-sponsored by Rep. Nathan Libby, D-Lewiston.

A law change made in 2011 exempted the first $2 million. That change also reduced the rate paid on those estates to 8 percent.

Johnson’s bill also exempts working family farms or waterfront properties from the estate tax, and it maintains the 8 percent rate.

“This bill is a measured change in tax policy,” Johnson said, “with a positive fiscal impact which implements protection for family-owned and operated farms and working waterfront.”

Johnson said the change was a better way to help pay for state government rather than pushing those costs onto local property taxpayers or cutting essential programs for some of Maine’s neediest residents.

Sen. Doug Thomas, R-Ripley, challenged the proposed change, saying oftentimes the equipment that is inherited in a family-owned logging operation could easily exceed $1 million in value. He also questioned the concept of having to pay taxes twice on the same money, simply because it was left to an heir.

“People who work hard all their lives and who save and who don’t blow their money on Hawaiian vacations and extravagance are punished,” Thomas said. “They’ve paid the income tax on this money once; they’ve accumulated it so they can pass it on to their heirs.”

Johnson said he and Thomas may have a fundamental disagreement over whether the state should collect estate taxes at all. Thomas agreed he would prefer that the state didn’t collect estate taxes.

“Then obviously we are not in agreement whether a state tax is a form of revenue we should be considering in this state, and I can’t help you with that,” Johnson said.

Johnson said he was willing to amend the bill to allow other natural resource-based family businesses, including timber harvesting and logging, to be included in the bill’s protections.

But he also said that the reductions in state revenue collections were hurting others, including those in his district, especially the elderly poor.

Albert DiMillio, a retired corporate tax director and certified public accountant from South Portland, also spoke to the committee. DiMillio said Johnson’s bill made sense in the scope of fairness.

DiMillio said there were plenty of other ways for most people to shelter the property and money in their estates.

He said the changes the state made to the law in 2011 cost the state $30 million a year, or $60 million over the two-year budget cycle. “And you know we have a little budget problem,” DiMillio said. “My question for all legislators is what’s more important, giving an $80 or $100 million tax cut to wealthy like myself or providing a circuit breaker program that helps 200,000 low- and middle-income taxpayers?”

Others said rolling back the exemption to $1 million would simply mean more Mainers would set up residence out of state to avoid the estate tax. That would ultimately hurt the state financially in the long run.

Also speaking against the bill was Pamela Hill, a lobbyist for the Maine Innkeepers Association. “This doesn’t impact just agriculture, it doesn’t impact just farming or woods business,” she said. “It impacts many small businesses in the state of Maine.”

Her clients include 600 establishments, including campgrounds, hotels and motels.

Hill said the location of many of those properties means they could very quickly exceed the $1 million threshold for an estate tax.

She said the change to a $2 million threshold provided a lot of relief to many people, and she hoped lawmakers wouldn’t take that back now.

“It would be too bad to have the recipients of one of those estates,” Hill said, “if one of these innkeepers died and one of their children inherited the estate — to have to take a mortgage out on the estate, just to pay the estate tax.”

The committee will take the bill up again during a work session March 8.

 

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