Maine state revenues rise, but finance chief warns that federal shutdown, tax hikes could quickly darken picture

Posted Nov. 13, 2013, at 4:30 p.m.

AUGUSTA, Maine — Despite robust new state government revenue numbers that in most circumstances would be cause for celebration, the state’s finance chief urged lawmakers on Wednesday to wait another month before drawing any conclusions.

That’s because by mid-December, the presumably negative effects of last month’s federal government shutdown on crucial tax-generators such as wages and purchasing will be known. In addition, Finance Commissioner Sawin Millett told the Legislature’s Appropriations Committee that in another month, Maine Revenue Services will know whether sales, meals and lodging tax increases that went into effect on Oct. 1 curbed consumer spending or caused people to make major purchases in September to avoid the extra cost.

“One thing to keep in mind as we look at sales tax receipts is that we’re catching information from September retail activity,” said Millett. “What this report represents is transactions that preceded the [tax] rate increase on Oct. 1 and the government shutdown.”

The Legislature, as part of a biennial budget bill, temporarily raised the sales tax from 5 percent to 5.5 percent and meals and lodging taxes from 7 percent to 8 percent. Those higher rates took effect Oct. 1 and are scheduled to expire on July 1, 2015.

According to data provided by Millett, revenues to the state’s General Fund, which pays for most of state government, are trending upward, especially in the larger categories. Revenues were $20 million over budget in September alone and more than $13 million over budget since the fiscal year began on July 1. That equates to about $37 million more than the state received in the first quarter of the last fiscal year.

Sales and use tax receipts were higher than expected, particularly in the automobile and building supply sectors, although Millett noted that tourism-related revenues were also strong. Individual income tax receipts were more than 14 percent over expectations for September, which according to Millett was a bit of a puzzle given income tax cuts that went into effect in January.

Tax receipts in smaller categories weren’t all on the upswing. Receipts showed that revenues dipped slightly in the areas of service provider tax, corporate income taxes, tobacco taxes, insurance company taxes, the estate tax and the Maine State Lottery.

Predicting future revenues will be tricky, said Millett, who tried to give some indication based on very preliminary data from early September.

“An early snapshot of September sales indicates that once again, auto and housing related sales were strong, but general merchandise stores may have seen a slowdown in September,” he wrote in a memo to lawmakers. “How much of that is related to an anticipated federal shutdown is not easily determined. We have heard anecdotally that August and September auto sales were strong in Maine and then fell off in October.”

Millett said that if congressional budget and debt ceiling negotiations in the next few weeks lead to talk of another federal government shutdown, revenue associated with holiday spending could be deeply affected.

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