AUGUSTA, Maine — The Legislature’s budget negotiators wrapped up their fourth and final day of public hearings on Gov. Paul LePage’s massive tax reform plan Monday with a parade of business interests pleading to be exempted from the governor’s expanded, increased sales tax.
Many goods and nearly all services in Maine are exempt from sales tax, a situation that for years has raised questions about fairness. LePage hopes to correct a sales tax code he has said “picks winners and losers” by taxing nearly every sale. The only exemptions would be for necessities such as groceries, medical expenses and automobile repairs.
That means new taxes on goods and services such as movie tickets and water parks, landscaping and locksmithing, laundry and moving expenses, and legal and accounting services, to name a few.
Plus, LePage’s proposal increases the sales and use tax from 5 percent to 6.5 percent and the service provider tax from 5 percent to 6 percent. It also decreases the tax on auto rentals from 10 percent to 8 percent, and on meals from 8 percent to 6.5 percent.
All told, LePage expects the sales tax hike and expansion to net the state an additional $616 million in revenue in fiscal years 2016 and 2017. That revenue would be used to compensate for much of the $731.7 million reduction in state revenue that LePage projects would result from cutting the income tax rate during that same time period.
Many of the business groups and individuals that testified before the Appropriations Committee on Monday said they supported LePage’s tax reform efforts, but asked lawmakers not to expand the sales tax to their particular industries.
Shelley Doak, executive director of the Maine Grocers and Food Producers Association, told lawmakers she opposed the expansion of “prepared food” in the tax code to include candy, soft drinks and other snacks, although she recognized the group’s opposition was “self-serving.”
“Widening the cost of groceries will have the greatest impact on the 100-plus groceries, convenience stores and other retailers doing business along the [New Hampshire] border,” she said. “Many Mainers still shop in New Hampshire because of real or perceived lower prices.”
Other groups, such as accountants and tax preparers, said a tax on their services would drive more customers online or out of state.
“There aren’t many other states that have these types of taxes,” said Sheena Curtis, a CPA with BerryDunn in Portland. “Those that do have had a hard time administering it. Doing this puts us at a competitive disadvantage.”
Several camp owners also decried the plan, which would tax summer camps as “recreational services.” They said that putting up barriers to kids going to camp in Maine would contradict LePage’s stated goal of convincing more people to move here.
The tax would mean “less homegrown seasonal staff, less visitors, less interest in our higher education facilities, less individuals considering a move to Maine and contributing to this economy,” said Steven Sudduth, owner and director of the all-girls Wyonegonic Camp in Denmark.
“All those pieces do exist because of the first experience” at camp, he said.
Others questioned how the state would pay for the “out-year” tax cuts in LePage’s budget. The budget is balanced for fiscal years 2016 and 2017, but schedules income tax cuts in the next two years.
According to a budget projection by LePage’s finance division, the tax plan will create an $88 million hole in the general fund in fiscal year 2019, when the plan is fully implemented. For that reason, Joel Johnson, an economist with the liberal Maine Center for Economic Policy, asked lawmakers not to give too many exemptions to the proposed sales tax.
“That gap will only grow larger if legislators cave in to business groups advocating to be carved out of the proposed sales tax changes,” he said in an interview.
Monday’s was the fourth joint public hearing on tax reform for the Appropriations and Taxation committees, the latter of which now will take over legislative review of the plan’s details. Taxation’s Senate chairman, Republican Earle McCormick of West Gardiner, said his committee has set an April 1 deadline to submit its recommendation to Appropriations.
Asked whether he’s optimistic of a unanimous report, which would give the plan a much better chance of passing the budget panel’s muster, and of passage in the full Legislature, McCormick said “it would be a shame to poison it by saying ‘no.’”
“We have a lot of work to do, but I think there’s a lot we can agree on,” he said.
Follow Mario Moretto on Twitter at @riocarmine.