In most other states, towns and cities can levy taxes. It is time for Maine to allow local option taxes as well.
This is especially the case as Gov. Paul LePage works to eliminate municipal revenue sharing, a long-standing agreement that allocates 5 percent of state sales and income tax revenues to municipalities in recognition of the services they provide. Cuts to — or elimination of — revenue sharing especially hurts service-center communities, where social service entities, such as drug treatment centers, homeless shelters and commercial and cultural venues are often located. These services are used by people who live beyond the host community’s boundaries, but they don’t pay to support the infrastructure needed to host them, leaving these communities with higher property tax rates.
This fiscal year, towns and cities are receiving $60 million, or about 41 percent of what state law says they normally should receive, according to the Maine Municipal Association. Under LePage’s two-year budget, they would receive $62.5 million in the first year, starting July 1, before the aid entirely disappears.
To make up for the loss of money from revenue sharing, the governor has proposed that towns assess property taxes on nonprofit entities. There is too much that’s wrong with this approach, though, which is why no other states tax nonprofits. Further, the largest nonprofits (those that would pay the highest taxes) are generally clustered in the state’s larger communities. Many small towns have no nonprofits to tax.
Given how unworkable the nonprofit tax proposal is and how evenly its benefits would be spread, the Legislature should give towns the right to assess local option taxes if the Legislature goes along with the governor’s revenue sharing cuts. Towns that don’t want to levy new taxes don’t have to. But the option would allow communities, especially service centers like Bangor, a way to make up for lost state funding.
LD 594, sponsored by Sen. Linda Valentino, D-Saco, would allow towns to assess a local sales tax of up to 1 percent. Large items, such as cars and household appliances, would be exempt, and the tax could be seasonal.
Valentino represents Old Orchard Beach, which sees 100,000 visitors in the summer. These visitors put a large burden on the town’s services. “It is better to tax [visitors] than putting a tax on nonprofits, which provide services to the community,” Valentino said in an interview.
Bangor City Councilor Ben Sprague also supports local option taxes. He plans to share a resolution supporting a local option sales tax with the city’s finance committee next month. “Allowing cities and towns to enact their own local option sales tax would give communities the autonomy to make important budget decisions at the local level irrespective of the political winds in Augusta,” he wrote in a memo.
By his calculations, a 1 percent tax, as Valentino proposes, would generate approximately $16 million in tax revenue annually for Bangor. That could lower property taxes in Bangor by nearly 29 percent.
Many will oppose local option taxes as just another tax increase. But consider that the governor’s budget would raise the sales tax by a penny for every dollar spent (or a penny and a half if you consider the fact that the current 5.5 percent rate was supposed to be temporary and revert back to 5 percent on July 1) and expand it to a broader range of services. It also would keep the lodging tax at 8 percent, which was also supposed to be temporary.
A local option tax like the one Valentino proposes “pales in comparison to the tax increases the governor proposes,” she said.
Maine is one of just 12 states where municipalities don’t have the authority to levy local option taxes and one of just five states that don’t allow local hotel taxes. Thirteen states allow local income taxes.
Allowing local option taxes in Maine would put the state in the mainstream and help free towns from the vagaries of state funding and the whims of its political leaders.