Over the last six months, the governor and both major parties in the Maine Legislature have debated the merits of income tax reform to incentivize economic development. However, it has been proven to be more of a philosophical battle of wills instead of a productive coming together of the minds.
Income taxes are important to commercial agriculture and commercial wood harvesting. But in the long run, the health and well-being of these industries have much more to do with other factors, such as sales and property taxes.
On June 2, the Legislature enacted LD 290, An Act to Refund the Sales Tax Paid on Fuel Used in Commercial Agriculture Production and Commercial Wood Harvesting, with overwhelming, bipartisan support. Because LD 290 is not in the budget, it has been referred to the Special Appropriations Table for review at the end of the session. Generally, items that land there are not viewed favorably, because they are considered after the budget has been settled. Hopefully, this will not be the case with LD 290, as this kind of common-sense tax relief is critical for two of Maine’s three “F’s”: farming and forestry.
Farming and forestry, more specifically logging, have a great deal in common, notwithstanding the fact that they — along with fishing, the other “F” — have been part of the economy from the state’s beginning. Traditionally, farming and logging are family-based businesses handed down from generation to generation. However, it is getting harder for those family businesses to remain viable, as costs rise and profits fall. More and more family businesses are shutting down because they can’t remain profitable. In fact, two longtime Aroostook County logging businesses shut down in the past two weeks, laying off more than 50 employees, because they can’t afford to stay in business. This tide has to change to ensure these staples of our economy continue.
One driver of cost for both industries that is minimizing profit is related to fuel, which is used for practically everything in production-based businesses, including logging and farming.
Farmers and loggers predominantly use off-highway diesel. In 2002, the average cost of off-highway diesel was 93 cents per gallon, and the state sales tax was 5 percent. By the end of 2013, the average price was up to $3.52 per gallon, and the state sales tax was 5.5 percent. This represents a 280 percent increase from 2002.
As these cost increases relate to farming and logging, in 2002, Maine loggers spent more than $33.6 million on off-highway diesel and an additional $1.55 million in sales tax to harvest 16.75 million tons of wood. In 2013, loggers spent $107 million on off-highway diesel and $5.071 million in sales tax to harvest only 14.4 million green tons. This represents an increase in overall cost of more than 200 percent to produce 2.3 million fewer tons.
For Maine farmers, it is a similar story. In 2003, they spent $17.7 million on off-highway diesel and an additional $885,000 on sales tax. By 2010, this jumped to $35.7 million and nearly $2 million, respectively — a whopping 203 percent increase to produce Maine’s farm products.
As fuel costs have increased, so has the cost for parts, equipment and supplies that are manufactured with fossil fuels. Fuel cost increases have severely limited capital reinvestment and business growth, forcing many to downsize or leave the business altogether.
What have loggers and farmers gotten in return for this increase in cost and tax? A blind eye and a cold shoulder, while state government benefits each time the price of fuel increases.
Manufacturing in Maine has been exempt from paying sales and use taxes for fuel used in production since this tax was created by the Legislature in 1951. Aren’t logging and farming considered part of the manufacturing process?
In 2011, the 125th Maine Legislature provided commercial fisherman with a sales tax exemption for off-highway fuel used on a commercial fishing vessel.
To this day, commercial wood harvesting operations and commercial agriculture — the other two “F’s” — have never been given the same treatment.
Massachusetts, New Hampshire, South Carolina, Wisconsin, Vermont and other states with major timber and agriculture industries do not tax diesel fuel used off highway. In a very competitive global economy, this puts Maine farmers and loggers at a disadvantage.
As the Legislature wraps up its work for the session and Democrats, Republicans and the governor argue over what effective tax reform will provide, they shouldn’t forget LD 290 and Maine’s farmers and loggers.
We have been forgotten for quite some time — and in the long run, Maine might have just one “F” instead of three.
Dana Doran is executive director of Professional Logging Contractors of Maine. Jon Olson is executive secretary of the Maine Farm Bureau.