Some Maine restaurant proprietors say they’d rather lower prices than alienate loyal customers.

At the Hi-Hat Pancake House in Farmingdale, $5 will get you two eggs, bacon or sausage, toast and coffee before 11 a.m. on a weekday.

But with taxes on meals and lodging increasing Tuesday, owner Mary Laflin had to decide whether to lower her price or say goodbye to the $5 breakfast special.

The tax increases – meals and lodging went from 7 percent to 8 percent and the sales tax rose from 5 percent to 5.5 percent – were in a state budget compromise crafted by lawmakers in June to avoid a state government shutdown.

The increase in taxes means only four pennies for the $4.65 breakfast special at Hi-Hat. But those four pennies would push a customer’s bill over $5.

So instead of passing the cost on to her customers, Laflin will take the hit in her revenue.

Steve Casey, owner of The Depot Sports Pub in downtown Gardiner, also plans to keep the price flat for some specials, like $2.25 domestic beers during happy hour. He said he’ll end up raising prices on other items to make up the difference.

In Hallowell, The Liberal Cup owner Geoff Houghton is doing the same for draft beer, holding steady on the $4 for a pint. He estimated that lowering the price of a beer by four cents to make up for the higher tax will cost the restaurant a couple thousand dollars a year.

Some in the hospitality industry are concerned that higher prices, even if only several cents, could make people rethink how much they spend when they go out to eat or book a room.

Another complaint is that the added revenue will end up in the state’s coffers, not in the cash registers of business owners who have avoided raising prices.

Houghton said his customers generally look at the bottom line of what their meals cost and don’t differentiate the amount raised by taxes.

Casey was more pointed in his criticism of the decision to raise taxes. He said many of this customers are blue-collar and state workers who come to his bar and restaurant regularly and can’t afford higher prices.

“I think it’s a real slap in the face to the working people of Maine, and I think it was the wrong thing to do,” he said.

The sales, meals and lodging tax increases are projected to raise $183 million for the state over the next two years – $135 million from sales and $48 million from meals and lodging, according to the Legislature’s Office of Fiscal and Program Review.

Gov. Paul LePage vetoed the budget, but legislators overrode the veto with votes of 114–34 in the House and 26–9 in the Senate.

Sen. Roger Katz, R-Augusta, described the tax increases as a necessary compromise.

The state increased the sales tax from 5 percent to 6 percent in 1991, with the provision that it would drop in half-percent increments with certain increases to the general fund’s revenue, said Michael Allen, Maine Revenue Service’s associate commissioner for tax policy.

That caused it to drop to 5.5 percent in 1998. Two years later, the state decided to drop it back down to 5 percent.

The current increase is set end on July 1, 2015.

Some are concerned that it could be permanent, but Katz said he expects the Legislature to honor the sunset of the tax increases.

Not all restaurant owners are as upset about the tax increase.

Neil Andersen, who owns A1 Diner in Gardiner with Mike Giberson, said he doesn’t think most people will notice the difference on their bills. He said lunch at the diner usually costs around $10 to $12, so bill will increase by only 5 or 6 cents.

Paul Koenig can be contacted at 621-5663 or at:

pkoenig@mainetoday.com