October 1, 2013

Taxes going up in Maine Tuesday

Sales taxes and meals and lodging taxes edge upward, while newspapers and periodicals are taxed for the first time, to keep the state budget in balance.

By Steve Mistler smistler@pressherald.com
State House Bureau

and Eric Russell erussell@pressherald.com
Staff Writer

If you haven’t already bought that big-screen TV for football season or relaxed in a bed-and-breakfast in Camden or gone out to that fancy restaurant you’ve been dying to try, you’re going to pay a price for waiting.

click image to enlarge

Hi-Hat waitress Caitlyn Laflin, right, gives customers change Monday on the eve of increases in meals, lodging and sales taxes in Maine. Meals and lodging taxes will increase from 7 percent to 8 percent and the sales tax will rise to 5.5 percent from 5 percent.

Andy Molloy/Kennebec Journal

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State taxes on all of those things just went up, effective today.

Maine’s general sales tax increased from 5 percent to 5.5 percent. The tax on meals and lodging went from 7 percent to 8 percent. And periodicals, including newspapers, became taxable for the first time, which means a paper or a magazine will cost 5.5 percent more.

The increases were approved by lawmakers in June as they looked for ways to add revenue and balance the state’s two-year budget. The $6.3 billion budget, including the tax increases, was a compromise between Democrats and some Republicans whose votes were needed to override a veto by Gov. Paul LePage.

Representatives of the industries most affected by the increases said Monday that they are prepared to collect the higher taxes – and hoping that they don’t push consumers over the edge.

“For most people, the total cost is the most important thing,” said Chip Gray, general manager of the Harraseeket Inn in Freeport. “One percent doesn’t sound like a lot, but whoever has the best deal often gets the business. Is that one percent the tipping point? I don’t know.”

For many individual purchases, consumers may not notice the changes. For a $1,000 television or computer, it will mean an extra $5 in sales tax. On a $50 restaurant bill, it will mean an extra 50 cents. For a $200 hotel room, it will mean an additional $2.

“But over a year’s worth of purchases, it adds up,” said Curtis Picard, executive director of the Retail Association of Maine.

“Obviously, the impact will be greater on big-ticket items,” said Picard, who bought a used car last weekend to avoid the additional $80 to $100 in taxes he would have paid this week.

Dick Grotton, director of the Maine Restaurant Association, said his group plans to keep a close eye on how restaurants are affected by the higher meals-and-lodging tax. He said it may not keep diners at home, but it might make them think twice before ordering dessert, or a drink. It also might make them drop their tip to 15 percent from 20 percent, he said.

“The two good things about this increase are that it didn’t start on July 1, in the middle of tourist season, and that it has a sunset provision,” he said.

The sales tax and meals-and-lodging tax increases were passed as a temporary measure that is scheduled to expire in June 2015.

But not everyone is convinced that the increases will be temporary. Gray said he will be “stunned” if they aren’t made permanent.

“Income taxes were supposed to be temporary, too,” he said.

Except for New Hampshire, which has no sales tax, Maine has the lowest sales tax rate in New England, even with the bump to 5.5 percent. The new 8 percent meals-and-lodging tax is still lower than the 9 percent in New Hampshire and Vermont.

However, Greg Dugal of the Maine Innkeepers Association said many hotels, motels and bed-and-breakfasts have avoided rate increases in many years to stay competitive. He said they are operating on thin margins.

“I understand the Legislature had to do something at the 11th hour, but we’ll have to push hard to make sure the increases stay temporary,” Dugal said.

In addition to the tax increases, consumers will see a new tax of 5.5 percent on newspapers and other periodicals. A $1 paper will cost $1.06, and a $2.50 Sunday newspaper will cost $2.64, after taxes. The lifting of that longstanding tax exemption will provide Maine an extra $5.9 million over the next two years.

(Continued on page 2)

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