The Taxation Committee is considering what requirements businesses should meet to be eligible for tax breaks under working waterfront legislation and whether

marinas and boatyards that work part-time on commercial fishing boats should qualify.

With 150 boatyards and marinas identified by the Marine Trade Commission as possible candidates for at least a partial tax break, the answer to that question and others will determine how much of a tax shift there will be onto other taxpayers under the proposal.

Committee member Earl Bierman, R-Sorrento, said the marinas brought to mind “all the lobster pounds that sell fuel and keep a little hardware in the back,” to sell to fishermen. “How do we deal with them – the lobster pounds that have kind of a dual rule or more than a dual role?” he asked.

Voters in November passed a constitutional amendment authorizing the Legislature to adopt a law allowing land on the waterfront used for commercial fishing to be assessed at its current use rather than the market value, or what it could bring if sold for housing or other development. It would put working waterfront in a category similar to forest, farmland and open space, which already get tax breaks.

The Maine Revenue Service drafted legislation for the Taxation Committee to consider, but it is up to legislators to come up with the finished product. The committee held a work session on Monday and will continue its discussion on Friday at the State House.

The points of contention so far include:

• What constitutes a commercial fishing business?

• Are piers and docks part of the waterfront land that would be eligible for an assessment break or are they structures, which are not eligible?

• What kind of a tax break should eligible property get?

• How big should the penalty be if a waterfront landowner gets into the program and then decides to sell out?

The revenue service suggested a definition for eligible property that says 50 percent or more of the activity at a location has to deal with commercial fishing, but committee members questioned what activities should qualify.

“Many people who voted for this had no idea we’d come up with a list like this and even consider they were commercial fishing activities,” said Rep. Harold Clough, R-Scarborough. Clough said he wants the tax break for businesses that catch the fish or haul the lobsters, not “making clam chowder to sell along the wharf.”

The committee also grappled with what constitutes land, specifically questioning whether assessments on piers and docks should be capped.

Rep. Thomas Watson, D-Bath, said the intent of the constitutional amendment was to protect piers from escalating in value beyond their current use for fishermen. He suggested the law direct assessors to only consider their replacement value and depreciation.

“Land is land and structure is structure,” countered Clough, arguing the committee was being too expansive with its tax break. “If you get out on that pier you’re never going to get back,” he said.

Also at issue is how working waterfront should be assessed. The revenue service proposed a method where land would be assessed like other commercial property in town that was not on the water. A second suggestion was to take off a straight percentage, for example 20 percent, from the current market value. The value would then rise over the years, but not at the skyrocketing rate of waterfront land.

Sen. Ethan Strimling, D-Cumberland County, was concerned about the penalty for people who get in the program for a tax break then sell out to developers. “I don’t think there should ever be a point where people make out on this,” Strimling said. “I don’t want this to be a tax shelter.”

The Maine Revenue Service is suggesting there be a one-time penalty for withdrawal from the program. In the first 10 years that penalty would be 30 percent of the difference between the market value of the land and the current use value under the working waterfront law. If that difference was 10 percent or $100,000 on a $1 million property, the penalty would be $30,000. The penalty after 20 years would be 20 percent of the difference, or on that same example, $20,000.

The penalty would get steeper based on the assessment break the committee finally chooses. On property assessed at 20 percent below market value, for example, the penalty for withdrawal in the first 10 years would be $60,000. It would be $40,000 after 20 years in the program.

The penalty is designed to pay back the community for taxes lost when a person opts out of the program and decides to sell to a non-commercial fishing entity. Sales to commercial fishing businesses would still qualify for a tax break.

Geoff Herman of the Maine Municipal Association said collecting penalties is “administratively easy but politically difficult” because most often people opt out of such programs because “some bad thing has happened to the landowner.”

“It is not the preferred method of generating revenue,” he said.