Mainers will decide next month whether to keep or do away with a new state law that lowers the state’s income tax rates while placing new taxes on scores of purchases ranging from car repairs and amusement parks to dry cleaning and movie tickets.

The law that was passed last year but has not gone into effect lowers Maine’s top income tax rate from 8.5 percent to 6.5 percent. To make up for the lost tax revenue, the law broadens the existing 5 percent sales tax to dozens of items that are now exempt. It also increases the food and lodging tax from 7 percent to 8.5 percent; the tax on car rentals grows from 10 percent to 12.5 percent.

Mainers get the final say on the tax reform law during a June 8 referendum. A “yes” vote favors repealing the law, while a “no” vote favors retaining it.

If the law stays in place, nearly 90 percent of Mainers will see their combined income and sales tax payments drop, said Rep. John Piotti, the House Majority leader who sponsored the bill. At the same time, it will stabilize state revenue and spur economic development, he said.

“The big picture is we’re making a comprehensive change in our tax code that pretty much any economist will tell you is a smart thing to do,” said Piotti, a Democrat from Unity.

Opponents say the law amounts to a bunch of new taxes on everyday purchases that will be felt by every Mainer. They say the new law will expand or raise the sales tax on 102 items including golf driving ranges, car washes, tow trucks and whitewater rafting.

“One hundred percent of Mainers will pay these 100 new sales taxes. We’ll be paying them 365 days a year,” said Curtis Picard, executive director of the Maine Merchants Association, which is a member of the Vote Yes to Reject New Taxes coalition.

The tax reform bill has been described as the most sweeping change in Maine’s tax code since the state adopted a personal income tax in 1969.

The law is aimed to be revenue-neutral, but would result in tax savings of $54.3 million for Mainers in 2011 because out-of-state visitors would pay more for services like restaurants, lodging and car rentals, according to projections by Maine Revenue Services.

If the law is retained, the average Maine family in 2011 would pay less in income taxes but more in sales taxes – for a combined savings of $77, the agency said.

Soon after the law was passed, a coalition to repeal the tax law collected more than 60,000 signatures to force a statewide vote.

Critics like Mark Duval of Duval’s Service Center in South Portland said the new taxes will burden consumers and small business owners. He questioned why lawyers, accountants and other professionals aren’t having their services taxed, and why golf courses and ski resorts are exempt.

“When my consumers come through the door, they’re having a hard time making these repairs,” Duval said. “When you add another $50 to $100 to their bills, people may decide not to do the job.”

Representatives of the restaurant and lodging industries say raising the meals and lodging tax makes Maine less competitive in drawing tourists, while also hitting Mainers in the wallet.

Dick Grotton of the Maine Restaurant Association said the higher lodging and meals taxes will bring in about $38 million to the state – but that out-of-staters will pay only $15 million of the total.

“Mainers will pay $23 million of it,” He said. “That’s not chicken feed.”
Supporters of the law say a vote to repeal the law is a vote for higher taxes.
Crystal Canney, spokeswoman for the No Higher Taxes for Maine political action committee, said that punting the tax reform would, in effect, eliminate a 30 percent decrease in income taxes.

“If the law is allowed to stand 95 percent should see a reduction in their income taxes,” she added.

Proponents further say lowering the income tax rate will make Maine a more business-friendly state.

Bruce Wagner, CEO of Barber Foods in Portland, said having a lower rate will make it easier for him to attract employees – such as food scientists, engineers and marketing specialists – from out of state. The law should also leave his workers with more money in their wallets, he said. Barber Foods has 680 employees from about 50 countries.

“When there are income tax reductions, people will have more money to spend on things they want that will go into the local economy,” Wagner said. “And I believe that’s a positive thing that helps the economy.”