It’s a rarity these days: a new study that gives Maine the country’s highest grades for business-friendly tax policies.

But the report, by the international accounting and consulting firm Ernst & Young, hasn’t been touted by Gov. Paul LePage, who ran on a platform calling for the state to ease the tax burden on businesses.

The report said Maine has the country’s lowest effective taxes on new investments, such as new manufacturing plants, research and development facilities, company headquarters, call centers and other offices.

The report cited Maine’s method for determining how much corporate income is subject to state taxes, a below-average property tax rate, the lack of a franchise tax, and a sales tax that is “one of the lowest in the nation” as the reasons for the state’s good ranking.

New Hampshire, with tax policies that are often lauded by LePage, is ranked seventh, and the other northern New England state, Vermont, ranked 31st.

Adrienne Bennett, LePage’s spokeswoman, said the governor is not citing the report as he travels around the state. She said he believes a better barometer of Maine’s business climate is what he hears from business owners at his meetings aimed at cutting red tape and his “capital for a day” events.

“This ranking is not going to entice someone to come” to Maine, Bennett said. “It’s a limited study.”

Ernst & Young said the report, which was not commissioned, is the first in a series of reports the firm will produce on states’ tax policies.

Bennett said Maine needs to improve its overall business climate to become more attractive to business. She noted that a Forbes magazine ranking of business-friendly states — which LePage cited frequently when running for governor last year — ranked Maine last in 2010 due to business costs, the regulatory environment and quality of life.

Ernst & Young’s report says Maine has an effective tax rate of 3 percent on new investments, compared to a national average of 7.9 percent. It noted that Maine’s corporate tax rate of 8.93 percent is higher than average, but that is more than offset by the state’s use of a more business-friendly method of calculating the portion of corporate income subject to state taxes.

Despite complaints about high property taxes by residents, the report said Maine’s rates are lower than average for businesses. A big component of that is a law adopted last year that exempts most new business equipment purchases from personal property taxes.

Maine also has no franchise tax, which is usually levied on the net worth of a company, and Ernst & Young said the state’s sales tax is below the national average of 6.2 percent. The report said Maine’s 5 percent statewide sales tax is its only tax on sales, while many states allow cities or counties to levy an additional sales tax.

Colorado, for instance, has a low statewide sales tax of 2.9 percent, but local rates are 3.8 percent, giving the state a combined sales tax rate of 6.7 percent.

Bennett said the Ernst & Young report doesn’t look at all taxes that states, including Maine, impose and said that’s another reason why LePage won’t tout the results.

The report says it did not take into account some financial factors, such as unemployment taxes or incentives offered by states and local governments to encourage businesses to locate in an area.

It also looked mostly at the tax impact on companies using the corporate structure favored by large businesses, but noted that those are most likely to make major investments.

Several business leaders said the report was good news.

“Good news is good marketing and, frankly, it’s very welcome,” said Dana Connors, president of the Maine State Chamber, who said he’s sharing the study “with everybody.”

Connors said he’s often in the position of trying to shoot down economic reports in which Maine fares poorly, and he appreciates being able to put in front of business contacts an independent study ranking the state at the top.

Matt Jacobson, the president and chief executive of Maine & Co., a nonprofit business recruitment organization, said he’s been sending out the report with a lot of his emails. One company that he says is close to opening an operation in Maine is using the Ernst & Young report in its analysis of where to locate.

“This is not just theoretical” information, said Jacobson. “We are trumpeting it.”

LePage’s cool reaction may be political, said Jacobson, who was a Republican candidate in the gubernatorial primary last year.

While he would use the report as a tool to motivate legislators to further reform Maine’s business tax structure, Jacobson said, LePage may think it would reduce the pressure to act. “People could look at this and say, ‘Oh, geez, we’re done,’ ” he said.

That perspective was echoed by Scott Moody, the economist for the conservative Maine Heritage Policy Center who was recently appointed to the state’s Consensus Economic Forecasting Committee by LePage.

“There is a political concern (to the report) that you have to consider,” Moody said, adding that LePage is still trying to get the Legislature to cut income tax rates and make other changes to the tax code. The report might lead some “to just say, ‘Hey, we’re done,’ ” Moody said, “but that’s clearly not the case.” 

Staff Writer Edward D. Murphy can be contacted at 791-6465 or at:
[email protected]