What can you see from any New Hampshire liquor store location or shopping outlet in the Granite State? Lots of Maine license plates.

Maine consumers already recognize that our high-tax state creates incentive to shop elsewhere. There is no general sales tax in New Hampshire, and so-called “sin taxes” on products like distilled spirits and tobacco are much, much smaller.

This is part of what makes a proposal that would allow municipalities to enact a local option sales tax so troubling in Maine for both businesses and consumers. We’re already at a competitive disadvantage to our closest neighbor, and an increase in the net price of just about any product gives consumers greater incentive to load up on goods when traveling out of state, or intentionally leave Maine to make purchases.

This is particularly true for businesses in border counties. Businesses on Maine’s side of the border already lose customers to their counterparts in the Granite State. Per capita retail sales in New Hampshire border counties outperform retail sales in Maine border counties by nearly $7,700 per person.

L.D. 1254, sponsored by Rep. Michael Sylvester of Portland, would allow municipalities to enact, by local referendum, a seasonal or year-round local option sales tax on meals and lodging sales within their jurisdictions. Lawmakers elected to carry the bill over for consideration in the second session.

Municipal officials, like former Portland Mayor Ethan Strimling, tout the tax as a way to offload the state’s tax burden on tourists. But according to Maine Revenue Services, Mainers are responsible for about 70 percent of meals sales and 30 percent of lodging sales throughout the state. This means a local option sales tax is not a tourist tax – its burden would be borne by Maine citizens. Nonetheless, for a state whose official slogan is “Vacationland,” it would be equally counterproductive to increase a tax that individuals pay when they choose to stay here.

Unfortunately, the brunt of this burden would be felt by low-income Mainers (who often lack the resources necessary to shop elsewhere) in the limited jurisdictions where a local option sales tax would generate substantial revenue. This is because a sales tax is one of the most regressive forms of taxation. In addition, few municipalities have much to gain from enacting a local option sales tax.

If the Legislature advanced one of the bills proposing a broad-based local option sales tax and saw it implemented in every municipality, 10 jurisdictions – Auburn, Augusta, Bangor, Biddeford, Brunswick, Ellsworth, Portland, Scarborough, South Portland and Waterville – would generate about 42 percent of all local option sales tax revenue generated statewide. Meanwhile, 356 jurisdictions, or 70 percent of all Maine municipalities, would generate revenue under $100,000.

Interestingly, six of these 10 jurisdictions – Auburn, Augusta, Bangor, Biddeford, Portland and Waterville – have poverty rates that exceed the state average, according to the U.S. Census Bureau. Cities and towns would be collecting revenue on the backs of low-income Mainers who can least afford the local tax increase.

Based on 2018 meals and lodging sales data from Maine Revenue Services, the local option sales tax outlined in L.D. 1254 would generate about $38.4 million if applied in every municipality. Ten jurisdictions – Portland, Bangor, South Portland, Bar Harbor, Ogunquit, York, Wells, Augusta, Scarborough and Auburn – would generate 45 percent of these revenues statewide.

Municipal officials promise that implementing a local option sales tax would enable property tax reductions, but nothing within state law or the language of L.D. 1254 requires municipalities to offset or reduce property tax collections through the establishment of a local option sales tax.

Based on this data, it’s hard to see who wins from a local option sales tax in Maine. Businesses in border counties would lose more sales to their counterparts over the border. Consumers would be forced to shop around for the lowest prices to avoid the tax, and tourists could forgo coming here altogether. Taxpayers would see little benefit, if any, and the vast majority of municipalities would not generate a meaningful amount of revenue.

The evidence is clear: The perils of a local option sales tax in Maine far outweigh the alleged benefits.


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