Maine Still Struggling to Improve Business Tax Climate

November 30, 2015 Posted by Matthew Gagnon - No Comments

For several years Maine has ranked among the worst states to conduct business, and2016 will be no different, according to the Tax Foundation. Maine currently ranks 34thoverall, but earns even lower marks in the areas of corporate taxes (45th), unemployment insurance taxes (41st), and property taxes (41st).

In the Tax Foundation’s index of the business tax climate in different states, Maine ranked 33rd overall in 2015, 29th in both 2014 and 2013, 37th in 2012, and 38th in 2011. From 2010 to 2012, Forbes designated Maine as the worst state in the nation for business, citing its high corporate taxes, anemic economic growth, and inability to attract large companies.

The Tax Foundation warns that uncompetitive business tax structures can profoundly damage a state’s economic foundation. “It is important to remember that even in our global economy, states’ stiffest competition often comes from other states.” According to the Department of Labor, most job relocations are from one U.S. state to another rather than to a foreign country.

Many analysts point to Maine’s corporate tax burden as the primary impediment to job creation and business prosperity. Maine’s corporate income taxes, with a top rate of 8.93 percent on income over $250,000, rank 6th highest in the nation. Earlier this year, Governor LePage’s budget proposal attempted to flatten the corporate income tax rate by gradually reducing it to 6.75% by 2021. According to the LePage administration, this would lower the corporate tax burden by $50 million over the FY 2018-2019 biennium. The Legislature largely rejected his proposal, though it approved the elimination of several tax exemptions to broaden the tax base.

Another obstacle policymakers face is Maine’s property tax system. Since 1973, inflation-adjusted property tax collections have more than doubled. Maine’s revenue sharing program, instituted more than 40 years ago as a way to provide state funding to municipalities in return for local property tax cuts, has failed to reduce the tax burden.