Press Release: A local option sales tax would harm low-income Mainers and undermine businesses in border counties

FOR IMMEDIATE RELEASE
December 2, 2019
Contact: Jacob Posik
Director of Communications
Office: 207.321.2550
Cell: 207.240.7064

New analysis shows a local option sales tax would harm low-income Mainers, undermine businesses in border counties

PORTLAND, Maine – The Maine Heritage Policy Center today released a new policy brief, “A Lost Cause: The Local-Option Sales Tax,” which examines LD 1254, a carry over bill that would allow municipalities to enact a one percent local option sales tax (LOST) on meals and lodging sales within their jurisdictions. The bill will be debated when lawmakers return to Augusta in January for the second session of the 129th Legislature.

In the brief, policy analyst Adam Crepeau explores the impact of LOSTs on low-income Mainers and dissects how the imposition of a LOST would alter consumer behavior to hurt Maine businesses. In the brief, Crepeau finds:

Few municipalities would reap the benefits of a local option sales tax. If all municipalities in Maine implemented a broad-based one percent LOST, 10 jurisdictions would generate approximately 42 percent of all LOST revenue generated statewide, while 356 jurisdictions, or 70 percent of all municipalities, would generate revenue under $100,000.

Similarly, a LOST on meals and lodging would do little to help the average municipality. Based on 2018 meals and lodging sales data from Maine Revenue Services, the LOST within LD 1254 would generate $38.4 million in new revenue if enacted statewide. Ten municipalities – Portland, Bangor, South Portland, Bar Harbor, Ogunquit, York, Wells, Augusta, Scarborough and Auburn – would generate approximately 45 percent of that revenue. 

Sales taxes disproportionately harm low-income individuals. The lowest 20 percent of income earners in Maine pay an effective sales and excise tax rate of 6.1 percent whereas Maine’s top earners pay just 0.7 percent. Sales taxes are regressive and punish those who already struggle to make ends meet in Maine.

A LOST would further incentivize cross-border consumption, hurting Maine businesses. Research shows that as long as consumers are within a reasonable commuting distance (31 to 38 miles), local option sales taxes increase cross-border shopping from high-tax jurisdictions to low-tax jurisdictions by 10 to 14 percent.

Maine border counties already struggle to compete with New Hampshire border counties. Because New Hampshire does not levy a sales tax, businesses in Maine border counties lose customers to their counterparts in the Granite State. Per capita retail sales in New Hampshire border counties ($19,644) outperform per capita retail sales in Maine border counties ($11,962) by nearly $7,700 per person. Imposing a LOST in Maine would only grow this disparity.

Supporters of LOSTs in Maine claim the tax is a way to offload the state’s tax burden on tourists, and that the revenue it generates would help reduce municipal property tax burdens. However, Mainers account for about 70 percent of meal sales and 30 percent of lodging sales statewide, and nothing within existing state law or the language of LD 1254 requires municipalities to offset or reduce property tax collections by establishing a LOST.

In other words, there is no guarantee the revenue generated by a LOST would provide property tax relief in the jurisdictions that enact them.

“Sales taxes, regardless of which level of government imposes them, are regressive, harm low-income individuals and push consumers to shop in lower-tax jurisdictions,” Crepeau said. “Instead of advocating for new revenue streams, municipal leaders should be searching for efficiencies in their current budgets that do not result in tax increases on their most vulnerable citizens.”

The full brief can be read here.

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The Maine Heritage Policy Center (MHPC) is a nonprofit, nonpartisan research and education organization dedicated to freeing people from dependency, creating prosperity, and redefining the role of government. MHPC formulates and promotes free-market public policies in the areas of health care, education, regulations, government transparency and tax and fiscal policy. To learn more about MHPC or review our policy work, visit: www.mainepolicy.org