AUGUSTA, Maine — With Gov. Paul LePage’s budget proposal creating lots of questions about how Maine’s tax system will look next year, lawmakers on Thursday were presented one more: Should Maine’s municipalities collect their own sales tax, in addition to the one levied by the state?
The bill, LD 594, would give every municipality in Maine the option of imposing a local sales tax of no more than 1 percent, and only if the tax is approved by voters in a local referendum. The bill’s sponsor, Sen. Linda Valentino, D-Saco, told the Taxation Committee that the timing couldn’t be better to consider the perennial question.
“This is the time to include a local option sales tax provision,” she said. “It is finally time to give municipalities what they have been asking for.”
It’s true that many towns and cities — especially the tourist havens along the coast and the service centers throughout the state — have historically asked the state to grant them authority to raise their own sales tax revenue.
Those communities have long argued that it’s unfair to have the state be the only level of government to collect sales tax. After all, the argument goes, towns and cities are the ones who do the legwork to attract businesses and provide services. Shouldn’t they get a piece of the pie?
One of the largest proponents of the local option sales tax over the years has been the Maine Municipal Association. But not this time, said the group’s tax policy advocate, Kate Dufour.
Dufour said in an interview that uncertainty surrounding revenue sharing — the state program that shares a small percentage of state income and sales tax revenue with municipalities — makes the Maine Municipal Association hesitant to support a local option sales tax.
The Legislature for years has failed to fund the revenue sharing program at levels established in law, and LePage has advocated the state scrap the program entirely, prompting a gnashing of teeth from local officials who say it would force painful cuts in services or sharp spikes in property taxes.
Dufour said she feared lawmakers would use a successful local option sales tax as rhetorical cover to accept LePage’s plan to kill revenue sharing. That wouldn’t work for towns with small or nonexistent retail bases, which wouldn’t be able to make up the lost state funding aid with local taxes, she said.
“In years past, we have supported [the local option sales tax]. When the relationship between the state and the municipalities was productive, there was some trust there, but that trust has eroded significantly,” she said. “Municipalities are concerned that if there is any local option sales tax authority coming our way that it will lead to the complete repeal of revenue sharing.”
A majority of states have a local option sales tax, according to the National Conference of State Legislatures.
But not every town official agrees with Dufour. The Maine Mayors Association, which represents the mayors of several of the state’s largest municipalities, supported the plan on Thursday. Bangor city councilors have also supported a local option sales tax.
South Portland City Manager Jim Gailey said in an email that lost state funding made the local option sales tax more appealing, not less.
“The time has come for a local option sales tax to be adopted in the state of Maine,” he said. “Municipalities are fronting more and more of the burden, while needing to keep the [property tax] rate down at the same time.”
Joining the Maine Municipal Association in opposition to the bill was the Maine Chamber of Commerce, which said a local option sales tax is just a tax hike, plain and simple.
“It’s nothing more than another way to raise revenue for municipalities and would do nothing to lower taxes at the local level.” said Linda Caprera, the group’s lobbyist.
A similar bill passed in the House last year, but was easily killed in the Senate. Other local option sales tax bills over the years have enjoyed varying levels of support in the Legislature, but have all met the same fate.
Maine remains one of just 12 states that has no option for a local sales tax.
The Taxation Committee will make its decision on Valentino’s bill in the coming weeks, after which the bill will face votes in the House and Senate.
Follow Mario Moretto on Twitter at @riocarmine.