Maine Legislators Consider Authorizing Local-Option Sales Taxes

Although most U.S. states permit their local governments to collect certain types of sales taxes (in addition to the statewide tax), about a dozen state still do not. One such state is Maine, which currently assesses a statewide sales tax of 5.5 percent only. But there is a renewed effort in the state’s legislature to authorize local-option sales taxes (LOST), which could provide an additional source of revenue for cash-strapped municipalities.

Bills Would Allow Municipalities to Target Sales Tax Increases During Tourist Season

There are several LOST bills currently pending before the Maine Legislature. One such bill, known as LD 65, would allow municipalities to impose a local sales tax after obtaining approval in a voter referendum. The referendum question would need to include not only the proposed tax rate, the “purposes for which the revenue will be used,” and any months when the LOST would not be collected.

This last item means that the municipality would not have to collect its portion of the sales tax year-round. Rather, localities could focus tax collection efforts on the summer months when Maine typically attracts a large number of tourists. According to the Portland Press Herald, roughly 36.7 million people visited Maine in 2017, spending approximately $6 billion throughout the state.

A second proposal, LD 1254, would allow for a LOST of up to 1 percent on restaurant meals and lodging. Like LD 65, LD 1254 would require a referendum and allow localities to specify the months in which the local sales tax would apply. But while LD 1254 is restricted to “prepared food or the value of rental of living quarters” to travelers, LD 65 permits collection of local sales tax on any item that is already subject to Maine’s statewide sales tax.

Conservative, Liberal Activists Challenge LOST Proposals

Not surprisingly, many conservative anti-tax groups oppose the LOST bills. Jim Fossel, a former staffer for Republican U.S. Sen. Susan Collins, wrote in an editorial for the Press Herald that “the very concept of a local-option sales tax is fundamentally flawed.” Fossel argued it was a “competitive advantage” for Maine not to have such taxes, and that “towns and cities across Maine ought to continue doing what they can to cut costs and constrain spending.”

What’s interesting is that some liberal activists agree with Fossel–at least with respect to opposing the LOST. Sarah Austin of the Maine Center for Economic Policy, which describes itself as a “progressive voice” for “Maine working families,” wrote on the organization’s website, argued legislators should reject LD 65 and LD 1254 as it would disproportionately benefit those “communities heavily reliant on the tourism industry” while “doing little–or even nothing–for others.”

Austin noted that 10 municipalities in Maine generated 45 percent of the state’s meals and lodging revenue, yet only contained 16 percent of the state’s permanent population. And even a general LOST that was not limited to meals and lodging, such as the one proposed by LD 65, would hit poorer Maine residents the hardest. For this reason, Austin said a sales tax increase limited to meals and lodging would be preferable, but only if implemented as part of more comprehensive tax reform, including higher income tax rates for the “wealthiest and profitable corporations.”