Maine Legislators Consider “LOST”

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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.”

 

 

Sales tax change frequency by state

Zip2Tax compares the sales tax change frequency of the states. Ever wonder how your state measures up?

It’s generally accepted that there are around 11,000 sales tax jurisdictions across this great and diverse country of ours. This fact alone would seem to be a fairly reasonable argument for the outsourcing of sales and use tax rates from a company such as Zip2Tax. As the head of marketing for Zip2Tax I am always trying to understand our customer’s needs better. I found myself wondering about the sales tax change frequency for all these jurisdictions. I mean, 11,000 rows in a document might be manageable if they only changed their rates every few years or so, right?

So I sat down and with my trusty Excel spread sheet and a large cup of strong coffee and started going back through our research documentation counting the number of months that there had been any sales tax changes in each state. I wanted to determine which states had the highest sales tax change frequency. I sampled a three-year period from December 2015 going back through January 2013.

… fully one-third of the time that these states CAN make sales or use tax rate changes, they DO.

When the numbers were crunched I had some surprises in store, to be sure. For one, the states that provide Zip2Tax with the most new customers have no obvious correlation with which states had the highest sales tax change frequency. In fact, California and New York were only slightly above average.

The standout in this sample was Alabama which turned out to be far and away the leader with changes in 30 out of the 36 months – that’s 83% of the time. This also helped to dash my hopes of discovering a hotbed of customer need for our product since Alabama has so far not proven to be a great source of new business.
sales tax change frequency

Arizona came in second with 14 changes over that same period. Georgia, Louisiana, Oklahoma and Texas all tie for third place with 13 sales tax rate changes over 36 months. That translates to mean that fully one-third of the time that these states CAN make sales or use tax rate changes, they DO. Not to overstate the obvious, but that is more frequently than quarterly updates.

… more than two-thirds, updated that tax a minimum of once a year, and by the end of 3 years, 86% of the states had made changes…

In fact, 68% of the states that collect a sales tax, that’s more than two-thirds, updated that tax a minimum of once a year, and by the end of 3 years, 86% of the states had made changes.

So as I drained the last of my cold coffee I felt some gratification in that even though sales tax will remain an extremely complex moving target in nearly all 50 states, at least it should mean a steady supply of customers for sales tax rate providers like Zip2Tax for the foreseeable future.

Fill in the sign up form below this blog to receive our monthly newsletter and get alerted when one of these states makes a sales or use tax change or other important tax-related information.

 

Sales and use tax changes for Oct. 1, 2013

Tax rate changes effective October 1, 2013

Tax rate changes effective October 1, 2013

Sales and/or use tax rates in the states of Alaska, Alabama, Arkansas, Arizona, California, District of Columbia, Georgia, Kansas, Maine, North Dakota, Ohio, Oklahoma, Texas, West Virginia, and Wyoming have changed in Zip2Tax products as of October 1, 2013.

In Alaska, tax rates changed for Sitka, Skagway and Whittier.

In Alabama, tax rates changed for Taylor, Pelham, Arab, and Woodland.

In Arkansas, tax rates changed for Blytheville, Elm Springs, Green Forest, Keiser, Monette, Osceola, Pocahontas, Vilonia and Hempstead County.

In Arizona, tax rates changed for Yuma County.

In California, tax rates changed for San Fernando.

In DC, the state tax rate changed.

In Georgia, tax rates changed for Pierce County.

In Kansas, tax rates changed for Andover, Goodland, Harper, Mound Valley, and the counties of Ellis, Chase, Graham, Miami and Reno.

In Maine, the state tax rate changed.

In North Dakota, tax rates changed for Crosby and Lidgerwood.

In Ohio, tax rates changed for Erie County.

In Oklahoma, tax rates changed for Broken Bow, McCurtain, Sallisaw, and Wetumka.

In Texas, tax rates changed for Gregory, Reno, White Deer, Presidio, Trophy Club, Breckenridge, Bryson, Claude, Drum, Lakeside, Lavon, Odern, Olton, Petersburg, Riesel, Rising Star, Sachse, Stockdale, and Wheeler.

In West Virginia, tax rates changed for Charleston, Harrisville, Quinwood and Wheeling.

In Wyoming, tax rates changed for Crook County.

There were 45 states with ZIP code changes effective after September 2013 including Alabama, Arkansas, Arizona, California, Colorado, Connecticut, DC, Florida, Georgia, Iowa, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Massachusetts, Maryland, Michigan, Minnesota, Missouri, Mississippi, Montana, North Carolina, North Dakota, Nebraska, New Hampshire, New Jersey, New Mexico, Nevada, New York, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.  Download a complete list of the ZIP code changes.

For September’s changes click here.

Angel Sauer

Angel Sauer, lead tax researcher

Which states are the most business friendly?

America is a competitive place and states battle to be the best at whatever they can. Who has the best schools, the best food, the friendliest people, etc.? As a business owner, you definitely need to know which are the most business friendly.

Like any ranking, this is a matter of opinion and you can spend all day arguing over which state is truly number one. When you dig into the data though, some states have clear advantages over others in terms of taxes and economic strength.Tax Foundation

State corporate tax

A good place to start comparing states is the corporate income tax rate. The less your business owes in state corporate taxes, the better your bottom line so of course we want to keep this low.

South Dakota, Nevada and Wyoming don’t charge a corporate tax, so you can’t do any better than that. Colorado, Georgia, Kentucky, Michigan, North Dakota, Oklahoma, South Carolina, Utah and Virginia also are decent as they cap corporate taxes at 6% or less.

State income tax

State income taxes are another cost of doing business and in a perfect world would be as low as possible. The good news is several states waive this tax altogether to create a more business friendly environment.

If you’re operating out of Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming, you won’t have to pay any state taxes when you draw income out of your business. In terms of taxes, South Dakota, Nevada, and Wyoming start to look pretty appealing because business owners in these states avoid both corporate and individual income taxes.

Sales tax

Sales taxes are a difficult challenge business owners have to deal with. But wait, don’t your customers pay this? That would be mostly right. Your business won’t pay sales taxes out of its profits if you are collecting them correctly at the point of sale. However, your business is responsible for determining the following:

  • IF you are required to collect tax (your business has nexus, or a physical presence, within that jurisdiction);
  • WHICH items are taxable and at WHAT rate (some items and services are tax exempt, others are taxed at a rate different than general rates);
  • HOW MUCH to collect (does the state use origin or destination sourcing, what is the current rate for each jurisdiction);
  • WHERE to send the money (some states have you send it to a single office, others have you make payment to individual municipalities); and
  • and HOW OFTEN you have to do this (this could be annual, quarterly, or monthly depending on the state and the size of your business)?

Collecting sales taxes adds to your item’s total price, so it is in your best interest to keep that amount as low as possible to give you a competitive advantage.  (At least for now. The Marketplace Fairness Act could soon make this a thing of the past.)

Delaware, Montana, New Hampshire and Oregon don’t charge sales taxes. Alaska, Hawaii*, Maine, and Virginia are also competitive by keeping state and local sales taxes to 5% or less.

Use tax

Use tax is a little different than sales tax. This is your responsibility. You owe your state use tax anytime your business makes a taxable purchase but your supplier didn’t charge you sales tax, or the difference between the two amounts if your state’s use tax rate is higher than what your supplier charged you.) Technically, you could be due a tax refund if your supplier charged you a higher sales tax rate inappropriately, but the burden of proof would fall upon you.

In AlabamaArizonaColoradoMissouri and Oklahoma the use tax differs from the general sales tax rate (normally, it is lower). MontanaNew Hampshire and Oregon have no use tax. IllinoisIowaNew MexicoVermont and Wisconsin have a statewide use tax, but no local use tax.

Unemployment

While avoiding taxes is nice, for your business to succeed you also need a thriving economy with buyers looking for your product. The American economy is still struggling as a whole which makes it tough to open a business. However, some states are definitely doing better than others.

North Dakota, South Dakota, Nebraska, Vermont, Iowa, Utah and Wyoming all have an unemployment rate of 4.6% or less. If you’re in one of these states, you’d never know the country’s in an economic downturn.

Of course, these states have relatively small economic volume and may be better suited to specific industries. As far as high volume economies go, Virginia, Texas and Massachusetts are outperforming others as these states have unemployment below 6.6%. Not great, but definitely better than other parts of the country.

States with high unemployment rates may offer temporary tax benefits designed to bring in new businesses. It’s always worth a phone call to the economic development office to see what they have to offer.

The bottom line

So how does this all add up?

Based just on these factors, Wyoming, South Dakota and Alaska take the lead as they are strong in all four categories; they combine low taxes with sound economies. The remoteness of these states might be a strike against them however.

For the bigger players; Texas, hands down, looks very business friendly, even with its exceptionally complicated tax jurisdictions. Nevada, Florida and Washington have encouraging tax laws but high unemployment, whereas Virginia and Massachusetts have better economies but higher taxes.

If you are searching for a home for your business be sure to keep these states in mind as they are the leaders in accommodating businesses.

*Technically, Hawaii has an excise tax rather than sales tax.

Maine lawmakers considering raising and expanding sales taxes

expanding sales taxes

expanding sales taxes

On May 1st, a bipartisan group of Maine lawmakers released a plan to both raise and expanding sales taxes in the state. These extra revenues would be used to reduce the state income tax rate and provide tax relief to Maine homeowners.

Under this new law, Maine would raise its sales tax from 5 to 6 percent. It would also expand the taxable base to more services and products. Items like groceries, haircuts, cooking and heating oil, and funeral services would all become taxable. Nearly all consumer purchases would be taxed under this law, with a few exceptions for education and healthcare purchases.

In exchange, this bill would cut the state’s maximum income tax rate for individuals down from 8 to 4 percent. It lowers the corporate tax rate down from 8.93 percent to 7.5 percent and removes Maine’s estate tax.  This bill also raises the state’s homestead exemption from $10,000 to $50,000 so Maine homeowners would owe less in property taxes.

Lawmakers will review this bill extensively over the next few weeks until the current legislative session ends in June. Republican Gov. Paul LePage is unenthusiastic about this new plan, so lawmakers need to win him over before any changes will go into effect.