March 13, 2013- Taxation Issues

The Appropriations Committee, in joint session with the Joint Standing Committee on Taxation, received testimony from the public in regard to the Governor’s proposals related to the Property Tax Review Board, the Maine Board of Tax Appeals, Revenue Sharing, and tax programs under the auspices of Maine Revenue Services.   The Appropriations and Taxation Committees received information and testimony in regard to the following:

 

  • Homestead Property Tax Exemption – Restructured to apply exclusively to households 65 years of age or older and an increase the exemption from $10,000 to $20,000.  The State must reimburse municipalities for 50% of the exemption.

 

  • The Circuit Breaker Program – Restructured to apply exclusively to households 65 years of age or older and income eligibility levels are reduced by one-third,

 

  • Municipal Revenue Sharing – eliminated to save the State $282 million, of which $183 million is expended by municipalities on K-12 education,

 

  • Individual Income Tax – suspension of the inflation adjustment factor that reduces income creep into higher tax brackets,

 

  • Individual Income Tax – The current Consumer Price Index [urban CPI] used to index tax rates and income is replaced by the Chained Consumer Price Index that takes human behavior into consideration, and which is usually less than the urban CPI.

 

  • State Sales Tax – Applied to sales of digital products [videos, DVDs, CDs, etc], currently not subject to the Sales Tax,
  • State Sales Tax – The sales tax exemption for publications is repealed.

 

  • Business Equipment Tax Reimbursement [BETR] – is repealed, and all personal property eligible for State reimbursement of taxes paid is transferred to the BETE program – the Business Equipment Tax Exemption Program.   Municipalities and the State are each responsible for 50% of the BETE exemption.
  • Personal Property tax exemption – Retail personal property [equipment etc] would no longer be eligible for an exemption.

 

  • Sudden and Severe Disruption in municipal valuation – Proposed changes in the law by which municipal valuations are suddenly disrupted [loss of a major business, natural disaster, removal of property from valuation] and valuations are readjusted significantly limit the municipal valuation readjustment process.

 

Major Issues

 

  • The proposed tax changes shift a substantial amount [$440 million] of the State’s tax burden onto municipalities, school districts, and the property tax,

 

  • Property tax relief for most homeowners and renters under age 65 is placed in jeopardy,

 

  • According to the Maine Press Association, Uncle Henry’s, etc., taxing publications is a tax on the news and a major industry [publications] in the State that employs thousands.   Many Maine jobs could be lost.  It is discriminatory by leaving television, radio, and internet news free of the tax.   It also hurts rural Maine and the elderly, who either do not have internet access or do not have the technological skills to access the information they need by computer.

 

  • Elimination of tax indexing will hurt most Maine residents except the wealthy whose income will not be affected by indexing because their income is at the highest rate already.   The Middle Class will be especially hurt.   According to the Maine Center for Economic Policy, this proposal will levy a flat tax of $50 on any taxpayer with an income over $20,000.

 

  • Elimination of the Business Equipment Tax Reimbursement program and incorporating eligible property into the Business Equipment Tax Exemption program, along with eliminating retail property from eligibility,  produces savings for the State in  FY 2011 amounting to $11.7 million and $28 million in the two years – FY 2014 and FY 2015.    This provision transfers to municipalities, one half of the cost of State property tax relief for businesses.

 

  • Individual Income Tax – According to CPA, Albert DeMillo, the Governor’s tax proposals increase the tax liability of the bottom 60% of household by $5 million, and the top 1% or the wealthiest in Maine will experience a $43 million decrease.

 

  • The Governor’s tax proposals, according to Mr. DeMillo, increase the most regressive tax on Maine residents.

 

  • The Governor’s tax proposals and elimination of Revenue Sharing will jeopardize all municipal services.

 

 

PUBLIC HEARING

Taxation

Budget documents related to the Taxation Committee are available.  Commissioner Sawin Millett of the Department of Administrative and Financial Services (DAFS) presented the portions of the budget relating directly to DAFS.  (Commissioner Millet’s testimony).  There was no substantive discussion at this time.

Following Commissioner Millet, State Tax Assessor Jerome Gerard presented testimony is support of the initiatives relating to Maine Revenue Services (Assessor Gerard’s testimony).  Both committees questioned the Administration’s decision to end reimbursement to municipalities for the majority of Homestead recipients by limiting the program to households age 65 years or older.  A particular question sought to learn if the change to Homestead was prompted by the Zero Based Budgeting (ZBB) initiative.  Commissioner Millett replied that no, the change was intended to address a shortfall.

Assessor Gerard was followed by Associate Commissioner Michael Allen of DAFS Office of Tax Policy (testimony of Associate Commissioner Allen.)  Allen presented the Governor’s plans to:

  • Collect sales tax on digital products
  • Adjustments to the Sudden and Severe Impact Property Valuation Tax law
  • Asses a sales tax on publications including newspapers
  • Suspension of income tax indexing and the imposition of Chained CPI for making future indexing calculations
  • Tax expenditure funding

Public testimony was presented in opposition to these items.

Testimony of Geoff Herman, MMA- Marsh 13, 2013

Testimony of Joel Johnson, MCEEP- March 13, 2013

Testimony of Michael Mahoney, Maine Press Association- March 13, 2013

Testimony of Kevin Webb- March 13, 2013

Testimony of Jon Block- March 13, 2013

Taxation and AFA returned in the afternoon to continue hearing testimony on the remaining portions of the budget in the Taxation committee’s jurisdiction.  Associate Commissioner Allen opened the afternoon with further administration testimony (Testimony of Associate Commissioner Allen- Afternoon.)

Members of the public including business leaders and municipal officials presented hours of testimony in opposition to changes in BETR, BETE and the Circuit Breaker and Homestead property tax exemptions.  Many of those testifying supported an increase in the sales tax as a means to avoid these reductions.

Many municipal leaders presented specifics about how their towns would be impacted by the Governor’s budget.  You can see a summary of those impacts here: Municipal Impacts from Public Hearing.  You also have received information from the Speaker and President’s Office about the impact on your district.  House District impacts and a key to understanding the data may be found here:  Table of Municipal Impacts from Public Hearing

Impacts by District

Key to District impacts

You can access copies of some public testimony below.

Testimony of Al Dimillo- March 13, 2013

Sampling of Public Testimony Part t 1- March 13, 2013

Sampling of Public Testimony Part 2- March13, 2013

Schedule

Tomorrow at 1:00 PM AFA will reconvene and be joined by the Transportation committee for presentation of the portions of the Governor’s budget concerning dealing with the General Fund portion of the Department of Transportation, Department of Public Safety and the Office of the Secretary of State.

The full schedule may be found here.

Audio

Please feel free to join the committee as they do their work. You may also listen online using the following link: http://www.maine.gov/legis/ofpr/appropriations_committee/audio/index.htm

Thank you and please let me know if you have questions.

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