Study: State business taxes heavy

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AUGUSTA – Businesses often complain of the high tax burden in Maine. A study released last month completed by Ernst & Young for the Council on State Taxation gives businesses more to complain about.

“Businesses paid 69.3 percent of the total increase in all state and local taxes collected in Maine,” the authors wrote, “representing an increase of $173.1 million.”

The study compared all the states between 2000 and 2003. The authors included all state and local taxes and fees imposed on businesses. In some cases, the numbers are actual; in others, they are estimates.

“The business share of state and local taxes in Maine is 46.3 percent,” the authors wrote. “This is 3.7 percentage points higher than the average business share.”

Dana Connors, president of the Maine State Chamber of Commerce, said he was not surprised. He said the largest business tax in Maine is the property tax and it increased 14.3 percent over the three-year period of the study.

“Its just one more piece of evidence that confirms the problem and provides little towards a solution,” he said Friday. “It should be the impetus for us to do something.”

Bill Becker, executive director of the Portland-based Maine Heritage Policy Center, said no one should be surprised at the study.

“As the highest-taxed people in the country, so too are our businesses,” he said.

But the study is challenged by some. Christopher St. John, executive director of the Augusta-based Maine Center for Economic Policy, questioned the property tax numbers in the survey. The study listed business property taxes in 2000 as totaling $1.74 billion when total property taxes assessed in Maine were just under $1.6 billion.

“It seems to me that if their numbers are off there, then the rest of the study may well be off as well,” he said.

St. John acknowledged that he had not had time to study the report thoroughly.

Michael Allen of Maine Revenue Services said he had not thoroughly reviewed the methodology, and also raised concerns.

“The property tax number seems high and that would also make the percentage of business taxes higher than what we have figured,” he said.

Allen said any study is imperfect, including his own, because precise measures are difficult. He estimates that half of all property taxes are paid by businesses and that the overall business share of taxes is about a third, not the 46.3 percent listed in the report.

“I have met two of the authors, and I am going to ask them about their methodology,” he said.

One difference could be that the Ernst & Young study counts rental properties as business property whether the unit is an apartment house or an owner-occupied duplex.

There also is criticism that the study does not include all business taxes and the business tax burden may be greater.

“It lists the corporate income tax but does not list the income tax that most small businesses pay,” said David Clough, Maine director of the National Federation of Independent Businesses. “Most small businesses pay their income tax through their owners, or as a sole proprietorship. They do not list that, and in Maine, most business is small business.”

Connors agreed and said other studies have shown that most jobs in Maine are in small businesses. He said Maine also has a significant number of self-employed, who pay personal income taxes, although they are engaged in business.

“And everyone knows how high the personal income tax rates are,” he said.

Becker dismissed the criticism of the study. He said the study attempts to come up with measures that can be used to compare states and that is always difficult because of the many different ways states impose taxes.

“The issue here in Maine is not only that the tax burden is too high,” he said. “It’s that we have a spending problem. And that problem is at all levels of government.”

One measure in the Ernst & Young study particularly disturbs Becker. The study looks at taxation of capital, and Maine ranks highest in the country.

“Capital income represents the returns to capital (plant, equipment, land, inventory, working capital, and other capital) used in a state,” the authors wrote. “Measuring business taxes as a percent of capital income provides a comprehensive measure of taxes on capital invested in the state.”

Becker said the study is declaring that Maine is “eating our seed corn” and will hurt economic development efforts.

“Who is going to bring their capital to Maine when they know they will be the highest-taxed in the country?” he questioned.

Jeff Sosnaud, deputy commissioner of the Department of Economic and Community Development, said the study is just more evidence that Maine’s tax burden is too high.

“We’re not going to put our heads in the sand and pretend there is not a problem,” he said, “The governor has been and will continue to address the issue.”

Sosnaud admitted that every time a study is released that points out Maine’s tax burden, it affects some business decisions. But, he said, tax burden is only one factor of many that go into a decision to expand or locate a business.

“Maine has many advantages, and we are using them to sell people on Maine every day,” he said. “Unfortunately the success stories too often get overlooked.”