New tax proposal under scrutiny Revenue plan may hurt business

AUGUSTA – Among the nearly $12 million a year in revenue-raising provisions in the governor’s proposed supplemental budget is language extending Maine’s personal income tax to any income a nonresident makes in the state. Some argue that may cost revenue, not raise it.

“They ought to call it the Bob Dylan tax,” Rep. Peter Mills, R-Cornville, quipped Friday. “We’ll never see him at the State Theatre again.”

Maine’s ability to attract recording artists, movie production companies and concerts are only the more visible impacts of the proposed change. Chris Hall, vice president of the Maine State Chamber of Commerce, said a whole range of training programs also could be affected.

“Whether you are a teacher training up in Bar Harbor for two or three weeks or an executive visiting your plant in Maine for a day, you are going to have to pay a new income tax to Maine,” Hall said.

Finance Commissioner Becky Wyke said Friday the proposal is to close a loophole that has allowed nonresidents to avoid taxes they should have been paying. Current law exempts income from visits of less than 20 days. She said only one other state, Georgia, has a similar tax break. “It is fairness and an equity issue because Mainers that travel to other states are not afforded this tax break,” she said.

Wyke also rejected the concern that recording or concert artists such as Billy Joel and Bob Dylan will no longer come to Maine.

“This has only been around for about five years,” she said. “And we think that Maine is entitled to this just like other states that do collect this tax, and Mr. Joel certainly gives concerts in other states besides Maine and pays taxes there.”

But, Wyke said the administration is willing to work on changes to the legislation because of specific complaints from Maine-based businesses. She said Unum brings executives from Tennessee to Maine for training, and since Tennessee has no income tax, that raises a fairness issue. Maine has agreements with other income tax states that allow a credit so a person is not taxed twice on the same income.

“We will be willing to work with the committee to see if we can reach a compromise in this area,” she said.

There are other proposals to increase state revenue in the budget that are drawing criticism. David Clough, Maine director of the National Federation of Independent Businesses, is critical of a tax-filing fee proposed in the budget. Businesses that are partnerships, a limited liability corporation, or LLC, or other business entity would be assessed a $100 fee to file what is called an information return as part of their yearly income tax filing.

“No other taxpayer in Maine will be asked to pay a fee to file their taxes under this proposal,” he said Friday. “This will affect a lot of small businesses.”

An estimated 28,000 Maine businesses will file the returns this year. Clough said it adds to an already expensive tax preparation burden on Maine businesses.

“They already have to keep two separate set of books because we do not conform with the feds on depreciation,” he said.

Wyke defended both practices. She said Gov. John Baldacci was clear in his campaign that he did not want Maine to go along with all of the federal tax cuts passed by Congress.

“Many other states have also decoupled from the federal changes because they could not afford them.” She said.

Wyke said the fee on information filings is needed to fund the additional agents in Maine Revenue Services to audit returns. She said the use of “pass-through” business entities are growing, and the state needs to be more stringent in its review of those returns.

“This is a fairness issue for all other taxpayers,” she said.

The measure also increases tobacco retail license fees and imposes fees to pay for more food inspections. Businesses also will pay a significant share of the increased fee on telephones. The monthly E-911 fee will go from 50 cents a line to 57 cents a line. Businesses pay the monthly charge on the first 25 lines.

Hall said the cumulative effect of all the taxes and fees in the budget will hurt Maine’s already bad business climate.

“It’s going to hurt Maine’s business climate, there is no question about it,” he said. “We are already worst in the nation. Raising tax burden in this state is not going to help the economy.”

Clough said Maine businesses know they are already expecting a tax increase next year and all of the new taxes and fees will just make a bad situation worse.

“It’s going to hurt Maine’s business climate because it is going to take money out of the business sector that could be used to create jobs, pay for health insurance and pay for things like the unemployment tax increase that is going to happen anyway next year,” he said.

Baldacci defended his record on improving Maine’s business climate. He said the budget was passed last year without new taxes, and the revenue increases in this proposal are all tied to specific costs of state government and the need to bolster tax enforcement after the tax amnesty program last fall.

“I am proposing the elimination of the personal property tax,” Baldacci said Friday. “I am working to improve the business climate.”

Hall said the business climate will be hurt by the governor’s proposals and that raising more revenue is the wrong way to go.

“This budget deficit does not come from a failure of revenues,” he said. “The economy is working; the money is coming in as expected. What has happened is that programs have expanded faster than predicted.”