Budget troubles business Baldacci’s $5.7B plan raises tax, fee concerns

AUGUSTA – Maine’s business community is concerned with many provisions that were and were not included in Gov. John Baldacci’s proposed $5.7 billion two-year budget plan.

“We are pleased with some of the items in the budget, like investments in economic development,” said Chris Hall, vice president of the Maine State Chamber of Commerce. “But, yes, we have concerns with some items in the budget and some things not in the budget.”

A major concern, according to Hall and other leaders of business groups, is Maine’s failure to conform many state tax codes with federal tax changes. In the last few years, Congress has passed several tax cuts affecting the business community, but Maine has rejected most to prevent losing the revenue.

“Maine businesses are keeping two sets of books, and they are not telling a pretty story,” he said. Companies that are “paying these taxes in Maine that they are not paying elsewhere are keenly aware they are paying more here. It’s like underlining the difference and adding an exclamation point.”

In a recent briefing on the budget, Finance Commissioner Becky Wyke said the state has not been able to afford the tax breaks passed by Congress. She said the breaks were “generous” and would cost the state tens of millions of dollars in lost revenue if it went along with federal changes.

Hall agreed. But he said the state has lost business investments that would have created more jobs in the state if Maine had “conformed” to the federal changes and left businesses with cash to invest, instead of using that money to pay taxes.

Not only does not conforming add to the confusion for tax filers, it can add costs to the already expensive tax preparation burden.

“For some small businesses, they will pay more in the cost of complying than they will pay in extra taxes,” said David Cough, Maine director of the National Federation of Independent Businesses. “This nonconformity can be a lose-lose thing for them.”

He said there also are concerns when some specific tax breaks are funded by the state for particular businesses or industries but not others. In his current budget proposal, the governor calls for conforming to a federal tax change concerning depreciation of some restaurant improvements, but he delays a sales tax break for broadcasters on certain digital broadcast equipment.

“What we need to see is that every business is going to see its tax burden go down over the next 10 years,” Hall said. “I am not sure we are seeing that.”

The budget needs to be analyzed in conjunction with the tax reform bill, argues Hall. He said tax expenditures are really part of the budget, and, until the tax reform bill is passed, the total budget picture will not be clear.

“We could be better off, or worse off,” he said.

Jim McGregor, executive vice president of the Maine Merchants Association, agreed that while there are some budget proposals from the Baldacci administration that will help the business community, they do not offset the higher fees, licenses and taxes that Maine’s business community pays.

“While there is not a broad-based tax increase in the budget, there are fees and fines and license increases that will touch every family in Maine, and there are increases in the cost of doing business in this budget,” he said.

McGregor said the business community was hit with several fee increases imposed by the Secretary of State’s Office last year that has caused the cost of doing business in the state to increase. The newly proposed budget also includes a half-dozen filing fee increases that are expected to generate just under $200,000 a year.

“If you look at any one alone, they are not disastrous, but if you look at all of them, over the years, they are very troubling,” he said.

The biggest concern, all agree, is the overall tax burden businesses face in Maine. While the businesspeople applaud full funding of the Business Equipment Tax Reimbursement program, often called BETR, they are concerned provisions under consideration in the property tax reform legislation will reduce and in some cases maybe even eliminate the positive benefit of that program.

“We strongly oppose the expansion of the Homestead Property Tax Exemption because it is not paid for,” Hall said. “It is a tax shift, and in some cases it will mean a net increase in property taxes for some businesses.”

That proposal, tentatively approved by the Select Committee on Property Tax Reform, would increase homeowners’ property tax exemption to $13,000 of the value of their home.

But Hall fears business owners will end up paying more in local property taxes to pay for expanding the homestead exemption.

“That’s the wrong direction, the wrong message,” he said.