BETTER THAN BETR

Repealing the state’s business equipment tax will leave a large hole in some municipal budgets, so talk of eliminating the tax has remained just that. Now, lawmakers have a chance to repeal the tax and give towns more control over their own finances by letting communities decide for themselves whether to replace the lost revenue with a local sales tax.

With repeal of the business equipment tax, which is a personal property tax on machines and fixtures used by businesses, the state would be taking away one of the few means for municipal government to raise revenues other than property taxes. In exchange the state should give municipalities the opportunity to levy taxes to make up for the lost revenue. This is a better option than a state government handout to towns in perpetuity.

Gov. Baldacci’s proposal, which was put on hold by the Legislature last year, would eliminate the tax on new equipment and pay towns half the value of the taxes that would have been collected to make up for lost revenues. According to the Maine Municipal Association, eliminating the business equipment tax will cut town revenues by 10 percent, requiring $80 million in state payments. The governor’s office says it’s more like 3 percent, when things like municipal tax incentives are factored in.

Either way, for this approach to work, a complicated formula would have to be devised to determine which towns should get payments because they were harmed by the tax’s repeal and how much they should receive. There must also be assurance that the system won’t change.

But letting a community asses a local option sales tax, which 33 states already do, is simpler and gives local government more control.

When former Gov. Angus King tried to repeal the business tax he found it couldn’t simply be eliminated without hurting many municipalities, especially those with one large major manufacturing plant or quickly expanding businesses. So a clumsy reimbursement system, the Business Equipment Tax Reimbursement or BETR, was born. Today, municipalities collect the tax, companies apply to the state to be reimbursed for the tax they have paid, then they get the money a year later. Last year, lawmakers reduced the reimbursement from 100 to 90 percent.

To further complicate the picture, many towns also offer incentives to lure companies. This tax-increment financing (TIF) provides a tax exemption for a new or expanded business for a specified length of time resulting in “double dipping.” The tax exemption means the municipality refunds a business’ tax bill – one dip. The business then submits that tax bill to the state and the business is reimbursed on the same bill again – a double. For a few companies, that can be worth hundreds of thousands of dollars or more every year.

Local executives say the reimbursement is key to convincing corporate officials to make large investments in machinery and equipment in Maine. Eliminating the tax, which Maine is one of 38 states to levy in some form, might help even more, and would

certainly be simpler than BETR.

Eliminating the tax and letting local communities decide how to raise the lost revenue would be better yet.