SIMPLER BUSINESS TAX

Maine’s longtime debate over taxes on business equipment is a three-way negotiation that won’t be settled until all sides – municipalities, the state and businesses – find it in their interest to lose a little. The focus today will be on the state as lawmakers on the Taxation Committee try again today to reach a deal on the issue, but the real questions concern the other two players.

Specifically, how much is added stability in the tax system worth to Maine business and what safeguards will assure towns that they will receive something more than the constitutionally mandated 50 percent state reimbursement for lost revenues from eliminating this tax?

The Republican plan, LD 2056, emphasizes a reduced cost for tax stability while Democrats through a minority report insist on mechanisms that ensure local government be able to recoup losses and minimize any shift onto individual taxpayers. Nothing surprising or wrong with either position; the question is whether the two sides can balance these two before the Legislature ends its session.

They can start with a suspicion among Democrats that eliminating this tax doesn’t accomplish much. After all, Maine already has an equipment-tax reimbursement program worth about $80 million a year to businesses – what added increment of business will be attracted if the tax is eliminated rather than simply rebated? The answer is not only in the value of keeping taxes simple but in making them sustainable. That is not necessarily a huge gain, but it is worth something.

Republicans, however, make sustainability more difficult by adding to the number of exempt business equipment – for instance, those that have already received 12 years’ worth of reimbursements. (The state’s structural deficit means it has no money for reimbursements to towns for any of this, it should be noted. Adding to the deficit with new exemptions makes reimbursement even more difficult.)

From the Democrats, their idea of allowing locals to impose a real-estate transfer fee to make up some of the cost – thereby lowering their reliance on the state for lost revenue – is not going to fly, however well-intentioned. Democratic state Sen. Ethan Strimling is toying with dropping that part of his bill and replacing it with a plan to help out communities through existing revenue-sharing programs. That would be an improvement.

One worthy portion of the Democratic plan would make distinctions among retail businesses paying the equipment tax. It would exempt small, local shops and businesses with most of their sales out of state – that is, ones that could easily move – but maintain the current tax on large retail stores, which don’t seem to be having trouble locating in Maine even with the tax.

A targeted phase-out of this tax requires limits on how far the exemption reaches and how much assurance municipalities will get from the state. The goal is to have a simpler, more consistent tax and adequate compensation for communities that would lose most. A fair, more sustainable plan lies between the two bills before the committee that will perhaps emerge as a single bill soon.