AUGUSTA – After a decade of debate between pro-business interests and municipal representatives, the case for eliminating taxes on new business equipment in Maine may have taken a significant step forward Tuesday with a legislative panel’s vote in favor of such a proposal.

The bill to gradually eliminate the business equipment tax – LD 2056 – was supported by a 12-1 vote from the taxation committee, the bill’s sponsor, House Minority Leader David Bowles, R-Sanford, said Wednesday.

During a brief break in Wednesday’s legislative session, Bowles said new equipment purchased on or after April 1, 2007, would be exempted from the tax, should his bill be approved by the Legislature.

“I’m very pleased” with the committee vote, Bowles said. “It was a terrific bipartisan effort.”

According to Dana Connors, president of the Maine State Chamber of Commerce, the state’s Business Equipment Tax Reimbursement program – better known as BETR – has come under fire in the Legislature every year since it was enacted in 1995. Under the BETR program, the state has reimbursed businesses for the taxes they pay on their equipment to local municipalities.

Because the reimbursement program has had tenuous support in the Legislature, Connors said Wednesday, businesses in Maine have been reluctant to upgrade their equipment, not knowing whether or for how long they might get money back from the state.

“It is an impediment,” Connors said of the equipment tax. “You want businesses to make those investments.”

Municipalities have opposed eliminating the tax, arguing that doing so would put an unfair tax burden on residential property owners, who would end up paying the difference.

Though it opposed an earlier version of LD 2056, the Maine Municipal Association has decided not to oppose this amended bill, according to MMA communications director Mike Starn. Starn said Wednesday the amended bill maintains equipment taxes for storefront retail businesses and provides for greater financial assistance from the state for municipalities affected by the loss of equipment tax revenue.

“We felt that a lot of our concerns were addressed by the taxation committee in an honest and hard-working fashion,” Starn said. “It still concerns us a little.”

He said it makes sense to keep requiring retail businesses such as Wal-Mart and Rite Aid to pay taxes on their equipment because the vast majority will not lose customers to out-of-state competition. It is manufacturing and scientific research companies, which have to compete in the global economy, that have the most to gain from elimination of the equipment tax, he said.

While the amended bill was still being drafted Wednesday afternoon, a statement released by House Speaker John Richardson indicated the state would increase annual revenue sharing to municipalities by $2 million. Most of that money would go to service center communities that rely heavily on the equipment tax. Municipalities in which business equipment accounts for more than 5 percent of the local valuation would get an additional $15 million in 2009 and $17 million in 2010.

“This proposal will encourage business growth, preserve current jobs and generate more good-paying jobs,” Richardson indicated in the release. “This compromise will protect Maine jobs without depriving municipalities of needed tax revenues.”

For most of the past decade, the BETR program has reimbursed businesses for 100 percent of the equipment tax they have paid to municipalities. In 2005, however, as part of an effort to balance the state budget, the reimbursement level was reduced for that year to 90 percent.

According to the proposed measure, municipalities can continue to tax equipment purchased before April 1, 2007, and each year the state still will reimburse businesses for the taxes assessed on that equipment. No piece of business equipment can be eligible for the tax reimbursement program for more than 12 years.

Connors said that after 12 years of full reimbursement for their equipment taxes, businesses could apply to the state for tax reimbursements of 50 to 75 percent for another six years.

While the taxation committee’s favorable recommendation increases the prospects for repealing the tax, the bill still requires votes in both the House and Senate. Gov. John Baldacci favors elimination of the tax.