Sweeping Maine Tax Reform Proposal Announced

A bipartisan group of 11 legislators have proposed an overhaul of Maine’s tax system, including major changes to the individual and corporate income tax, property tax, sales tax, and estate tax.  The goal of the overhaul is to export more of the state’s tax burden to non-residents, thereby reducing the tax burden on Mainers and attracting individuals and businesses to the state.  If enacted, the overhaul would have significant changes for Maine businesses.  Although the actual statutory language of the proposal has not yet been drafted, the following is a summary of the key components of the plan.

Property Tax

  • Maine residents would receive a $50,000 homestead exemption
  • The exemption for non-profit entities, other than churches, would be reduced from 100 percent to 75 percent
  • The telecommunications tax would be paid to municipalities rather than the state
  • Property tax reimbursements to businesses under the BETR program would be funded only for 12 years after the property is placed in service

Income Tax

  • The individual income tax rate would be lowered to 4 percent, but would apply against adjusted gross income, thereby eliminating most deductions
  • Low-income taxpayers would pay no income tax and be entitled to a property tax fairness credit and a sales tax fairness credit
  • Nearly all tax deductions and tax credits would be eliminated, including the pine tree zone program and the new markets capital investment program
  • The corporate income tax rate would be lowered from 8.93 percent to 7.5 percent

Estate Tax

  • The estate tax would be eliminated

Sales Tax

  • The sales tax base would be increased dramatically, applying to nearly all consumer purchases, including sales of virtually all services other than healthcare and education
  • The general sales tax rate would increase from 5 percent to 6 percent
  • The tax rate on prepared meals would increase from 7 percent to 8 percent
  • The excise tax on wine, malt liquor and hard cider would double
  • The tax rate on automobile rentals would increase from 10 percent to 15 percent 
  • The tax rate on lodging would increase from 7 percent to 10 percent

Transfer Tax

  • Real estate transfer taxes would increase progressively for high value real estate

The prospects for this bold plan are unclear at this time.  Leaders of both parties have expressed little support for the proposal.  For more information on the proposal or other pieces of tax legislation, please contact any member of our State and Local Tax Group.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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