Skip the extensions and pay your sales taxes

Tax day hath cometh and goeth. I hope you sent your paperwork to the IRS, or got an extension.

Meanwhile, the state Legislature is no longer meeting. Maine law requires them to adjourn their “short session” by April 18, or get an extension, which they failed to do.

Like the proverbial college student, they waited until the last minute to finish their final projects. In this case, it includes things like expansion of MaineCare to able-bodied, childless adults, Gov. Paul LePage’s initiative to reform foreclosure by towns on the homes of our the elderly, and so-called “tax conformity.” The latter is an annual bill which generates some excitement in the wonky policy world, and that is about it.

However, with the federal tax changes — “reforms” doesn’t quite fit — enacted last year, “conformity” has become a massive political football. The reason is twofold. First, if Maine simply adopted the federal tax changes, it would result in a several hundred million dollar tax increase. Secondly, because of that, our elected officials need to make a choice on how to tweak Maine’s laws in light of Washington’s action.

AP Photo/Jenny Kane

The opinion pages of the Bangor Daily News have been filled with the arguments from either side, both Republicans and Democrats. Yet maybe a modest proposal could be put forward to eliminate the argument altogether. What is it? Abolish the Maine state income tax.

Last week, a report came out which cited Maine as the third-most taxed state in the nation behind Hawaii and New York. Maine is ranked 4th in property tax burden, 15th in income tax, and in the middle of the pack (24th) for sales taxes. Of course, property taxes are mostly paid by residents and businesses, although we have the nation’s highest percentage of second homes. Income taxes are only paid by those who choose to live here; tourists and six-months-less-a-day retirees pay none.

But sales taxes hit everyone. And also this past week, the US Supreme Court heard a case dealing with the imposition of sales taxes on online retailers by South Dakota. In an interesting nexus, a Maine attorney represented the online retailers fighting the law. In the event the local lawyer loses, Mainers may find their online purchases subject to sales taxes at checkout, just like they are in a local store.

As we move into summer, buying a Moxie or Maine-brewed beer will require you to send money to Augusta. But if you eek out a final day skiing or hit the golf course, your experience will be tax-free. Does that make sense?

The counterargument is often that this will bankrupt Maine, but — done correctly — that prophecy need not come true. There are plenty of robust states which choose not to tax individual income: Washington, Texas, Florida, and New Hampshire, among others. If we are concerned that a broader sales tax will disproportionately impact lower-income Mainers, then we can refashion our property tax assistance programs and look at residency “rebates.” Live in Maine, lower your overall tax bill. Just visiting? Ante up.

Such a reimagining of a fundamental aspect of government — public finance — isn’t solved in 700 words. But this change would mean our Legislature could focus more closely on issues that it can control, rather than chasing whatever tweaks Congress makes in the federal tax code. And maybe they could get their work done in the amount of time allotted by law, rather than waiting to the last minute and begging for extensions.

Lastly, if you are sick of referenda, such a change could head off left-wing groups at the pass. Last fall, voters were asked whether a 3 percent “surcharge” should be added to the tax rate. This fall, a similar question will be on the ballot: should we add 3.6 percent on top of our top rate?  (The answer is “no.”)

If the advocates were forced to argue for the re-establishment of an income tax instead, they would likely find all the out-of-state money in the world would not help them prevail upon Mainers. So real, Maine-based tax reform could have a nice side benefit of quashing continual ballot questions.

So let’s take the space — and income tax — away and let the IRS keep what is the IRS’s.  Maine can go its own way, and we won’t need an extension to do it.

Michael Cianchette

About Michael Cianchette

Michael Cianchette was the chief counsel to Gov. Paul LePage from 2012-2013 and deputy counsel from 2011-2012. A Navy reservist, he was deployed to Afghanistan from 2013-2014 as a trainer and adviser to the Afghan National Police. He is an alumnus of the Leadership Maine program and holds a BA in economics and political science from Boston College along with a JD and an MBA from Suffolk University. He works as in-house counsel and financial manager for a number of affiliated companies in southern Maine.