A group of Democrat lawmakers have proposed a plan to stabilize property taxes for Maine seniors that would be funded by a local option sales tax.

LD 559 — sponsored by Sen. Donna Bailey (D-York) — would allow municipalities to impose a one percent sales tax on prepared food and living quarter rentals and use the revenue to offset the cost of stabilizing the property tax bills for eligible homeowners who are 62 years of age and older.

Cosponsoring this legislation are Sen. Chip Curry (D-Waldo), Sen. Tim Nangle (D-Cumberland), Sen. Joe Rafferty (D-York), Sen. Cameron Reny (D-Lincoln), Rep. Victoria W. Doudera (D-Camden), and Rep. Holly B. Stover (D-Boothbay).

Under this bill, those granted property tax stabilization would not see their property tax bills further increase. Whatever amount was owed for the year in which stabilization was requested is what the homeowner would continue to pay going forward.

In order to be eligible for stabilization, a homeowner must be (1) at least 62 years old, (2) a permanent resident of Maine, and (3) have owned a home in the state for at least 10 years.

Municipalities would have the option of adopting a higher age requirement, but they would not be permitted to offer stabilization to anyone younger than 62.

Because this would inevitably result in a loss of revenue to municipalities, the measure would grant them the authority to establish a one percent local option sales tax on lodging and prepared food.

Cities and towns that exercise this option would, in turn, only be permitted to use the money generated by this tax to cover the stabilization program’s cost.

Click Here for More Information on LD 559

This is not the first time that Maine lawmakers have considered stabilizing property taxes for senior homeowners, although it does represent a markedly new approach.

Originally passed in August of 2022, the Property Tax Stabilization for Senior Citizens program was quickly repealed by lawmakers only a year later.

Intended to stabilize property tax bills for full-time Mainers aged 65 and older, the program was expected to cost state taxpayers millions annually, increasing substantially with each passing year.

Although municipalities were to be fully reimbursed for revenue lost as a result of this program, critics pointed out that the design simply shifted costs from municipalities to taxpayers statewide.

The fiscal note attached to the final version of the Stabilization Program indicated that roughly $2 million was initially allocated from the General Fund to cover the cost of municipal reimbursements for fiscal year 2023-24.

The design proposed by Democrat lawmakers this year, however, attempts to avoid the pitfall of shifting the financial burden to taxpayers statewide by allowing municipalities to institute a local option sales tax.

To adopt this tax, local residents would first need to approve of it at the ballot box.

Independent of this, local legislative bodies would be able to decide whether or not to adopt a property tax stabilization program in line with the parameters laid out in the proposed law.

Municipalities would not be required to adopt either of these programs.

Allowing municipalities to adopt a local option sales tax is not a new concept in Maine, but previous attempts to pave the way for such policies have been met with resistance.

In response to a bill brought forward in 2019, multiple Maine-based think tanks issued reports denouncing local option sales taxes.

A policy brief published by the Maine Policy Institute argued that these taxes “would alter consumer behavior to hurt Maine businesses.”

Evidence included in the report demonstrated that local option sales taxes increase “cross-border shopping from high-tax jurisdictions to low-tax jurisdictions by 10 to 14 percent.”

Because New Hampshire imposes no sales tax, Maine businesses already lose customers to their competitors across the border, and the Maine Policy Institute suggested that the implementation of a local option sales tax would only exacerbate this phenomenon.

“Per capita retail sales in New Hampshire border counties ($19,644) outperform per capita retail sales in Maine border counties ($11,962) by nearly $7,700 per person,” the think tank reported.

Although the local option sales tax included in the recently introduced legislation would apply only to lodging and prepared meals, the tax burden could still be expected to fall largely on Mainers, not tourists.

According to the Maine Policy Institute’s 2019 report, “Mainers account for about 70 percent of meal sales and 30 percent of lodging sales statewide.”

This report also shows that the sales taxes, in general, are regressive, as the “lowest 20 percent of income earners in Maine pay an effective sales and excise tax rate of 6.1 percent whereas Maine’s top earners pay just 0.7 percent.”

Some similar arguments were advanced at the time by the Maine Center for Economic Policy (MECEP).

In a 2019 policy brief, MECEP argued that local option sales taxes “disproportionately affect lower-income Mainers” and “deepen economic inequality.”

MECEP also argued that all municipalities would not benefit equally from local option sales taxes, as just ten localities are responsible for 45 percent of the state’s meals and lodging tax revenues while being home to just 16 percent of the population.

“Local option sales taxes are a tool that would empower some communities while doing little — or even nothing — for others,” MECEP wrote. “That’s because such taxes are feasible for those municipalities with enough commerce to raise meaningful revenue but not for those communities, often rural ones, without such a sales base.”

According to the Tax Foundation — a Washington D.C. based think tank — local option sales taxes first emerged during the Great Depression and were intended to increase the amount of money being collected by state and local governments, as well as to help diversify local revenue structures.

The Tax Foundation suggests that today, local option sales taxes help “counties and cities with growing commercial activity and personal consumption” to achieve greater financial stability and independence by establishing an additional source of local revenue.

Revenue from the local option sales tax that would be authorized by LD 559, however, could only go toward offsetting the cost of stabilizing seniors’ property tax bills.

LD 559 has yet to be scheduled for a public hearing before the Legislature’s Taxation Committee, although one can be expected in the near future.

Disclaimer: The Maine Wire is a project of the Maine Policy Institute.