If the Maine Senate approved LD 1254 on its return to the floor, anyone thinking of taking an overnight Maine trip to see some lighthouses and chow down on fresh lobster would have paid more than expected when checking into a hotel.
Maine’s House narrowly passed bill LD 1254 to allow municipalities to create a local option sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. on prepared meals and short-term lodging. The Senate rejected the bill on June 13, but the House isn’t ready to throw in the complimentary towel: according to the Portland Press Herald, the House is sending back a revised version of the bill, which removes language including restaurants in the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. base and limiting the local option tax to short-term lodging.
Maine’s legislative session ended on June 19 with a vote to carry over the bill, effectively killing the legislation between houses.
While it’s nice to think about out-of-towners funding local projects, this local option lodging tax unfairly picked winners and losers, would have increased the state’s already high lodging taxes of 9 percent, and did not align with the “benefit principle” of good taxation.
The bill allowed municipalities to levy a sales tax of up to 1 percent on short-term lodging like hotels and campgrounds. Eighty-five percent of the revenue would be distributed to the locality that collected the tax and 15 percent to all other municipalities. All of this revenue was originally earmarked for addressing opioid use disorder but was shifted to rural development on the bill’s second pass through the House. The combination of meal and lodging taxes would reportedly have brought the state $40 million annually. The House’s secondary deliberation did not have additional revenue figures on how removing the meal portion of the bill would affect revenue projections.
Bill sponsor Rep. Michael Sylvester (D) limited the tax to lodgings, reportedly to make the bill more attractive to the Senate, and in the hopes it would better target the tax towards tourists, “Which was the initial intent,” according to the Portland Press Herald.
Both hotel and meal taxes unfairly target certain industries without providing benefit for those who pick up the tab. The new bill exacerbated the problem with the previous bill, narrowing the base to only lodging.
While 1 percent is not large, Maine already has a 9 percent lodging tax, among the highest in the nation. Only Connecticut, Hawaii, Michigan, New Jersey, Rhode Island, and D.C. have higher combined lodging taxes, and only New Hampshire and Vermont have the same rates. Hotels in tax-levying municipalities would be at a disadvantage compared to those in municipalities without the tax.
On the upside, the bill merely gave municipalities the option to levy these taxes after putting it to the voters via referendum.
Taxes that fall on tourists tend to be popular with legislators. However, such taxes don’t follow the “benefit principle” of sound tax policy: The people paying into the system are not reaping the benefits of their investment.
In the case of Maine’s bill, the revenue would have gone toward rural development. While this is a cause that the legislature cares about, there’s no reason why it should be funded by a hotel tax. The act of staying in a hotel has no greater impact on the state of rural development than say, visiting a movie theater, and thus would be an entirely arbitrary funding source.
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