2016-10-03 / Front Page

Tax report puts Maine near middle of nation

Rod Harmon

Maine has a reputation for being one of the most tax-heavy states in the Union, so when a report says it’s ranked somewhere in the middle, that’s good news, right?

Well, yes and no.

Last week, the Tax Foundation, a non-partisan organization based in Washington, D.C., issued its 13th annual State Business Tax Climate Index. The report measures how well structured each state’s tax code was in comparison to other states as of July 1.

According to the Tax Foundation, more than 100 tax variables were analyzed: corporate, individual income, sales, property and unemployment insurance.

Maine ranked No. 30 in the nation in overall tax climate. Here’s how it ranked in each category:

• Corporate tax structure: 41

• Individual income tax structure: 25

• Sales tax structure: 8

• Property tax structure: 44

• Unemployment insurance tax structure: 41

The 10 states ranked highest in the report were, in descending order, Wyoming, South Dakota, Alaska, Florida, Nevada, Montana, New Hampshire, Indiana, Utah and Oregon.

Ranking in the bottom 10, again in descending order, were Louisiana, Maryland, Connecticut, Rhode Island, Ohio, Minnesota, Vermont and D.C. (tie), California, New York and New Jersey.

The purpose of the annual report is to give states a diagnostic tool when revisiting their tax structures, said Jared Walczak, a policy analyst with the Tax Foundation, in a phone interview. In essence, he said, it tells them how they compare with other states, what they’re doing well, and where there’s room for improvement.

In Maine’s case, said Walczak, there’s plenty of room for improvement, particularly as it pertains to attracting and retaining new businesses.

“Within the corporate tax proponent, for instance, the corporate income tax has a relatively high rate of 8.9 percent (for incomes of $250,000 or greater),” he said. But more importantly, he added, Maine has other tax policies that are lagging behind other states.

For example, Walczak said, Maine has what is known as the “throwback rule.” When a Maine-based corporation conducts activity – say, sales – in another state and doesn’t get taxed in that state, that activity gets taxed in Maine.

Maine also has a corporate alternative minimum tax, or AMT. In basic terms, a corporation has to pay a minimum income tax even if its deductions, exemptions, credits, etc., bring its tax below that minimum.

“Only a handful of states do this, including Maine,” Walczak said.

Having a favorable tax structure doesn’t just affect where businesses will set up shop or relocate, Walczak said – it also plays a role in recruiting talent. For example, someone juggling job offers from different states may decide to accept the offer in the state with a lower tax burden.

“Throughout the country, there are states that are looking to compete on tax policy, and it’s not a question of ‘high’ or ‘low’ tax state,” he said. “We have the perception of Massachusetts as a high-tax state, but it actually does better than Maine (at No. 27), because it has a better tax structure.”

Adrienne Bennett, press secretary for Gov. Paul LePage, said the Tax Foundation report confirms that Maine needs to become more business-friendly. That includes voting down a question on the November ballot that would increase state aid to public schools by placing a 3-percent surcharge on income taxes for those making $200,000 or more annually. “Increasing taxes on Maine people couldn’t come at a worse time,” Bennett said in a prepared statement. “As these rankings show, we need to continue making Maine more competitive for attracting new private investment leading to new career opportunities for Maine people.

“A Yes vote on Question 2 on the upcoming November ballot would result in an increase in taxes for thousands of Maine’s small businesses, meaning a less competitive business tax climate and a worse ranking for Maine in years to come.”

There is some good news to be gleaned from the report. Maine’s overall ranking rose 1 point, from No. 31 in last year’s report to No. 30 this year. Walczak attributes that to changes made to the individual income tax structure this past year.

Then there’s the fact that Maine is ranked in the middle of the pack, not at or near the bottom.

“Based on what we generally hear about Maine’s ranking from other sources and the stories they generate, this is better than I expected,” said Paul Schumacher, executive director of the Saco-based Southern Maine Planning & Development Commission. “I have heard us referenced before as being in the bottom five or 10 nationwide.”

Schumacher indicated that it’s important to view these reports with a certain amount of skepticism, however.

“If the purpose of the analysis is to make the case that sound tax policies promote greater economic development, I am not sure looking at the list of the top 10 and bottom 10 states makes that case,” he said. “With these types of analysis, one can always pick and choose the numbers and comparisons that best make their case.

“We could certainly be doing better, but we could be doing a lot worse.”

To download the full State Business Tax Climate Index report, go to: taxfoundation.org/article/2017-state-business tax-climate-index

— Rod Harmon is managing editor of the Journal Tribune. Send business news to rharmon@journaltribune.com.

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