Public Hearing Scheduled for Bill Eliminating Sales Tax on Prepared Food and Restaurant Meals

A public hearing has been scheduled next week for a bill that aims to support Maine’s hospitality industry by eliminating the sales tax on prepared foods, including meals sold in restaurants.

The official summary of this legislation indicates that the purpose of this change would be to “mak[e] dining out more affordable,” as well as potentially to boost tourism.

Because LD 908 was originally introduced by Sen. Joseph Martin (R-Oxford) as a concept draft, the final language of the proposed bill has not yet been released.

Having become a controversial tool in recent years, the Joint Rules Committee recently approved more stringent regulations that require the full text of concept drafts to be made publicly available at least two days prior to the bill’s public hearing.

With a public hearing scheduled for 1 pm on Wednesday, March 26 in State House Room 127, proposed language can be expected by Monday, March 24 at the latest.

Based on the detailed summary included in the concept draft, it appears that the Department of Economic and Community Development (DECD) would be directed to launch an advertising campaign to “encourage tourism in Maine and promote dining establishments as tax-free, with the exception of alcoholic beverages.”

To offset the loss of revenue as a result of this tax cut, new and increased sales taxes would be levied, and the state government would be directed to conduct a “comprehensive audit” with the goal of eliminating “inefficiencies and waste.”

In place of the sales tax on prepared foods, the legislature would explore options for “broadening the items subject to sales tax” and increasing existing taxes on “high-end luxury items” such as bikes and boating gear.

Also potentially subject to higher sales taxes would be smartphones, laptops, and elective medical procedures that are “not medically necessary.”

Sales tax exemptions on “nonessential goods and services” would also be assessed “to ensure” that only exemptions “intended to provide a fair system of taxation” are maintained.

Cosponsoring LD 908 are by Sen. Stacey Guerin (R-Penobscot), Sen. Jeff Timberlake (R-Androscoggin), Rep. Paul R. Flynn (R-Albion), Rep. Rachel A. Henderson (R-Rumford), Rep. Caldwell Jackson (R-Oxford), Rep. Shelley Rudnicki (R-Fairfield).

Click Here for More Information on LD 908

In the opposite direction, a Democrat-led bill introduced earlier this month looks to levy an additional three percent sales tax on hotel rentals — on top of the pre-existing nine percent sales tax — in order to increase the amount of state funding available for public schools.

Rep. Michael Brennan’s (D-Portland) proposal intends for the additional funds to be “credited directly” to the Maine Department of Education to fund school construction, as well as K-12 public education more generally.

This new hotel tax would be collected in addition to the 9 percent sales tax already imposed on the rental of lodging in Maine, raising the total tax on a hotel rental to a total of 12 percent.

[RELATED: Democratic Lawmakers Propose Hotel Tax Hike to Increase Money for Schools]

On a related subject, Mainers gathered in Augusta this past Wednesday to debate dueling proposals that would allow cities and towns throughout the state to adopt a local option sales tax on short-term lodging.

Both laws up for consideration this week would give municipalities the option of imposing a two percent sales tax on the cost of hotel rentals.

While one proposal — sponsored by Rep. Charles A. Skold (D-Portland) — would restrict the use of these funds to qualified affordable housing initiatives at the local level, the other — sponsored by Rep. Gary Friedmann (D-Bar Harbor) — would give cities and town the freedom to spend the revenue however they saw fit.

Under either bill, residents would need to approve of the sales tax in a referendum vote in order to opt into the program. To be valid, the total number of votes cast would need to be at least 20 percent of the total number of ballots submitted in the municipality during the most recent gubernatorial election.

[RELATED: Towns and Hospitality Industry Debate Dueling Proposals for a 2% Local Option Sales Tax on Lodging in Augusta]

When introducing his bill, Rep. Skold argued that the state “need[s] more tools and resources to meet [the current] housing demand,” suggesting that his proposal would let municipalities be a more “active partner” in this pursuit.

Skold went on to say that allowing for a local option sales tax on short-term lodging doesn’t take away from the industry’s importance to the state but would give some municipalities the change to generate additional revenue at the local level.

He also took the opportunity to suggest to committee members that “many of the reasons to oppose this tax are not questions for this committee to decide, but are rather questions for local communities to decide for themselves.”

Unlike Skold’s proposal, Friedman’s would allow municipalities to retain 90 percent of the revenue collected through this tax, as opposed to 85 percent under Skold’s bill.

He also underscored the greater level of flexibility that towns and cities would have to spend the funds as needed, framing it as a way for “our out of state visitors to pay their fair share.”

Although he acknowledged that Mainers also make use of short-term lodging in the state, he argued that the burden would fall primarily on tourists.

He went on to suggest that this would be a property tax relief bill for those who have experienced double-digit increases in recent years.

“With the rapid growth of short term rentals,” Friedman said, “any small towns without hotels could stand to gain [a lot of revenue from this tax].”

When asked if this would deter visitors from choosing Maine as a vacation destination, Friedman contended that they are less “price-sensitive,” projecting that an additional two percent fee would not push them away from visiting.