Mainers gathered in Augusta Wednesday for a public hearing on two bills that look to 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.
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.”
[RELATED: Maine Dems Propose Using a Local Option Sales Tax to Fund Affordable Housing Initiatives]
Up next, Rep. Friedman introduced his bill, highlighting how his proposal differed from Skold’s.
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.
Click Here for More Information on Rep. Friedman’s LD 746
Representatives of the Bar Harbor Chamber of Commerce, the City of Portland, and the Maine Municipal Association testified in support of allowing municipalities to adopt a two percent local option sales tax on lodging.
Bar Harbor’s Town Manger and South Portland’s City Manager both spoke in favor of LD 746, citing the freedom it provides local governments to utilize funds as necessary for a variety of municipal expenses, including for police and fire services, as well as the maintenance of roads and other infrastructure elements.
Amanda Campbell of the Maine Municipal Association said that Friedman’s bill stays true to Maine’s commitment to “home rule,” while Skold’s proposal is the “opposite of flexibility and choice.”
The President of the Bar Harbor Chamber of Commerce explained that the town is often “short changed” when it comes to receiving its share of state funding despite “driving” revenue collection due to its high level of tourism.
He went on to argue that restricting the use of these funds to affordable housing initiatives amounts to “micromanagement,” urging lawmakers to adopt Friedman’s proposal and allow municipalities to decide for themselves where the revenue would be best spent.
The Bar Harbor Town Manager echoed many of these sentiments, reiterating that “tourism is the backbone of our local economy,” but suggesting that the “reality is that the cost to support tourism is outpacing our ability to pay for it.”
“Local property taxpayers are the ones footing the bill,” he said. “Why should we keep bearing the financial burden of an industry that doesn’t pay its fair share?”
In urging lawmakers to adopt Friedman’s proposal over Skold’s, he said that municipalities need “options, not directives.”
Testifying in opposition to the possibility of a local option sales tax on lodging were many of those directly involved in the hospitality and tourism industry, including a representative of Hospitality Maine and the Maine Tourism Association, as well as those who work in the industry directly.
One Boothbay Harbor resident and vacation rental business owner, Audrey Miller, highlighted how she has seen bookings slow in comparison to 2019.
Alexis Miller of Cottage Connection of Maine in Boothbay Harbor noted a nine percent drop statewide in visitors from 2023 to 2024.
Nate Cloutier of Hospitality Maine and the Maine Tourism Association argued against allowing municipalities to adopt an additional lodging tax because businesses in the industry “cannot afford another competitive disadvantage.”
He also explained that a local option sales tax would create “uneven competition” between communities because there would be “inconsistent tax structures” for businesses operating within the same industry.
Cloutier also underscored the state’s existing high tax burden, suggesting that either of these proposals would “further cement Maine’s reputation as an already high tax state.”
A number of business owners also showed up in Augusta Wednesday to testify against these proposals, highlighting the impact that they would expect such policies to have on them.
For example, Cynthia Robbins of Poland Spring Resort explained that “[her] guests price shop.”
“Raising the lodging tax to the second highest in the country will not enhance Maine’s tourism,” she argued.
Linda Caprara of the Maine State Chamber of Commerce also testified against these proposals, contending that the two percent tax would “do nothing to reduce taxes at the local level.”
She also suggested that a local option sales tax on short-term lodging would be “discriminatory” because it targets a particular sector.
Caprara went on to urge lawmakers to focus on “spending efficiently,” not raising taxes.
“Raising more taxes isn’t the answer,” she argued. “Spending needs to be considered as well.”
“This will do nothing to attract business, but discourage business from locating in towns with additional taxes,” said Caprara.
Click Here to Watch the Full Public Hearing
The Taxation Committee will continue to consider both of these bills in the coming weeks, although neither has been scheduled for a work session yet.
