A Democratic lawmaker has proposed allowing cities and towns throughout Maine to adopt a local option sales tax on adult use cannabis to increase municipal revenue for public safety and education initiatives.
Sen. Tim Nangle’s (D-Cumberland) bill, LD 1869, would give municipalities the authority to adopt up to a one percent additional sales tax on adult use cannabis products, provided that the tax is approved by local voters at the ballot box.
Because the funds collected from this tax could only be used to cover the costs associated with public safety and education — often two of the most expensive items in a municipal budget — this bill is framed as a way to help lower Mainers’ property tax bills.
A public hearing for LD 1869 has been scheduled for Friday, May 16 at 1pm in State House Room 127.
Written testimony may also be submitted online at www.mainelegislature.org/testimony. Mainers may also use this link to sign up to testify virtually via Zoom.
Click Here for More Information on LD 1869
Sen. Nangle also withdrew a separate bill he introduced last month that would have allowed Maine municipalities to adopt up to a half percent local option sales tax more broadly applied than just to cannabis sales.
As of this article’s publication, it does not appear that a reason has been given publicly for Nangle’s decision to ask that this bill no longer be considered by lawmakers.
This bill was first brought forward just days after the legislative committee responsible for reviewing tax proposals rejected a similar “revenue raiser” for towns and cities.
Unlike the previous local option sales tax proposals considered by the Taxation Committee, however, LD 1641 would have allowed municipalities to retain a hundred percent of the revenue it generated.
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.
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.”
[RELATED: Maine Dems Propose Using a Local Option Sales Tax to Fund Affordable Housing Initiatives]
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.
Disclosure: The Maine Wire is a project of the Maine Policy Institute.
