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Tax Plan Troubles Tourism Industry

April 07, 2009 - AUGUSTA — Tourism-based businesspeople, from white-water rafting operators to campground owners to hotel managers, have spoken out against a proposal to lower Maine's income tax and raise its meals and lodging tax.

The measure, LD 1088, would also broaden sales taxes. Supporters say Maine residents would pay less in taxes overall – the decrease in income tax would outweigh the increase in other taxes.

"The big picture is the people who are going to incur additional taxes – Mainers will be some. Those Mainers will be getting enough money back to not only pay those taxes, but on top of that, to have more money in their pockets," said state Rep. John Piotti, D-Unity, sponsor of the bill and House majority leader.

The tourism industry, Maine's largest economic sector, sees real harm in the proposal, particularly in increasing the meals and lodging tax from 7 percent to 8.5 percent.

"It would be more downward pressure, there's no doubt about that," said Vaughn Stinson, chief executive officer of the Maine Tourism Association.

But what would be the practical implications of raising the meals and lodging tax?

According to Maine Revenue Services, the state collected $191 million in meals and lodging taxes in fiscal year 2008.

If the tax rate were increased for fiscal year 2010, which starts July 1, Maine would take in an extra $41.55 million in meals and lodging taxes, the agency estimates. Those taxes would be on $3.05 billion in meals and lodging sales.

But Maine Revenue Services also estimates that if the tax is increased, that $3.05 billion would be roughly 1 percent less – or $30.3 million – than it otherwise would have been. Essentially, a tax increase is likely to change some people's behavior.

Piotti argues that a net reduction of taxes for Mainers would also have a stimulative effect. With some extra money available, some would save, others would spend on necessities like groceries, but still others would eat out more at Maine restaurants or spend on other discretionary items, he said.

The increase in the meals and lodging tax would also affect Maine's nationwide ranking for that category.

Maine is one of six states with a 7 percent lodging tax – 10 states and the U.S. Virgin Islands all have higher rates, according to a ranking from the National Conference of State Legislatures.

And, according to the same group, Maine is one of four states with a 7 percent meals tax – four states have higher rates.

Only five states have a lodging tax higher than 8.5 percent: Rhode Island, Connecticut, New Jersey, Hawaii and Vermont. And only one state – Vermont – has a higher meals tax.

The numbers aren't exactly hard and fast. Some states have local options that allow municipal governments to impose their own meals and lodging taxes.

For example, Massachusetts has a 5.75 percent lodging tax, and communities can add taxes that raise the rate to as high as 9.75 percent. Massachusetts has a flat 5 percent meals tax, but Democratic Gov. Deval Patrick has proposed allowing a local option of up to 1 percent.

Idaho has an 8 percent lodging tax, but the city of Boise adds 5 percent – which would put it ahead of Maine, if this state's rate goes up.

And while the national legislators' group puts the average U.S. lodging tax at 6.29 percent, the American Hotel & Lodging Association, an industry group, put it at 12.62 percent in a 2008 study.

TOURS FAVOR LESS-TAXED STATES

Piotti said that if meals and lodging taxes went up, Maine would still be in line with other northern New England states.

New Hampshire's meals and lodging tax is 8 percent. New Hampshire Gov. John Lynch, a Democrat, has proposed raising that to 8.75 percent, said Piotti. And Vermont has a 9 percent meals and lodging tax, and a 10 percent tax on alcohol served in restaurants.

Vermont also has 1 percent local option taxes for meals and rooms in communities including Brattleboro, Killington and Middlebury.

Bruce Hyde, Vermont's commissioner of tourism and marketing, said the state took over the meals and lodging tax in the 1990s and raised it from 7 percent to 9 percent. Vermont officials have not been able to find any correlation between increasing the rooms and meals tax and a decrease in tourists, said Hyde.

There are other, more important factors, said Hyde. A rainy summer or fall will hurt numbers, or a bad snow year will give ski resorts a bad showing.

"It's much more dependent on some of those conditions," said Hyde.

Hyde said he did see a correlation between tax rates and group visits or tours. If trip organizers are operating on a 2 percent to 3 percent profit margin, they'll tend to go to states with lower tax rates, he said.

"I'd be very happy if Maine were to raise its taxes to get closer to Vermont," said Hyde. "That would help Vermont."

Piotti said he doesn't buy the industry argument that an increase in meals and lodging taxes would deter tourists from coming to Maine.

"I don't think anyone makes a decision about visiting Maine based on what the lodging tax is or the meals tax is, as long as those taxes are not well out of the norm," said Piotti.

Stinson, however, said people are in a cost-cutting mode these days and would look at every detail before making travel plans. And they will look for deals, such as the lower tax rates, he suggested.

He likened it to shopping for gas. If drivers see three stations on a road, with regular at $1.98, $2 or $2.02, they're going to stop at the cheapest one, he said.

"We look down the road, we see the gas station and a penny makes a difference," said Stinson.

SPONSOR: BILL OFFERS TAX RELIEF

He also questioned the plan's exportability aspect – the idea that the proposal would shift some of the tax burden from residents to visitors.

Stinson said meals account for 70 percent of revenue from meals and lodging taxes – and 60 percent of that is from Mainers. And of the 30 percent of revenue from lodging, roughly 30 percent is paid by Mainers, he said.

"The meals tax – 60 percent of it is paid by Mainers," Stinson said. "I want folks to understand that when they talk about exportability, it's not."

Piotti said that argument was looking at only half the tax proposal.

"You can't look at this in isolation. It is a system. The whole reason that we are thinking of taxing meals and lodging more is so that we can reduce the income tax," said Piotti. "To look at only the additional taxes without also looking at tax relief is only looking at one-half of the plan – there's no way it won't give the wrong impression."

Part of the plan also includes putting more money toward tourism promotion. Hyde, the Vermont official, said he has seen a direct correlation between more advertising and increased tourism.

Stinson, however, said he wasn't swayed by that part of the plan.

"My concern is that the small gain that we would make in tourism funding in the long run would not outweigh the detriment that it would cause to the state as a whole," said Stinson.

By MATT WICKENHEISER, Staff Writer, Portland Press Herald, April 5, 2009


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