The personal property tax exemption given to L.L. Bean and being used as a political cudgel by its national rival Cabela’s to get a sales tax break here was agreed to by both Democrats and Republicans and largely seen as a minor compromise to get rid of the state’s tax on business equipment.
“I mean, there’s no secret around the capitol that Leon Gorman (L.L. Bean owner) is a supporter of the governor and his party, and they wanted to look out for him,” said Sen. Jonathan Courtney, R-York County, a member of the Taxation Committee, which helped craft the bill eliminating the personal property tax for businesses earlier this year.
“I didn’t care whether Bean got an exemption or not. They did and it wasn’t a fight that I saw any benefit engaging in. It was more important to get the bill passed,” Courtney said.
That bill eliminates the property tax on equipment for manufacturers that business groups have been saying discourages new companies from coming to Maine and existing ones from expanding here. It leaves the tax in place, however, for storefront retail operations.
The exemption in it for L.L. Bean largely puts the homegrown retailer in the same class as manufacturers, while other local retailers have to pay the tax and then do the paperwork to get a reimbursement from the state under the Business Equipment Tax Reimbursement program or BETR.
The carve-out for L.L. Bean was essentially a continuation of an exemption tucked into a massive state budget bill last year and unabashedly nicknamed the “anti-Wal-Mart” amendment. It required all national retailers with stores of 100,000 square feet or more, except for L.L. Bean, to pay the business equipment tax with no reimbursement. That provision was continued in the BETR bill passed this April, with overwhelming support in the Legislature.
Rep. David Bowles, the outgoing minority leader in the House, said in the Republican version of the bill the Bean exemption was taken out, but he agreed to put it back in to get the legislation passed.
It was done “almost entirely behind the scenes,” Bowles said, but he doesn’t want to rock the boat now.
“At this point, I would personally favor the Legislature not making any change to the BETR law for the next couple of years to see how it works,” he said.
The exemption has come to light as part of a political fight over Bean’s national rival, Cabela’s, requesting a sales tax exemption.
The fast-growing and very popular retailer of outdoor and sportsmen’s gear doesn’t want to charge sales tax on its catalog and Internet sales in Maine if it builds a store here – a so-called use-tax that L.L. Bean charges on all its catalog and Internet sales in Maine and anywhere else it has a retail outlet.
Bean says the tax break would create an uneven playing field in Maine because people could go to the Cabela’s store, check out the merchandise, and then go order it via the Internet or a catalog without paying a tax.
Cabela’s claims that in the 19 other states where it has or is planning a retail store, the exemption has been granted through a ruling from the states’ revenue departments. They have determined the company’s retail operation is sufficiently separate from its catalog and Internet sales to allow for the sale tax exemption. If Cabela’s doesn’t get a similar ruling in Maine, store representatives say it won’t build here.
That’s very bad news for officials in Scarborough, where the retailer has been working with the town to become the anchor tenant in a new development off the Maine Turnpike that promises to create 800 jobs when complete.
“This is a very important project for Scarborough, the region and the state,” said Harvey Rosenfeld, head of the Scarborough Economic Development Corp., who went to Augusta with other local officials to lobby Gov. John Baldacci for the tax exemption.
“The governor said he was very supportive of the project and that it was a great project for Maine,” Rosenfeld said. “But he rightly said this was a decision for his revenue commissioner, and he didn’t feel it was something he should get into.”
The governor’s office has declined comment on the project.
House Speaker John Richardson of Brunswick, who helped broker the BETR bill, said politics should be taken out of the decision over Cabela’s.
“There’s far too much political rhetoric. It would be better for both sides not to weigh in politically until the department of revenue has a chance to make a factual determination,” he said. “If politicians don’t like the answer, then they can go ahead and introduce whatever bill they want to.”
Sen. Ethan Strimling, D-Cumberland County and a member of the Taxation Committee, supports the Bean break, but is opposed to Cabela’s request, and will sponsor legislation to overturn the sales tax exemption if it is offered by the Maine Revenue Services.
He says the difference is the business tax exemption offered to Bean is available to other national retailers, if they move their headquarters here.
“If Cabela’s moved their headquarters to Maine, they would get the exemption. That was the philosophy behind it,” said Strimling, to attract national chains that can make their corporate headquarters wherever they chose. “If you can live anywhere, you can live here.”
Under the exemption, retail stores have to pay the property tax on equipment and ask for reimbursement, unless they run a store in Maine that exceeds 100,000 square feet and their “Maine-based operations” derive less than 30 percent of their total annual revenue from sales made at retail locations within the state.
No one denies that definition was tailor-made for L.L. Bean and its Freeport flagship store, and few have agued publicly the exemption was a bad idea.
“It shows legislative intent to foster the kind of Maine-based business that L.L. Bean is. L.L. Bean is part of the state’s image,” said Rep. Thomas Watson, D-Bath, another member of the Taxation Committee. “Right now, L.L. Bean is the only one that qualifies. It’s an incentive for major retail to get stated here and get Maine-based.”
Rep. Dick Woodbury, an independent from Yarmouth and House chair of the Taxation Committee, agreed.
“The intent of eliminating the business equipment tax was to encourage new businesses to come to Maine and existing businesses to expand,” Woodbury said. If a national retail company wants to base its operations here, “that’s the kind of business we want to attract to Maine and that’s the reason we put the provision in place.”
George Smith, the head of the Sportsmen’s Alliance of Maine, known as SAM, said his members support L.L. Bean and also want a Cabela’s retail outlet for its broad range of hunting and fishing gear.
“Surely we’re smart enough to figure out how to have both Cabela’s and Bean,” in the state, he said.
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