The income tax rates for most Maine residents will decline in the new year, thanks to a tax cut made possible by higher levies on lodging and some grocery items.
Those changes are among the dozens of new policies that take effect Jan. 1 as a result of legislation passed by Maine lawmakers during their 2015 session. While the shake-up of Maine’s income tax brackets will have broad impacts across the state, other new laws cater to a smaller audience, such as turkey hunters wanting more time to bag a bird, and local residents seeking more input on the development of commercial wind power projects in their towns.
After weeks of intensive, closed-door negotiations that heightened political tensions in Augusta, state lawmakers passed a two-year budget in June that cuts income tax rates for most working Mainers.
The top tax rate will fall from 7.95 percent to 7.15 percent and will begin kicking in at a higher level, namely when an individual earns more than $37,500 rather than the current threshold of $20,900. Maine residents making between $21,050 and $37,500 will pay a rate of 6.75 percent – down from 7.95 percent for most of those earners presently – while those making less than $21,050 will be taxed at 5.8 percent.
Of course, many Mainers won’t see or feel the difference until they file their 2016 income taxes in the winter or spring of 2017. But Michael Allen with Maine Revenue Services said working Mainers may want to adjust the amount that is withheld from their paychecks.
Additionally, some elderly or lower-income Mainers who don’t earn enough to owe income taxes – and therefore don’t even bother filing – could benefit this year from an expansion of the “Homestead” property tax exemption, a refundable sales tax credit and the newly refundable Earned Income Tax Credit.
“So even though they may not be required to file a tax return, there might be good reasons that they may want to file one,” Allen said.
The heirs of wealthy or land-rich Mainers could pay less next year as well.
As of New Year’s Day, estates valued at nearly $5.5 million will be exempt from Maine’s so-called “death tax,” more than doubling the current $2 million state exemption and bringing Maine’s policy in line with the federal tax code. The estate tax had been a bargaining chip in negotiations between Republican and Democratic budget negotiators in recent years with only modest expansions, so Molly Liddell said she and others who specialize in estate planning were surprised with the sudden change during the last legislative session.
Liddell, a partner in Pierce Atwood LLP’s trusts and estates group, called it “easily the most significant change in Maine estate tax policy in a decade.”
“It is certainly going to reduce the number people paying the estate tax pretty significantly,” Liddell said.
To help pay for those cuts, lawmakers made permanent the 5.5 percent sales tax rate in place since October 2013 – rather than allowing it to fall back to 5 percent on July 1, 2015, as originally planned – and increased the “lodging tax” on hotel rooms from 8 percent to 9 percent. Additionally, lawmakers broadened the sales tax by eliminating exemptions on hundreds of goods and services.
The mix of tax cuts and tax increases was a major sticking point in the two-year, $6.7 billion budget and nearly derailed negotiations on several occasions as Gov. Paul LePage and House Republicans pushed for greater tax cuts as well as welfare reforms. Lawmakers completed work on the spending bill just hours before the fiscal year began after narrowly overriding vetoes from LePage, who had proposed his own suite of tax cuts and tax increases.
Republican Rep. Kenneth Fredette of Newport, whose caucus was more closely aligned with LePage on the income tax issue, said he believes the income tax cuts will benefit the middle class as well as small-business owners who report their business income as part of their personal income tax filings.
“We obviously didn’t get everything we wanted in the budget, but we think those are important pieces,” Fredette said.
Most new laws in Maine become effective 90 days after the legislative session ends or, in the case of “emergency” measures, immediately upon the signature of the governor or the Legislature’s override of a gubernatorial veto.
However, a handful of laws apart from those involving the tax code also take effect on New Year’s Day, including ones that:
• Allow the residents of a township, plantation or municipality to petition the Land Use Planning Commission to remove the area from the “expedited permitting areas” where proposals for commercial wind power projects receive streamlined regulatory review.
• Change wild turkey hunting regulations to allow hunters to purchase a turkey permit if you hold either a big game license or a small game license. A week-long turkey hunting season will also be added in November.
• Allow children younger than 10 to receive a junior hunting license and hunt with an adult (the current age cutoff for a junior license is 10).
• Require individuals who collect young, post-larval sea scallops or blue mussels – known as “spat” – to receive a license from the Maine Department of Marine Resources.
• Require the commissioner of the Maine Department of Health and Human Services to file an annual report to state lawmakers summarizing the use of restraints or seclusion at psychiatric institutions during the previous year.
• Prohibit the sale or furnishing of products containing liquid nicotine unless the packaging is child-resistant.
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