As legislators return to Augusta, one of the biggest issues they will grapple with this session will be how to allocate a projected $800 million additional tax revenue. We are pleased to hear that both parties are talking about ways that they can return some of those funds to taxpayers, either through direct payments or other tax cuts. While there are merits to both ideas, we want to offer an additional consideration that would benefit all Mainers, but especially Mainers who are more cash strapped. Maine should enact a sales-tax holiday this year.
Sales taxes, by their very nature, are regressive. Lower-income people spend a greater percentage of their income on taxable goods. So, a sales-tax holiday would be one additional way to provide some tangible relief.
A sales-tax holiday is a specific window of time when customers can make certain purchases tax-free. In 2021, 17 states offered 24 different sales tax holidays. It’s interesting to see how other states administer their holidays. Some Southern states offer tax-free options on disaster preparedness goods before hurricane season. Other states like to offer breaks on Energy Star appliances to help save energy and address climate change. Back to school-type holidays for clothing, school supplies and clothing are also a popular version. Mississippi offers a sales tax holiday for firearms, believe it or not.
Tax-free-holiday concepts range from an August weekend in Massachusetts, where virtually all purchases up to $2,500 are tax-free, to Ohio, where clothing up to $75 per item and school supplies up to $25 per item are tax-free. New Hampshire, after all, is sales tax-free 365 days a year on all purchases – as are the states of Alaska, Delaware, Montana and Oregon. The unique differentiator for Maine is that we are the only state in the United States that borders only one other state, and that other state just so happens to be tax-free New Hampshire. Maine businesses can attest to lost sales to cross-border shopping. A sales-tax holiday in Maine, over a select weekend during the year, would be a welcomed tax break for customers and businesses alike.
Regardless of what format a Maine sales-tax holiday would take, the benefits to Mainers would be tangible. With rising inflation, and the cost of goods increasing at every turn, what parent wouldn’t benefit from saving a few extra dollars while school shopping? Looking to modernize your gas-powered leaf blower by upgrading to a rechargeable one? A sales-tax holiday would be helpful in making that change. And, given how Maine’s restaurant sector has been hammered, Maine would be wise to forgo the 9 percent meals tax for a period. The sales-tax relief universally crosses many goods and services, and we all would find it quite timely.
Virtually every legislative session, the Legislature considers a sales-tax holiday, and while the reception to the idea is generally positive, the idea always collapses under the weight of a fiscal note (the cost to the state for the reduction in sales-tax income). However, depending on how such a holiday is structured, the fiscal impact could be limited. The budget surplus has positioned us well to accommodate an inaugural Maine sales-tax holiday.
Gov. Mills is expected to unveil her supplemental budget sometime this month, and then the Appropriations Committee will start the arduous process of trying to negotiate a path forward. There will be discussions of new spending and, hopefully, some tax relief. I hope that a sales-tax holiday gets some consideration, given the opportunity this year. Try it once and measure how it goes. After all, Massachusetts manages to hold one every year, and New Hampshire always ramps up their tax-free messaging in response. Now is the time for Maine to engage in the sales-tax-free business space.
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