Sales Tax Holiday Bill Receives Strong Support

March 25, 2009

Sales Tax Holiday Bill Receives Strong Support

It is not often that any piece of legislation wins bipartisan support from more than 40 cosponsors, but my bill for sales tax holiday weekends has received the backing of legislators from all over Maine. Similar legislation has been proposed before and never even made it out of committee. With the current recession, however, more legislators see a holiday from our 5 percent sales tax as a way to encourage consumer spending and stimulate the economy.

Massachusetts has had a sales tax holiday since 2004. Vermont joined in last year. New Hampshire doesn’t need one, of course, because it doesn’t have a sales tax at all. Since 1996, when New York passed the first tax holiday bill, more than a dozen states have followed suit, often to help parents buy back-to-school clothing for their children.

My bill, LD 1148, would declare the first sales tax holiday in Maine for the Columbus Day weekend, which this year falls from October 10th through the 12th. For 2010 and beyond, there would be two sales tax holiday weekends per year. The dates would be determined by the Bureau of Revenues Services and the Maine Merchants Association and approved by the Joint Standing Committee on Taxation.

The sales tax exemption would not include everything. Under my bill, it does not apply to tobacco products, gas, motor vehicles, motorboats, meals or any item with a price exceeding $2,500. Payment in full must be made for anything you purchase on those days, so prior sales or layaway sales would be ineligible. Purchases made with credit cards would qualify for the exemption.

It also will be important to measure the success of a sales tax holiday. Under LD 1148, government agencies would be responsible for assessing the impact. By December 31, 2009, the Bureau of Revenue Serves will be required to certify to the State Controller the amount of sales tax unpaid, as well as revenue raised from personal and corporate income taxes as a result of the sales tax holiday. By comparing those two sets of figures we can determine the “cost” of the holiday.

I won’t pretend that this concept has no critics. The recession has driven down state revenues from all tax streams, which means that the upcoming state budget for the next two years will be very frugal. I’ve heard people say that this is not the year to be cutting taxes, especially when we are making painful cuts to education and human services.

There’s also the argument that sales tax holidays are gimmicks and that the lost taxes must ultimately be covered by property or income taxes. Furthermore, some critics contend that a sales tax holiday does not increase the overall volume of purchases: it just shifts shopping patterns. For this reason, I have modeled my legislation partly on the Massachusetts law. Down there, the state Legislature usually sets the date of a tax holiday less than two weeks in advance so consumers can’t hold off all purchases until the tax-free period arrives.

It’s virtually impossible to calculate the amount of sales tax losses the state would sustain from a tax holiday. We do know that Maine’s sales tax receipts for 2008 came to $983 million. In Massachusetts, where sales taxes totaled $2.9 billion last year, revenue officials estimated the sales tax holiday lost about $15 million. They admit, however, that there is no way of knowing if that figure is close to the truth.

I have listened to all those arguments, but I still believe a sales tax holiday is good public policy. We know the idea is wildly popular with consumers and merchants. It is especially favored by southern Maine merchants who have to compete with sales tax-free New Hampshire.

Maine’s retail sector, which accounted for more than 93,000 jobs last fall (14 percent of all jobs in the state), has been hit hard by the recession. Stores have closed and malls are nearly empty on weekdays. A tax holiday in October would give retailers a strong flurry of business at the outset of the Christmas shopping season.

A Columbus Day tax holiday also would attract a lot of Canadians to travel to Maine. The holiday would coincide with the Canadian Thanksgiving weekend; and with the sales tax rate in New Brunswick at 11 percent, I think we’d gain a lot of business, especially if we publicize our tax holiday in Canada. The mid-October timing of the holiday would draw out-of-state leaf peepers into Maine retail outlets.

Any amount of sales tax revenue we “lose” will be at least partially offset by an increase in state income-tax revenues, from the extra hours logged by retail workers. We would also come out ahead on the increased meals and lodging taxes from the thousands of shoppers from Canada and other states who visit Maine that weekend.

On balance, I believe a sales tax holiday is good for consumers, good for retailers and good for our morale in these somber economic times.

State Rep. Meredith Strang Burgess (R-Cumberland) serves on the Legislature’s Health and Human Services Committee.

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