At Hi-Hat Pancake House in Farmingdale, $5 will get you two eggs, bacon or sausage, toast and coffee before 11 a.m. on a weekday.

But with taxes on meals and lodging increasing today, owner Mary Laflin had to decide whether to lower her price or say goodbye to the sub-$5 breakfast special.

The tax increases — meals and lodging tax went from 7 percent to 8 percent and the sales tax rose from 5 percent to 5.5 percent — were the result of a state budget compromise crafted by lawmakers in June to avoid a possible state government shutdown.

The increase in taxes only means four pennies for the $4.65 breakfast special at Hi-Hat in Farmingdale. But those four pennies would push a customer’s bill over $5.

“$5.02 is a very different deal to the consumer than $4.98,” Laflin said at Maine Avenue business today.

So instead of passing the cost on to her customers, Laflin will take the hit in her revenue.

Steve Casey, owner of The Depot Sports Pub in downtown Gardiner, also plans to keep the price paid by customers flat for some specials, like $2.25 domestic beers during happy hour. He said he’ll end up raising prices on other items to make up the difference.

In Hallowell, The Liberal Cup owner Geoff Houghton is doing the same for draft beer, holding steady on the $4 customers pay for a pint. He estimated lowering the price of a beer by four cents to make up for the higher tax will cost the restaurant a couple thousand dollars a year.

Some in the hospitality industry are concerned higher prices, even if only several cents higher, could make people rethink how much they spend when they go out for a bite to eat or book a room.

The taxes on a $50 meal will go up 25 cents. For a $150 hotel room, taxes will rise by 75 cents.

“Overall, I think the danger here is anytime the meal goes up overall, then folks think twice about how often they’re going to go out,” said Richard Grotton, president and CEO of the Maine Restaurant Association.

Another complaint is that the added revenue will end up in the state’s coffers, not in the cash registers of business owners who have avoided raising prices themselves.

“This is sort of like a self-imposed increase by the state on people who are trying to collect as much rate as possible,” said Greg Dugal, executive director of the Maine Innkeepers Association.

Houghton said his customers generally look at the bottom line of what their meals cost and won’t differentiate the amount raised by taxes.

“Unfortunately, the customer is going to notice the increase in the bill, but I’m not getting any more,” Houghton said. “I’m not raising my prices because of the economy, so I’m a little disappointed the taxes are going up.”

Casey was more pointed in his criticism of the decision to raise taxes. He said many of this customers are blue-collar and state workers who come to his bar and restaurant regularly and can’t afford higher prices.

“I think it’s a real slap in the face to the working people of Maine, and I think it was the wrong thing to do,” he said.

The Legislature passed the two-year, $6.3 billion budget in June with the tax increases to prevent a possible government shutdown. The sales, meals and lodging tax increases are projected to raise $183 million for the state over the next two years — $135 million from sales and $48 million from meals and lodging, according to the Maine State Legislature Office of Fiscal and Program Review.

Gov. Paul LePage vetoed the budget, but legislators overrode the veto with votes of 114–34 in the House and 26–9 in the Senate.

Sen. Roger Katz, R-Augusta, described the tax increases as a necessary compromise preferable to the likelihood that property taxes would have increased if the Legislature passed LePage’s proposed budget.

He said he, like other Republicans, would have liked to see more cuts to government spending instead.

“Nobody wants to raise taxes here, but the alternative to this would have been worse,” Katz said. “We would have eliminated revenue sharing in its entirety, and that means Augusta and every town and city in the state would have seen less state revenue and therefore some increase in property taxes.”

Municipal revenue sharing, a portion of the state’s sales and income tax revenues given to towns and cities to offset property taxes, was still cut by a third in the budget passed by the Legislature, but LePage had proposed in January to suspended it entirely for two years.

The state previously increased the sales tax from 5 percent to 6 percent in 1991, with the provision it would drop in half percent increments with certain increases to the general fund’s revenue, according to Michael Allen, Maine Revenue Service’s associate commissioner for tax policy.

That caused it to drop to 5.5 percent in 1998. Two years later the state decided to drop it back down to 5 percent.

The current increase is set end on July 1, 2015.

Some in the industries affected are concerned it could be permanent, but Katz said he expects the Legislature to honor the sunset of the tax increases.

He said part of the reason for preferring the lodging and meals tax increase over further increases to property taxes is a larger portion is borne by out-of-state visitors.

About 65 percent of lodging revenue is from nonresidents, and between 30 and 35 of prepared meals revenue comes from nonresidents, according to Allen.

For some restaurants, like The Depot in Gardiner, the amount of revenue from out-of-state visitors is even less. Casey said his bar and restaurant might see five tourists a week.

“If I get a tourist, it’s by accident,” he said.

Not all restaurant owners are as upset about the tax increase.

Neil Andersen, who owns A1 Diner in Gardiner with Mike Giberson, said he doesn’t think most people will notice the difference on their bills. He said lunch at the diner usually costs around $10 to $12, so bill will only increase by 5 or 6 cents.

However, Anderson said those living paycheck-to-paycheck will be likely to notice the tax hike.

“It’s more coin out of the pocket,” he said.

Paul Koenig — 621-5663
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