AUGUSTA — A bill that would allow municipalities to opt out of collecting personal property and business equipment taxes, an idea endorsed by voters in the town of China recently, met with mixed reactions during a hearing Wednesday at the State House.

China’s Town Manager Dennis Heath defended the bill before the Legislature’s Taxation Committee, saying that business owners from his town have come to him in droves about the obstacles taxes present to small businesses. While the legislation earned the support of the Maine Farm Bureau Association, Kate Dufour, of the Maine Municipal Association, said it could have “devastating” consequences for some communities.

But “towns and cities know what would be best for them,” said Rep. Tim Theriault, R-China, as he introduced the bill.

Heath acknowledged that allowing communities not to tax business equipment and personal property would decrease municipalities’ annual revenue but noted, on the other hand, that it would help invigorate the local economy. Mostly, the policy would allow towns to have more taxing autonomy.

“We acknowledge that not every municipality will want to opt out of collecting these taxes, but there are others, such as China, where opting out could be seen as a means to spur improved economic growth,” Heath said. “We believe the bill will be beneficial to the state and municipalities, without harming others that choose not to use the ‘opt out’ provision. … It allows those municipalities wishing to opt out the opportunity to remove a disincentive to local business development.”

Heath said China collected $116,000 in personal property business taxes this fiscal year. The town — along with all other municipalities that opted out of the tax — would have to increase property taxes to compensate for the removal of this funding source, though the state would provide partial reimbursement for the lost revenue. For China, this would mean increasing the current tax rate of 15.80 per $1,000 of property valuation to $16.20, according to Heath. He cited citizens’ 1,003-804 vote in November 2018 to send this idea to the Legislature as a sign that residents are willing to shoulder this change.

“Turning away revenue is not something we take lightly,” he told the committee. “We understand that opting to not collect these revenues means we will need to replace them through real-estate taxes. … The vote of China’s residents shows we are willing to weather the small increase for the anticipated improvement of our business climate.”

China has about 260 businesses, the majority of which are sole proprietors, according to Heath. The town’s population is 4,328.

“One of the things that we’re seeing is the exit of some businesses. … Some businesses are just closing down because they can’t afford to operate any longer,” Heath noted. “We would like to be able to attract new business but also keep the ones we have.”

On behalf of the Maine Municipal Association’s Legislative Policy Committee, Dufour argued that not all towns would be able to make up for the loss of revenue from personal property and business equipment taxes. She also stated that once communities opted out of personal property and business equipment taxes, it could be difficult to convince voters to reinstate them.

In particular, the “top 30 personal property wealthy communities,” would be hard-hit, she said.

“Veazie tops the list, with its assessed personal property value accounting for over 51 percent of total taxable value,” Dufour stated. “The taxes paid on a property assessed at $150,000 is currently $2,723. If the authority to assess a personal property were repealed, and the state reimbursed Veazie for 50 percent of lost tax revenue, the taxes paid on the same $150,000 property would increase to $3,657, representing a $934, or 34 percent, increase.”

Easton could suffer tax increases of 32 percent; Mars Hill and Jay, 26 percent; Baileyville, 25 percent; and Skowhegan, 21 percent, according to Dufour’s calculations.

Dufour also noted that the municipal association has concerns that the legislation “could be deemed unconstitutional” because Maine’s Constitution states that all “taxes upon real and personal estate … shall be apportioned and assessed equally according to the just value thereof.”

“Absent the enactment of a constitutional amendment clarifying the equal and just assessment clause does not apply to the assessment of personal property, we believe all municipalities are constitutionally required to assess the tax and collect the revenue,” she said.

Darryl McKenney, an assessors’ agent in Waldoboro with nearly four decades of experience in this and similar roles, also testified that the proposed legislation was impractical.

“I’ve been waiting 37 years to get rid of personal property taxes, but it just doesn’t go away,” he said.

Rep. Ted Kryzak, R-Acton, showed support for the bill, noting that some towns illegally forgo collecting personal property and business equipment taxes now.

“We had this issue in my town when I was a selectman,” Kryzak said. “We have a campground where people have campers that they leave year-round or they rent and then sell to someone else. We were charging personal tax, but we had to have a special auditor that would go into the campground to come up with what the personal tax would be. And then the people weren’t paying — most of them were out-of-state — so it was costing us more money than what we would collect. So then we switched to excise tax ’cause they’re vehicles, and they didn’t pay that either; and then we had to go to small claims court, which would cost more than what their bill was. So our town stopped collecting them because it was going to cost us more, and by doing that we’re breaking law; so by you putting this law through, we can save that money by not charging those taxes.”

Several legislators in the room highlighted the problematic nature of municipalities not complying with state laws and potentially going unpunished.

Julie Ann Smith, executive director of the Maine Farm Bureau Association, agreed with Kryzak and noted that farmers and members of the association “voted to strongly support this revision of the current law.”

“There are currently many municipalities that have recognized the importance of exempting Maine’s farms, the businesses that produce food to feed our citizens, from personal property tax. This bill provides a simple amendment to the bill to reflect what is already happening in many municipalities.”

She cited individuals who have complained to her that since farm equipment is “taxed unequally” between towns, it creates financial disadvantages to operating in particular communities, including China.

A work session on the bill is scheduled for March 6 in Room 127 of the State House.

 

Meg Robbins — 861-9239

[email protected]

Twitter: @megrobbins

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