AUGUSTA — Legislators are not convinced about the constitutionality of an opt-out tax bill.

The Taxation Committee unanimously decided to table a vote on whether to recommend its passing at a work session on Wednesday morning. Instead, it will seek the opinion of the state’s attorney general before taking further action.

The bill, L.D. 824, would allow municipalities to decide by referendum whether to tax personal property and business equipment. Residents of China overwhelmingly voted in November 2018 to send a resolution to the Legislature suggesting that towns and cities be given the option to choose whether to levy these taxes. China Town Manager Dennis Heath said the move reflected the town’s desire to create a more business-friendly environment.

“We believe the bill … allows those municipalities wishing to opt out the opportunity to remove a disincentive to local business development,” he told the Taxation Committee during his testimony at a public hearing in the State House on Feb. 27.

The bill received backlash last week from a representative of the Maine Municipal Association’s Legislative Policy Committee, who argued it was unconstitutional and would hit “personal property wealthy communities” the hardest. Julie Jones, an Office of Fiscal and Program Review analyst for the Taxation Committee, and Justin Poirier, director of Maine Revenue Services’ property tax division, echoed the constitutional concerns on Wednesday morning. They said the proposal could lead to unequal evaluation of property across the state and that it would illegally authorize the power of taxation by a body other than the Legislature.

“My understanding (is that) this might be unconstitutional under two different provisions of the state constitution,” Poirier said. “One is Article IX, Section 8, which is that all property in the state, real and personal, must be assessed equally according to its value. So you can’t have the same property in two different places — one be exempt and one not be just because it’s in a different municipality. The second … is Article IX, Section 9, which says the Legislature should not, in any manner, suspend or surrender the power of taxation.'”

Jones noted all Maine tax exemptions that currently exist are universally enforced across the state.

Heath maintained that the proposed opt-out legislation would not violate either provision Poirier mentioned.

“It doesn’t change how the evaluation is done or the way that it’s assessed,” he said. “It simply says if you don’t want to (tax personal property and business equipment), hold a referendum election. … It is a statewide decision.”

Addressing the second concern, Heath added: “In no way, shape or form does this bill suggest that the Legislature’s abdicating its authority to tax. It is essentially exercising its authority to offer statewide any municipality to opt out of the collection-based property taxes.”

Rep. Ryan Tipping, D-Orono, a co-chair of the committee, said he was not convinced that was the case.

“The idea that the Legislature can’t delegate to another body the authority of taxation … that seems to me a pretty clear piece, one we’ve run into in this committee before, and we’ve stopped going down roads because of it,” he said. “This Legislature cannot invest the power of taxation into another body … and that’s the entire bill.”

After the work session, Heath said he disagreed with Rep. Tipping.

“If he’s seeing this as delegating (the authority of taxation), that’s not what this is,” Heath said. “This is not delegating. This is saying, ‘Under our authority, we’re going to allow you to hold an election to choose whether or not you want to collect these taxes.’ Because those taxes don’t benefit the state, they benefit the locality.”

Prior to presenting his argument on Wednesday, Heath sought the legal advice of town attorney Amanda Meader, who called Heath’s arguments “well-researched and thoughtfully analyzed” in a letter submitted to the Taxation Committee on Wednesday.

“Maine’s Constitution controls the manner in which taxes are apportioned and assessed; however, the Constitution does not limit the authority of the Legislature to grant exemptions from taxation,” Meader’s letter reads. “Article IX, Section 8 of Maine’s Constitution requires that a standardized method of valuing be applied to assessing and apportioning property taxes. Notably nothing in this Section requires taxation at all, and of course the authority to grant exemptions from taxation lies exclusively with the Legislature.”

Poirier remarked that a 2004 Maine Supreme Judicial Court case, Orlando E. Delogu et al. v. the City of Portland, set a precedent that should be considered alongside the bill currently being evaluated. This case ruled that a real estate tax abatement program Portland had created for the city was unconstitutional.

“(In that decision,) the court said that granting an exception is the same as granting the authority to tax,” Poirier said. “So giving a municipality the authority to exempt something would be the Legislature surrendering the power to tax.”

The court document itself states: “Because the Portland Property Tax Relief Program results in an unequal apportionment and assessment of real estate taxes in the City of Portland and creates an abatement or exemption from real estate taxes, without legislative approval, we declare it invalid.”

Heath, who also studied the case in preparation for Wednesday’s work session, said Poirier did not present the “full context” of the decision.

“When you read it in its full context, … (the court) essentially said, ‘Look, if Portland had gotten the Legislature to authorize this behavior, then they (could do it) but they didn’t so (they can’t). So in this case (with L.D. 824), what we’re asking for is a legislative decision that applies statewide — anybody can do it, so it’s not a carve-out for anybody. It’s statewide — that fits with that judgment.”

Sen. Matthew Pouliout, R-Kennebec, said he was uncomfortable voting on the topic without obtaining legal advice from Attorney General Aaron Frey, whom he offered to contact on behalf of the Taxation Committee.

“If the opposition to the bill is about constitutionality and the committee is OK with other aspects, I think we owe it to ourselves and the process to get a real legal opinion on that,” he said.

Several members of the Taxation Committee voiced concern that if municipalities chose not to tax personal property and business equipment, they could receive more than their fair share of state funding. Poirier noted that if the bill passed, Maine Revenue Services would continue to assess the value of personal property and business equipment even if a town or city opted out of collecting taxes on them.

“If a town chooses not to asses personal property, they initially lose the revenue, right. That’s their choice — they’re making that choice,” he said. “We would still consider it as though they were taxing it for state valuation purposes. We wouldn’t allow them to artificially lower their wealth, if you were. That’s kind of how we look at all these funding formulas, you know. The richer your community, the less the state pitches in for education subsidies, revenue sharing, those types of things. We would add it as though it were still taxing it. So we wouldn’t allow them to benefit from subsidies based on their choice not to assess personal property.”

Rep. Ted Kryzak, R-Acton, noted at the Feb. 27 public hearing that some towns already forgo collecting personal property and business equipment taxes.

“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 yearround 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.”

Jones presented data from Maine Revenue Services on Wednesday showing 181 municipalities did not report any taxable personal property in 2017.

Sen. Heather Sanborn, D-Cumberland, pointed out that “the bill regularizes or legalizes a practice that appears to already be happening in a number of municipalities.”

Voicing some support for the legislation, Pouliout agreed.

“There’s 181 zeroes in that column from towns like Mechanic Falls and other bigger ones like Fort Kent,” he said. “To think that these towns don’t have any personal property to be able to tax to me just doesn’t make any sense, and so either A) they’re not following the law anyway, or B) they really don’t have anything to tax. So in my mind it really calls for clearing up.

“I certainly don’t want to vote for a bill that’s not constitutional. I’m just not 100 percent sold one way or the other,” Pouliout later added. “I’m leaning more towards maybe it is, and then if it’s not, this practice is happening in 181 municipalities. For me that’s troubling. Maybe we gotta address another issue, you know?”

The committee will not take any further action on the bill until consulting with Frey, which Rep. Tim Theriault, R-China, said could likely take place before the group’s next meeting on March 13.

Meg Robbins — 861-9239
mrobbins@centralmaine.com
Twitter: @megrobbins

Related Stories