In Fiscal Year (FY) 2013, Maine collected $6.3 billion in state and local taxes. While this is an impressive sum of money, it tells us little about whether or not the average Maine taxpayer can afford this level of taxation.
As shown in Chart 1, Maine’s state and local tax burden (tax collections divided by personal income) was the 7th highest in the nation for FY 2013 at 11.7 percent—this is 14 percent above the national average of 10.3 percent. As shown in Chart 2, Maine’s tax burden has grown tremendously over time by 57 percent to 11.7 percent in FY 2013 from 7.5 percent in FY 1950.
Like Vermont, Maine must also contend with neighboring New Hampshire which does not have a sales tax and lower excise taxes on liquor, cigarettes, and gas. This dynamic has created a situation where Maine taxpayers can arbitrage the tax differential in their favor through cross-border shopping in New Hampshire. In fact, my recent analysis of Maine/New Hampshire cross-border shopping found that (pdf):
. . . per capita retail sales in the adjacent bordering counties in Maine (Oxford and York) and New Hampshire (Coos, Carroll, Strafford and Rockingham) have been diverging ever since Maine adopted the sales tax in 1951. By 2007, the retail gap was $8,660 per person ($19,976 versus $11,316). If Maine had the same level of retail activity as New Hampshire, retail sales would have been up to $2.2 billion higher—from $2.9 billion to $5.1 billion—and created thousands of retail jobs.
This cross-border shopping will worsen in Maine since a “temporary” 10 percent increase in the sales tax (to 5.5 percent from 5 percent) went in effect on October 1, 2013. Under current law, the sales tax increase will sunset in just a few months on June 30, 2015.
The higher sales tax rate also raises the after-tax costs of cigarettes as well since the sales tax applies to cigarettes (this also creates the odd situation of taxing a tax as the cigarette excise tax is hidden within the price of cigarettes). This combination will exacerbate the cross-border shopping problem—taxes matter.
Interestingly, as shown in Chart 2, despite increases in the sales tax rate the sales tax burden has been falling. In other words, increases in taxable retail sales are significantly slower than the increases in the sales tax rate—a clear sign of cross-border shopping.
Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Maine—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.
The Maine counties with the highest local government tax burden include: Hancock County, ME (6.5 percent), Lincoln County, ME (6.2 percent), and Knox County, ME (5.8 percent). The Virginia counties with the lowest local government tax burden include: Kennebec County, ME (3.4 percent), Aroostook County, ME (3.4 percent), and Penobscot County, ME (3.8 percent).
J. Scott Moody has over 18 years as a public policy economist with a specialty in tax policy and has over 180 publications. He has worked for numerous national and state-based think tanks such as Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.