In Fiscal Year (FY) 2011, Maine collected $6.1 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 the chart, Maine’s state and local tax burden (tax collections divided by personal income) was the 6th highest in the nation for FY 2011 at 12 percent—or 14.6 percent above the national average of 10.5 percent. Maine’s tax burden has grown tremendously over time by 56.8 percent to 12 percent in FY 2011 from 7.6 percent in FY 1950.
Like Vermont, Maine must also contend with neighboring New Hampshire which does not have a sales tax. This dynamic has created a situation where Maine taxpayers can arbitrage the sales tax differential in their favor through cross-border shopping in New Hampshire. In fact, a recent analysis of cross-border shopping by J. Scott Moody 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 10 percent increase in the sales tax (to 5.5 percent from 5 percent) just went in to effect on October 1. This will also raise 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). Cigarettes are a big driver of cross-border shopping activity.
Additionally, as shown in the map below, cross-border shopping has created a big-box “retail desert” on the Maine side of the border that stretches for 40 miles. On the New Hampshire side of the border, however, there is a wide selection of big-box stores within a few miles of Maine. As such, this again proves that taxes matter.
View The Great Tax Divide: Maine in a larger map
J. Scott Moody has nearly 20 years experience 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 the American Conservative Union Foundation, Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.