Thursday, January 24, 2008

Maine money spent in New Hampshire

I’ve mentioned on several occasions that Maine is one of the highest taxed states in the nation. Our neighbor, New Hampshire, doesn’t have some of the major taxes that are hurting many Mainers. Income tax and sales tax are two of them. Maine has a 5% sales tax on most items, New Hampshire has none. Maine puts the tax at 7% for lodgers and folk who go to restaurants.

There is a general belief by Mainers at least, even though state officials dispute it, that a good number of Southern Mainers regularly cross the border to do their shopping. The closer to the border a resident lives, the more likely that the trip will be made.

This year, sales tax revenue is down in Maine contributing to a big state budget shortfall. The Maine Heritage Policy Center, a nonprofit, nonpartisan research and educational organization based in Portland, Maine, is studying how much tax revenue Maine loses to New Hampshire.

In its first of what it says will be an on-going study report issued today in a Maine Issue Brief 1, MHPC cited U.S. Census statistics that said in the year 2005, Maine’s tax burden—tax collections as a percent of personal income—was 45 percent higher than New Hampshire’s. The Maine Issue Brief pointed out that difference could be a big incentive for Mainers to shop in the Granite State.

The Maine Heritage Policy Center conducted this study on Dec. 1, 2007, at seven border stores in New Hampshire, including Wal-Mart, Home Depot, and a liquor store. It counted license plates. Thirty to forty percent of all cars stopping at the liquor store in Portsmouth had Maine license plates. A Wal-Mart in Somersworth had the most Maine plates during a study period.

The report is broken down into several categories of amounts spent, number of cars, turnover rates, and other pieces of useful information. (The complete report can be found here.) Using a combination of statistical estimates, the MHPC suggests that Mainers save more than 36 million dollars a year in taxes by shopping in New Hampshire. That’s a lot of money and money that most of which doesn’t benefit our state.

The report does point out that avoiding Maine tax by shopping out of state is illegal. Maine law requires such buyers to file as part of their income tax each year the payment of a 5% “use” tax on those purchases. However, the report says, the low level of state income from that tax indicates most Mainers do not pay it. It also says, “This study does not condone illegal tax avoidance; however, fully understanding the causes and consequences of cross-border shopping can lead to better tax policy.”

1 Maine Issue Brief is a publication of The Maine Heritage Policy Center that provides research and commentary on current public policy issues. All information is from sources considered reliable, but may be subject to inaccuracies, omissions, and modifications. The Maine Heritage Policy Center is a 501 (c) 3 nonprofit, nonpartisan research and educational organization based in Portland, Maine. The Center formulates and promotes free market, conservative public policies in the areas of economic growth, fiscal matters, health care, and education – providing solutions that will benefit all the people of Maine.
Contributions to MHPC are tax deductible to the extent allowed by law.
© 2007 The Maine Heritage Policy Center. Material from this document may be copied and distributed with proper citation.

The entire report is fascinating reading and good food for thought. It includes a statement that the report should not promote increased or heavy monitoring of sales by Maine revenue agents but rather should give the Legislature some food for thought for Maine tax reform.


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