Damariscotta Town Manager Matt Lutkus recently testified on behalf of the town’s selectmen in support of legislation that would allow towns to implement local sales taxes with voter approval.
The Maine State Legislature’s Taxation Committee heard testimony on L.D. 65, “An Act to Allow Municipalities to Impose a Seasonal or Year-round Local Option Sales Tax”; and L.D. 1110, “An Act to Establish a Local Option for Sales Tax,” in Augusta on Wednesday, March 27.
The bills propose to allow a municipality to enact a local sales tax if voters approve the tax in a referendum. The referendum question would have to include the rate of the tax, the categories of taxable items, and plans for the tax revenue.
The state would collect the local sales tax in the same manner as the sales and use tax, according to the bills’ language.
The bills would not allow the state to reduce or eliminate funding it would otherwise provide to a municipality as a result of revenue from a local sales tax.
L.D. 65 would allow a local sales tax to be seasonal and would require the referendum question to include the months the tax would be in effect.
The Damariscotta selectmen discussed the topic of a local sales tax at their Nov. 28 and Dec. 5 meetings.
Attorney Amanda Meader drafted legislation for Damariscotta at the request of town staff, but the board decided it would support others’ efforts instead of trying to introduce its own bill.
“The idea is to have an income source that is separate from property taxes,” Lutkus said in a phone interview April 1. “From discussion with board members over the years, this is a huge priority, and would have a direct benefit to citizens.”
Damariscotta is one of 69 designated regional service centers in Maine.
“While the town’s population is a modest 2,100, its businesses and nonprofits provide employment, goods, and services to an estimated 12,500 persons living in Bristol, South Bristol, Bremen, Newcastle, Nobleboro, and several other communities,” Lutkus said in prepared testimony. “While citizens in the surrounding communities often acknowledge their dependence on Damariscotta, none of those communities have offered to help reduce the service center burden on Damariscotta taxpayers.”
Lutkus also spoke about the many property tax-exempt facilities in Damariscotta, including much of LincolnHealth’s Miles Campus, the Central Lincoln County YMCA, the Central Lincoln County Ambulance Service, Skidompha Library, and land preserves.
In addition, Damariscotta’s downtown draws thousands of visitors annually but makes up about a twentieth of the town’s assessed valuation, Lutkus said. The town’s taxpayers cover the cost to maintain facilities that support community services.
“Certainly it makes sense for these costs to be shared by those living in adjacent communities and the thousands of visitors that visit our community each year,” Lutkus said. “A local-option sales tax, if approved by Damariscotta voters, would provide a more equitable cost-sharing alternative.”
Damariscotta’s property tax rate is $16.30 per $1,000 of property, of which $4.67 goes to municipal services, Lutkus said.
Based on the 2017 total taxable sales reported by the Maine Revenue Service’s Office of Tax Policy Division, a 1 percent local sales tax in Damariscotta would generate slightly more than $875,000, Lutkus said.
In the event that a local sales tax becomes an option, Damariscotta would only hold a referendum “after a considerable amount of outreach to citizens and businesses,” Lutkus said.
If voters approved a local sales tax, the town would use all the revenue to reduce its reliance on property taxes.
In addition to Lutkus, town officials from Auburn, Augusta, Bangor, Bar Harbor, Lewiston, Old Orchard Beach, and Portland testified in support of the bills. Representatives of the Maine School Management Association, the Maine Municipal Association, the Maine Service Center Coalition, the Portland Public Schools Board of Education, and RSU 21, also provided support for the legislation.
The bills received opposition from Hospitality Maine, the Maine Center for Economic Policy, Maine Equal Justice, the Maine Grocers & Food Producers Association, the Maine Heritage Policy Center, the Maine State Chamber of Commerce, the Maine Tourism Association, the Ogunquit Chamber of Commerce, and the Retail Association of Maine, as well as individual businesses and residents.
The Maine Department of the Secretary of State and Michael Allen, associate commissioner for tax policy in the Maine Department of Administrative and Financial Services, were among those testifying neither for nor against the bills.
A work session on the bills was scheduled for 1 p.m., Wednesday, April 3.
(Editor’s note: LCN Marketing and Engagement Coordinator Maia Zewert is a member of the Skidompha Library Board of Directors and the Damariscotta Chamber of Commerce Board of Directors. She is filling in as a reporter covering Damariscotta town government.)