Legislative Alert!
Legislative Alert!
Read TechMaine's Comments to the Taxation Committee
The Maine Legislature will be holding a public hearing on Thursday, April 2 at 1:00 PM in Room 127 of the State House on a bill to significantly change Maine’s system of taxation. The bill is entitled - LD 1088, An Act To Modernize the Tax Laws and Provide over $75,000,000 to Residents of the State in Tax Relief. If enacted, this bill would eliminate the current state income tax brackets and rates and create a flat rate of 6.5%, thus reducing the current rate for those in the current top bracket from 8.5% to 6.5%. If enacted, this bill would also broaden the sales tax base by including certain services, including certain amusement, entertainment and recreation services; installation, repair and maintenance services; personal property, services; transportation and courier services; and long distance telephone service. Full text of the bill is available at:
http://www.mainelegislature.org/legis/bills/bills_124th/billtexts/HP075001.asp
Depending on your technology business this bill may be viewed as appealing due to its income tax reduction provisions or viewed as harmful to those companies that perform computer and network maintenance and repairs. TechMaine has not yet taken a position on this bill but will be monitoring it. If you have questions or concerns, feel free to contact TechMaine.
If you wish to reach members of the Taxation Committee:
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TechMaine's Comments to the Taxation Committee
Senator Perry, Representative Watson and members of the Joint Standing Committee on Taxation, my name is Joe Kumiszcza. As the Executive Director of TechMaine: The Technology Association of Maine I am here today to express my organization’s concern regarding a specific element of LD 1088, An Act To Modernize the Tax Laws and Provide over $75,000,000 to Residents of the State in Tax Relief. TechMaine is supported by hundreds of businesses across the State of Maine that either create or are reliant on the productivity gains brought about through new technologies.
The current bill is enticing because of the reduction in Maine’s income tax rate. But the changes in the sales tax will have a significant negative impact on my member companies and the businesses that seek to remain competitive in today’s business environment. The maintenance, upgrade and purchase of technology tools is an increasing part of a company’s budget. A sales tax will effectively reduce the ability of a Maine business to compete by 5%.
The current bill adds significant costs on services conducted through a business to business relationship. TechMaine is not testifying against a change to personal income taxes, but we ask that you implement a business to business exclusion in LD1088 on the proposed sales tax on installation, repair or maintenance of electronic and mechanical equipment, computer hardware and office equipment, and related service and maintenance contracts.
This increase places Maine companies at a competitive disadvantage compared to organizations across the border. The border I speak of doesn’t necessarily mean New Hampshire – We are concerned that an increase in the cost of technology development in Maine will force companies to use out-of-state and offshore technology development operations instead of operations in Maine. The technology infrastructure to support Maine companies does not have to be located here. Adding a 5% premium on productivity improvements to have equipment located in Maine creates a disincentive to expansion and encourages business activity to move to companies not located in Maine. This sales tax on the development and maintenance of technology products or services would significantly raise the final cost of technical goods and services used and produced in Maine. This sales tax can have a significant impact for marginal-income families, because technology dependent necessities like electricity and telephone service can have considerable sales taxes added to their prices.
We have Maine companies that import dollars to Maine because they house Internet and network servers, and call centers for companies located outside the state. Their competitiveness will disappear if costs escalate. Keeping current with technology is a major cost item for growing businesses, an efficient Maine business that has to pass these taxes into its prices could lose business to a less efficient out-of-state or out-of-country competitor that is not required to charge sales taxes on these services. Maine businesses that rely on continuous technology upgrades might choose to expand in or move to another state that exempts these services from sales tax. We hope that Maine tax policy will not encourage the shift of work to companies ‘from-away’.
Technology infrastructure is frequently shared among companies located in various states or countries; it will be an onerous task to determine how to allocate a sales tax based on upgrades and service contracts made to maintain service levels. How would technology improvements and service contracts purchased by businesses for company-wide use in multiple states or countries be taxed? It will be almost impossible to get control of the sales tax reporting administration caused by this legislation, adding to the burden of doing business in Maine.
The state wants to attract young professionals and build the creative economy. Our industry produces some of the highest paying jobs in this sector. Many of the new creative economy companies will have a ‘virtual’ feel to them and many will be located in areas for ‘quality of life’ reasons. They can be located anywhere in the world they choose, and they are mobile. If this legislation moves forward, it will impose an enormous tax on being creative in Maine. This legislation will be creating another economic hurdle for developing and using new technologies in Maine.
Maine has made great strides during recent years promoting an increase in research and development activities. A new tax on the technology infrastructure enabling new products and services will decrease the ability for Maine businesses to innovate.
Thank you for this occasion to share my thoughts regarding LD 1088. I urge you to investigate a business to business exemption. This would allow Maine companies to continue to invest in the technology infrastructure that can keep them competitive. A new sales tax will impact the efforts of Maine businesses to stay competitive and the resulting decrease in spending will have a significant impact on those organizations working to position Maine’s businesses for the future.
