Repeal of the personal property tax would cause property taxes to increase.

A bill now before the Legislature to repeal Maine’s personal property tax is being framed as a tax cut.

The bill would, indeed, cut taxes for the large industrial taxpayers that pay personal property tax on their business machinery and equipment. For Maine people and small businesses, however, the legislation would mean a property tax increase.

Proponents of the bill would have us believe that this crucial source of revenue for Maine’s cities and industrial towns can be eliminated with no impact on the municipalities whose vital services it supports, and without an offsetting hike in real property taxes. This free-lunch fantasy needs to be dispelled.

It is true that business equipment now in service would remain taxable under L.D. 1660. But the value of this grandfathered equipment would decline each year, and because businesses must invest in new equipment to stay competitive in today’s fast-changing economy, existing equipment would soon vanish from the rolls altogether. Although the state promises to reimburse municipalities for 50 percent of their lost revenue, the other 50 percent would not be reimbursed. Cities and towns that depend on the personal property tax would soon face a massive revenue shortfall that would have to be made up by increasing real property taxes paid by families and small businesses.

The impact of the bill would not be limited to cities and industrial towns. Because education subsidies are distributed based on valuation, a reduction in the valuation of cities and industrial towns necessarily entails the diversion of subsidies to those municipalities at the expense of neighboring communities.

Even if reimbursements count toward valuation, these would be partial at best. Over time, the proposal would cause the valuation of cities and industrial towns to plummet, with consequent diversions of county government revenues and a tax increase for residential property owners.

L.D. 1660 would eliminate both a spending program – the Business Equipment Tax Reimbursement (BETR) program under which the state reimburses large companies for their personal property tax payments to municipalities – and a tax (the personal property tax). These initiatives might cancel each other out if the spending program being eliminated were funded by the tax being eliminated, so that the tax revenues at issue would no longer be needed.

But the personal property tax does not fund the BETR program. It funds vital public services such as police and fire protection that are not slated for elimination. This disconnect would require an increase in real property taxes to make up the revenue shortfall.

Maine is by no means the only state to tax business property: three-fourths of the states impose a personal property tax or comparable business tax. So it cannot be true that repeal of the personal property tax is necessary to keep Maine competitive with other states.

Proponents of L.D. 1660 profess concern about small businesses struggling under the burden of personal property taxes. Yet the solution to this problem is not a wholesale repeal of the personal property tax and the consequent increase in real property taxes. Instead, a program analogous to the Circuit Breaker program for real property taxes could be created, so that businesses would not be taxed on, say, their first $1 million of personal property. This would concentrate the benefits of personal property tax relief on small businesses, as opposed to L.D. 1660’s approach of giving a huge tax break to large businesses at the expense of other taxpayers.

If property tax relief is needed, it should be for everyone, not just for large industries. One option would be for the state to once again take responsibility for providing services such as roads, county jails, sheriffs, probate judges and registries of deeds that are now funded by local property taxes.

L.D. 1660 is not real tax reform, but a scheme for drastically reducing the taxes paid by large industries. It takes money out of the system, money that will have to be replaced by increasing real property taxes on individuals and small businesses.

The governor and the Legislature should be told to stop trying to raise the property taxes on homeowners and small businesses.

Ruth Marden has been town manager of Jay for four years.

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