AUGUSTA — Maine’s retail sector is scrambling to figure out the implications of a section of Gov. Paul LePage’s proposed budget that would change how they are taxed on business equipment.

The governor’s proposed budget eliminates the Business Equipment Tax Reimbursement, or BETR, program, a property tax relief program created by Gov. Angus King in 1995, and moves all businesses — except retail — into the Business Equipment Tax Exemption, or BETE, program, which went into effect in 2008.

Maine Revenue Services has a detailed document comparing the BETR and BETE programs, but here’s the difference in a nutshell: The BETR program reimburses a business for property taxes it paid to the municipality, while the BETE program exempts businesses from having to pay the property taxes in the first place and instead reimburses the municipalities for the lost revenue.

While the retail sector has to date benefitted from its participation in the BETR program, which is budgeted to dole out $47.6 million to businesses in fiscal year 2013, it will be excluded from the BETE program for any property taxes paid on business equipment in a retail facility.

The proposed change will save the state roughly $11.8 million in fiscal year 2015, Allen said. However, only a small piece of that savings — about $2 million — will come from excluding the retail sector, according to Michael Allen, associate commissioner for tax policy at Maine Revenue Services. The other nearly $10 million in savings will likely come from the pockets of municipalities.

“Property currently in the BETR program and generally being reimbursed at 100 percent … will now move to the BETE program, get a full exemption at the local level and the state will reimburse the municipality for 60 percent — 55 percent in 2015 and 50 percent in 2016 and beyond — of the exempt property tax,” Allen said.

Geoff Herman, director of the Maine Municipal Association’s state and federal relations department, said the proposal corrupts the original idea that went into implementing these property tax relief programs.

“The underlying public policy throughout [the creation of BETR and BETE] was not to impact municipalities too rapidly. If there was going to be a change in regards to tax revenue streams that municipalities receive from commercial property, those changes would be initiated slowly going forward, not retroactively, to allow for the system to accommodate the change,” Herman said. “That was the public policy right from the jump. There was a lot of thought that went into the implementation of these programs and all that is being rototilled by this proposal.”

Herman is also baffled by the proposed savings. The BETR program is paying out nearly $48 million in fiscal year 2013, yet if everything is being transferred to the BETE program, in which the municipalities will be reimbursed “50 cents on the dollar,” Herman questions why the proposed savings aren’t closer to $23 million instead of $11 million.

The administration claims the elimination of BETR and expanding BETE will streamline the “cumbersome” process for the businesses, the municipalities that collect the property taxes and the state, which handles the reimbursements, Allen said.

Herman doesn’t buy it: “That argument doesn’t weigh very much against the loss of $10 million annually in a couple dozen municipalities across the state,” he said.

Curtis Picard, executive director at the Maine Merchants Association, said the governor’s proposal to exclude the retail sector from the state’s property tax relief programs came as a surprise. He’s still trying to understand the implications of the proposed change, and sent an email to his members on Monday asking them to report back on how the change would affect their businesses.

“We’re trying to take a closer look to see exactly what the impact will be,” Picard said. “It’s fair to say we’re concerned about it.”

Many of Maine’s large retail businesses chose not to comment for this story.

“We do not have a position on it,” Mike Norton, a spokesman for Hannaford, which has dozens of grocery stores in Maine and received nearly $1.1 million from the BETR program in fiscal year 2012, wrote in an email to the Bangor Daily News. “Trade associations and their members are still analyzing the proposal.”

A person reached at Marden’s corporate office in Waterville said it was company policy to not comment on political issues. He declined to give his full name.

Phone calls to Reny’s headquarters in Newcastle and Olympia Sports’ headquarters in Westbrook were not returned.

Carolyn Beem, a spokeswoman for L.L.Bean, which received approximately $960,000 from the BETR program in fiscal year 2012, said the company is “reviewing the impacts along with all the other retailers.”

It’s important to point out that it’s only business equipment in a retail store that’s being excluded from BETE. Companies like L.L.Bean would still gain an exemption under BETE for property taxes paid on business equipment in its warehousing and manufacturing facilities.

Andy Charles, owner of Haven’s Candies, which has retail locations in Westbrook, Portland and Scarborough, said his company’s property taxes would increase by as much as $2,000 a year without the reimbursement from the BETR program. It’s not a life or death situation, but “that would be [money] unavailable to help sustain the business,” he said.

“I don’t understand why retail is the only segment of the Maine economy that is being penalized,” Charles said, pointing out that the retail sector provides 90,000-100,000 jobs in the state. “We add some value to the state’s economic future for sure.”

That may be true, but Allen at Maine Revenue Services said this tax break isn’t as important to the retail sector. “Usually retail, they’re going to come here whether they get this tax break or not. They’re here to serve or sell their product here in Maine,” he said. “Manufacturing, financial service companies, most of these other businesses that get the reimbursement under BETE or the old BETR — in a lot of case those companies could locate anywhere and the tax issue becomes important.”

Adrienne Bennett, Gov. LePage’s spokeswoman, said the governor had many conversations before deciding to exclude the retail sector from the BETE program.

Bennett echoed Allen’s comment: “Retail goes where the money is, where the consumers are, not where the government incentives are necessarily,” she said. “I think there is a good argument that retail never truly belonged in the program.”

The Legislature is expected to take up Gov. LePage’s budget in the coming weeks.

Copy the Story Link