LePage budget would expand sales tax to many digital services

PORTLAND — Gov. Paul LePage’s latest budget proposal seeks to expand Maine’s sales tax to a range of in-person services from haircuts to movie tickets. It’s also extending the state’s ongoing tax fight into the digital realm.

In a move that mirrors past efforts to apply Maine’s sales tax to online retailers such as Amazon, LePage’s latest budget reaches into the realm of online services for revenue, joining other states pursuing a “cloud tax” on streaming subscription services such as Netflix, Hulu, and Apple and Amazon music. It would tax those services at a rate of 6 percent.

The governor’s budget proposal reaches further into the digital realm, too, requiring rental platforms such as Airbnb to collect taxes for Maine rentals booked through what the budget bill defines as a ” transient rental platform.” The budget separately raises the lodging tax to 10 percent, from 9 percent.

The governor’s budget proposal extends a push by the state and federal government to capture revenue from online retail sales. A 2013 state law broadened the state’s power to collect tax from such retailers.

LePage’s proposal follows in the footsteps of other states and cities, such as Chicago, which was one of first government entities to impose such a “cloud tax” in 2015. Many other places have followed suit, imposing what’s also been dubbed a “Netflix tax.” In Pennsylvania, the tax goes further to include a range of digital downloads.

Forbes contributor Joe Harpaz wrote in November that the trend of taxing streaming services will continue, following recommendations by the international trade and tax policy group, the Organisation for Economic Development and Cooperation.

The taxes all target those services at the point of sale, including with the operators of room rental sites such as Airbnb. Other hoteliers have pushed for that change, saying it’s fairer, as they have to collect taxes at the time of sale.

It also adds to the state’s taxed services “dating, escort and social introduction services,” online and off.

The budget would tax all of the new services at the current service provider tax rate of 6 percent. The sales tax rate would remain at 5.5 percent.

Those newly proposed taxes are just one small part of the general tax shift that would “modestly expand our tax base to reflect the current spending habits of consumers,” according to a letter LePage wrote introducing his latest budget bill.

That includes adding taxes on services a whole range of recreational activities, personal services, personal property services and household services.

The list includes tickets to concerts, sporting events, trade shows and a range of services from dry-cleaning to septic tank pumping — under private waste management services in general.

The budget summaries do not forecast exactly how much revenue those proposed tax increases would raise, but projections for the revenue possible from those broad categories of services put it around $75 million in 2018 and about $150 million over the two-year budget period.

The array of new taxes proposed represents LePage’s desire to shift Maine’s tax hit toward consumption, targeted in part at recreation activities popular for summer tourists. That’s combined with a gradual shift to a flat income tax of 5.75 percent by 2020.

Compared to the current tiered income tax system, sales taxes generally are regressive, taking a larger share of income for the lowest earners.

An analysis from Maine Revenue Services projects just the income tax changes out to 2020, cutting total tax liability by about one-third for all income groups, with steeper tax cuts for the lowest tax brackets.

By dollar amount, the budget would deliver about half the value of the tax cut to filers reporting $150,000 or more. The analysis does not factor in how the proposed sales tax changes would affect households at different income levels.

A representative of Netflix did not immediately respond to a request for comment.