Prepared by the Office of the Attorney General
This referendum question asks whether Maine voters want to reject legislation enacted by the Legislature and approved by the Governor in June 2009 that reforms the state's income tax structure, broadens the base of the sales tax, and amends the Circuit Breaker Program as follows:
Part A of the legislation replaces the four existing marginal tax rates (which range from 2% on taxable income below $4,200, up to 8.5% of taxable income over $16,700) with a flat rate of 6.5% of Maine taxable income. Taxpayers with taxable income of more than $250,000 would pay, in addition, an income tax surcharge of 0.35% on their Maine taxable income above $250,000.
The legislation also replaces the current system of standard and itemized deductions with several new tax credits. Tax credits are subtracted from the amount of taxes owed, as compared to deductions, which are subtracted from the amount of taxable income to which the tax rate applies. The principal credit is a refundable household credit for individuals who are full-time Maine residents. The base amount of this credit ranges from $700 for single individuals to $1,200 for married taxpayers filing jointly, and the credit increases by $250 with each exemption that the taxpayer is allowed to claim on their federal income tax return.
The legislation also provides a credit for charitable contributions of more than $250,000 claimed on a federal income tax return, and a credit for taxpayers who are 65 years or older. The existing earned income tax credit would be retained and made refundable. Refundable tax credits allow for a refund to the taxpayer (up to a maximum amount specified in the law) if the amount of the credit exceeds the amount of tax due.
Both the alternative minimum tax and the alternative minimum tax credit would be repealed for individuals but maintained for corporations. Taxes on lump-sum retirement plan distributions and on early distributions from qualified retirement plans would be repealed. The retirement and disability tax credit and the low-income tax credit would also be repealed.
Part B of the legislation applies the existing 5% sales tax, for the first time, to several categories of services, including many amusement, entertainment and recreational services; installation, repair and maintenance services; personal property services (such as dry cleaning, laundry services, vehicle towing, moving, house cleaning, picture framing, and pet services); transportation and courier services; and long distance telephone service. It would add an airport transportation fee of $1 per passenger for taxicab and limousine service to or from the airport. The sales tax rate on certain items would increase as follows: on meals, lodging, and liquor served in bars, restaurants and other licensed establishments, from 7% to 8.5%; on candy, from 5% to 8.5%; and on automobile rentals of less than one year, from 10% to 12.5%.
Part C of the legislation makes certain changes to broaden the scope of the Maine Residents Property Tax and Rent Refund "Circuit Breaker" Program. This Program provides partial refunds of property taxes and rent paid by residents with household incomes below certain levels. This legislation repeals the 10-acre limit on the size of the homeowner's or renter's house lot. It also excludes from the calculation of household income (for eligibility purposes) the income of dependents in the household, cash inheritances, and the nontaxable portion of certain other types of income that do not exceed $5,000.
After the legislation making the above changes was enacted in June 2009, petitioners collected enough signatures of registered voters to refer it to the people for a vote at a statewide election. The legislation has been suspended pending the outcome of this election.
Summary of Administrative Costs:
The original General Fund appropriations to fund the additional administrative costs of Public Law 2009, chapter 382 will remain as originally enacted, despite being delayed by one year. The administrative expenses that would be incurred by Maine Revenue Services, Department of Administrative and Financial Services, include salary and benefit costs for 5 positions in the first year the tax reform package becomes effective, increasing to 11 total positions in the second year, additional programming costs and additional printing and mailing costs. If the people's veto fails, the original appropriations included in the Act would become effective except the appropriations in fiscal year 2009-10, which would not occur due to an effective date after the close of that fiscal year.
"Do you want to reject the new law that lowers Maine's income tax and replaces that revenue by making changes to the sales tax?"
A "YES" vote would reject the new law and keep the current tax laws unchanged.
A "NO" vote would allow the new law to take effect, including all of the above-described changes.