An Act To Modernize and Simplify the Tax Code
Maine Legislature, Session 126, LD 1496
Committee: Taxation
Sponsors: KNIGHT, WOODBURY, DION, GIDEON, HARVELL, KESCHL, LIBBY, VOLK, CAIN, GOODALL, KATZ

Legislative Document 
No. 1496 
H.P. 1073 
House of Representatives, May 2, 2013 
An Act To Modernize and Simplify the Tax Code 
Reference to the Committee on Taxation suggested and ordered printed. 
MILLICENT M. MacFARLAND 
Clerk 
Presented by Representative KNIGHT of Livermore Falls. 
Cosponsored by Senator WOODBURY of Cumberland and 
Representatives: DION of Portland, GIDEON of Freeport, HARVELL of Farmington, 
KESCHL of Belgrade, LIBBY of Lewiston, VOLK of Scarborough, Senators: CAIN of 
Penobscot, GOODALL of Sagadahoc, KATZ of Kennebec. 
Be it enacted by the People of the State of Maine as follows: 
CONCEPT DRAFT 
SUMMARY 
This bill is a concept draft pursuant to Joint Rule 208. 
Overview 
This bill would overhaul Maine's tax code.  It is designed to raise a larger share of tax 
revenues from nonresidents, while relieving the tax burden on year-round residents.  The 
bill reduces Maine state income taxes, corporate income taxes and homestead property 
taxes; moderates the regressivity of sales and property taxes on lower-income 
households; stabilizes tax revenues; and creates a more attractive tax environment for 
individuals and businesses that locate in Maine. 
Because nonresidents share many of the benefits of Maine's communities, roads, 
hospitals, environment and quality of life while they are here, while avoiding many of the 
taxes paid by residents only, the reforms also reflect a fairer apportionment of 
government costs. 
The bill accomplishes its objectives by increasing revenues from sales and excise 
taxes, which are paid by both residents and nonresidents in proportion to the time they 
spend here, and by collecting less from income taxes and homestead property taxes, 
which are paid almost entirely by residents. 
The bill creates 2 refundable tax credits.  A sales tax fairness credit is designed to 
offset the regressive burden of sales taxes on lower-income families.  A property tax 
fairness credit, combined with the increased homestead exemption, is designed to offset 
the regressive burden of property taxes. 
Property tax reform 
This bill more carefully targets property tax relief to owners of homestead property 
and to municipalities with higher property tax mill rates and higher overall tax burdens.  
The plan also provides proportionately more relief to households with lower incomes and 
lower property wealth, moderating the regressive impact of the property tax. 
1.  Homestead property tax exemption.  The bill increases the homestead property 
tax exemption to $50,000 except that the exemption may not exceed 50% of the value of 
the homestead.  Municipalities would be reimbursed by the State for half of the cost of 
the homestead exemption.  Payment from the State to municipalities for homestead tax 
relief would be over $120,000,000 annually.  A large majority of resident homeowners 
will see property tax reductions of over $500; many will see property tax reductions of 
$1,000 or more. 
2.  State-municipal revenue sharing.  The bill replaces the current state-municipal 
revenue sharing formula by providing for the transfer of 1.5% of sales and income tax 
revenue to be distributed only to municipalities with higher mill rates, using the new so-
called Revenue Sharing II formula enacted in the 125th Legislature.  Payment from the 
State to municipalities for municipal revenue sharing would be over $40,000,000 
annually. 
3.  Property tax fairness credit.  The bill replaces the Circuitbreaker Program with a 
new property tax fairness credit that is administered as an integral component of Maine 
income tax returns.  The new program is greatly simplified as compared to the 
Circuitbreaker Program.  The property tax fairness credit refunds to taxpayers half of the 
amount by which property taxes exceed 6% of income, up to a maximum refund of 
$1,000 per household.  Only the first $250,000 of property value qualifies for the 
property tax fairness credit.  Renters also qualify for credit, using 15% of their rent as the 
portion of rent that is eligible for the credit.  Tax abatements provided by municipalities 
for hardship must be subtracted when calculating the property tax fairness credit. 
4.  Property tax exemption for certain property.  The bill amends the property tax 
exemption for certain private nonprofit institutions and organizations.  The full 100% 
exemption would be retained for the first $250,000 of just value.  The exemption would 
be reduced from 100% of the full just value of the property to 75% for the portion of just 
value exceeding $250,000.  The full 100% exemption would be retained for places of 
worship, and the tax treatment of parsonages would be unchanged from current law. 
5.  Telecommunications excise tax.  The bill returns the taxation of 
telecommunications personal property to municipalities rather than being collected by the 
State.  Revenues from the telecommunications excise tax remain with municipalities to 
assist with local budgets. 
6.  Business equipment tax reimbursement.  The bill provides for full funding of 
property tax reimbursements to businesses under the BETR program up to the 12-year 
period of service originally covered under the program.  Continuing reimbursements after 
the first 12 years of service are eliminated. 
7.  Government efficiency grants.  The bill provides $1,000,000 in funding annually 
from the General Fund to the Fund for the Efficient Delivery of Local and Regional 
Services to be used for grants to municipalities to increase collaboration in service 
delivery and to identify other cost efficiencies in governance. 
Income tax and estate tax reform 
This bill reduces income taxes for most Maine taxpayers.  The simplified lower-rate 
system provides incentives for persons to locate their homes and businesses in Maine 
thereby increasing jobs and laying the foundation for a more prosperous economic future. 
1.  Individual income tax reform.  The bill imposes a maximum 4% total income 
tax rate, eliminates nearly all deductions from income and computes a household's 
income tax assessment based on federal adjusted gross income.  Progressivity in tax rates 
is achieved using 2 new refundable tax credits administered in conjunction with the 
income tax filing, a sales tax fairness credit and a property tax fairness credit.  These 
credits create a more integrated tax system that promotes progressivity in the combined 
burden of all state and local taxes, including income, sales and property taxes. 
The base sales tax fairness credit is set at $1,000 for single filers or $2,000 for joint 
filers, plus $500 per dependent and $500 per member of the household over 65 years of 
age.  The credit amount is phased out as income rises.  This credit is refundable up to 
$500 for single filers or $1,000 for joint filers, plus $100 per dependent and $100 per 
member of the household over 65 years of age, up to a maximum household refund of 
$1,500.  The property tax fairness credit, already described, is fully refundable up to 
$1,000. 
The sales tax fairness credit is automatically integrated into the tax or refund 
computation and is dependent on income and filing status only.  The property tax fairness 
credit is also computed as part of the taxpayer's annual tax return, but varies based on the 
property taxes actually paid.  The net distributional impact of the income tax, after 
accounting for the sales tax fairness credit, is as follows.  Those households that are also 
eligible for the property tax fairness credit would have a smaller tax or a larger refund. 
A.  Single filers.  As structured, and without accounting for the property tax fairness 
credit, single filers with income below $8,800 would pay no income taxes and would 
receive the full refundable sales tax fairness credit of $500.  Single filers with income 
between $8,800 and $17,600 would owe no taxes and would receive a refundable 
credit of less than $500, with the amount phasing out over this income range.  Single 
filers with income between $17,600 and $60,000 would also be eligible for the sales 
tax fairness credit as an offset to their income taxes but would owe a net tax.  Their 
total effective tax rate would increase progressively with income.  Single filers with 
income above $60,000 would pay the full 4% income tax rate on all of their adjusted 
gross income. 
B.  Joint filers with no dependents.  Joint filers with no dependents and income 
below $17,600 would pay no income taxes and would receive the full refundable 
sales tax fairness credit of $1,000.  Joint filers with income between $17,600 and 
$35,300 would owe no taxes and would receive a refundable credit of less than 
$1,000, with the amount phasing out over this income range.  Joint filers with income 
between $35,300 and $120,000 would also be eligible for the sales tax fairness credit 
as an offset to their income taxes but would owe a net tax.  Their total effective tax 
rate would increase progressively with income.  Joint filers with income above 
$120,000 would pay the full 4% income tax rate on all of their adjusted gross income. 
C.  Four-person families.  Four-person families with income below $27,700 would 
pay no income taxes and would receive the full refundable sales tax fairness credit of 
$1,200.  Four-person families with income between $27,700 and $46,100 would owe 
no taxes and would receive a refundable credit of less than $1,200, with the amount 
phasing out over this income range.  Four-person families with income between 
$46,100 and $120,000 would also be eligible for the sales tax fairness credit as an 
offset to their income taxes but would owe a net tax.  Their total effective tax rate 
would increase progressively with income.  Four-person families with income above 
$120,000 would pay the full 4% income tax rate on all of their adjusted gross income. 
The bill repeals nearly all income tax deductions, including deductions for home 
mortgage interest, real estate taxes paid, medical and dental expenses, charitable 
contributions, theft and casualty losses, other itemized deductions, affordable housing, 
social security benefits taxable at the federal level, contributions to capital construction 
funds, premiums paid for long-term care insurance, pension income and contributions to 
qualified tuition plans under Section 529 of the United States Internal Revenue Code of 
1986, so-called 529 plans. 
The bill repeals most income tax credits prospectively, allowing the continued 
carry-forward of tax credits for projects and initiatives already awarded or accrued but 
eliminating new or future credit awards.  Prospectively eliminated credits include the jobs 
and investment tax credit, the credit for contributions to family development account 
reserve funds, the credit for employer-assisted day care, the credit for employer-provided 
long-term care benefits, the credit for educational opportunity, the retirement and 
disability credit, the forest management planning income credits, the high-technology 
investment tax credit, the credit for dependent health benefits paid, the quality child care 
investment credit, the earned income credit, the Pine Tree Development Zone tax credit, 
the biofuel commercial production and commercial use credit, the tax benefits for media 
production companies, the dental care access credit, the new markets capital investment 
credit, the credit for wellness programs, the credit for Maine fishery infrastructure 
investment and the Maine Public Employees Retirement System innovation finance 
credit. 
2.  Corporate income taxes.  The bill reduces corporate income tax rates to 3.5% on 
income up to $50,000 and to 7.5% on income above $50,000. 
3.  Estate tax.  The bill repeals the estate tax. 
Sales and excise tax reform 
The bill raises about $700,000,000 in additional sales and excise tax revenues 
annually, paid by both residents and nonresidents in rough proportion to the time they 
spend in Maine.  These revenues are redirected to provide tax relief that goes almost 
entirely to residents.  The net result of this restructuring is an increased revenue 
contribution from nonresidents and a reduced revenue contribution from residents.  The 
additional burden of sales taxes on lower-income and middle-income taxpayers is offset 
by the sales tax fairness credit that is administered in conjunction with the income tax. 
1.  Expanded sales tax base.  The sales tax would be applied to nearly all consumer 
purchases with the exception of health care and education, raising about $400,000,000 in 
additional sales tax revenues annually.  While the specific definitions for the expanded 
sales tax base will need to be constructed with advisory expertise from Maine Revenue 
Services, many consumer purchases in the following sales categories would become 
taxable:  amusement, entertainment and recreational services; groceries; coal, oil, gas and 
wood for cooking and heating; residential electricity; publications; coin-operated vending 
machines; residential water; personal care services; personal property services; real 
property services; elective cosmetic services; funeral services; barber shop, beauty parlor 
and health club services; cleaning, storage and repair of clothing and shoes; business and 
legal services purchased by consumers; other professional services purchased by 
consumers; informational services purchased by consumers; certain transportation and 
storage services; installation, repair, maintenance and other labor service fees; basic cable 
and satellite television services; telecommunications services; and meals served in 
cafeterias and dining halls.  The sales tax treatment of leasing and rentals would be 
revised to be more consistent with the treatment of such transactions in most other states. 
2.  Sales and excise tax rate increases.  The bill increases certain sales and excise 
tax rates, raising about $300,000,000 in additional revenues annually.  The general sales 
tax rate increases from 5% to 6%.  The service provider tax rate increases from 5% to 
6%.  The cigarette tax increases from $2 to $3.50.  The taxes on other tobacco products 
are raised to a level that is equalized with cigarettes.  The tax rate on prepared foods 
increases from 7% to 8%, and the definition of "prepared foods" is expanded.  The total 
excise tax rate on malt liquor and hard cider products increases from 35¢ to 70¢ per 
gallon.  The total excise tax rate on wine increases from 60¢ to $1.20 per gallon.  The tax 
rate on automobile rentals increases from 10% to 15%. 
The tax rate on lodging increases from 7% to 8%, plus an additional 2% to be 
allocated to the Tourism Marketing Promotion Fund.  This 2% set aside would replace 
the allocation to the Tourism Marketing Promotion Fund from the tax on lodging and 
prepared meals and increase the resources available for tourism promotion from 
$10,000,000 to $16,000,000. 
The real estate transfer tax on residential property increases from 0.44% to a 
progressive rate structure.  Residential real estate with a value of less than $250,000 
would be taxed at 0.6%.  Residential real estate with a value between $250,000 and 
$500,000 would be taxed at 0.8%.  Residential real estate with a value between $500,000 
and $1,000,000 would be taxed at a rate of 1%.  Residential real estate with a value above 
$1,000,000 would be taxed at a rate of 1.5%.  All other property would be taxed at 1%. 
3.  Sales tax collector fee.  A sales tax collector fee is created to compensate 
businesses that collect sales taxes on behalf of the State.  This fee is set at 0.5% of sales 
taxes collected and would be retained by vendors for their effort in collecting sales taxes.  
Every business that collects sales taxes will be compensated.