May 6, 2011

It’s the truth. A new study conducted by the Quantitative Economic and Statistics Practice at Ernst & Young LLP said Maine imposes the smallest tax burden on new investments.

The study: Competitiveness of state and local business taxes on new investment—Ranking states by tax burden on new investment stated, “Maine’s business tax structure imposes the smallest burden on new investment for the selected industries analyzed.”

This reality is due to the following factors- taken directly from the report:

• Maine uses a single sales factor corporate income apportionment formula. While Maine’s corporate tax rate is higher than average (8.93 percent in Maine compared to 6.7 percent nation-wide), Maine’s favorable income apportionment regime more than offsets the rate differential for the hypothetical investments included in the competitiveness index.

• Maine has an average property tax rate. Maine’s real property tax rate (in Portland) is 1.69 percent compared to a national average of 1.97 percent. Personal property tax rates in Maine are slightly above average at 1.77 percent compared to a national average of 1.65 percent, but new equipment is exempt from the property tax and any local property tax paid on qualified equipment is refunded through the Business Equipment Tax Reimbursement Program (BETR).

• Maine has no franchise tax.

• Maine’s combined state and local sales tax rate is one of the lowest in the nation (5 percent compared to a national average of 6.2 percent)

The researchers tried to, “isolate the impact of state and local business tax systems on new capital investment, the cornerstone of state economic development.”

In 2006 Gov. John Baldacci restructured the BETR program. Today new business equipment is exempt from property tax and any local tax paid on qualified equipment is refunded through BETR.

Gov. Paul LePage’s budget proposal specifically targets BETR for a 10 percent reduction.

The study looks at industries that have a choice of where they can locate: headquarters, research and development, office and call centers, durable manufacturing and nondurable manufacturing.

The work of the study was done in conjunction with the Council On State Taxation, a nonprofit trade association. The researches include the former director of tax research for Michigan and Minnesota, a senior manager at Ernst & Young, and the former director and chief economist of the U.S. Treasury Department of Tax Analysis.

The report recognizes that the decision on where to locate a business involves factors beyond anticipated costs, taxation and incentives.

Since Gov. Baldacci started Pine Tree Zones tax incentives 310 companies have located to Maine or expanded their businesses here. They represent a total investment of $873 million, with an annual payroll of $341 million. That’s 8,206 jobs. Over two hundred of these companies are in manufacturing.

The PTZ designation lets a company keep the income tax withholding from employees that would otherwise go to the State. Companies also get sales, property, and corporate tax breaks.