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Maine Tax Amnesty Initiative Fails to Deliver Expected Revenues
11/29/2012   Reported By: Tom Porter

You may have heard the ads in recent weeks making an offer to Maine consumers: Pay up on unreported sales taxes for items bought out of state, or on the Internet, and avoid paying a penalty. State officials had hoped that the 2012 Maine Use Tax Compliance program - launched at the beginning of last month - would bring in more than $5.5 million in revenue. But with less than two days to go before the amnesty offer expires, Stan Campbell of Maine Revenue Services says the amount raised is well short of expectations.

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"As of this morning, from all the returns that were processed up to Wednesday evening, $913,000 has come in," says Stan Campbell of Maine Revenue Services.

That compares to $7 million raised back in 2006 over a six-month campaign. Campbell attributes the much weaker numbers this year to the fact that more online retailers are now charging a sales tax. Also he says Mainers are now much more aware of use tax requirements and are declaring it on their annual tax returns.

"Back in 2006 we were receiving about $1 million on the individual income tax return. The last three of four years that has gone up to about $3 million a year, so obviously the awareness got out there to the taxpayers," Campbell says.

The 5 percent "use tax" is effectively a backup to the sales tax, to make sure the state doesn't miss out on revenue from purchases for which no tax was paid. Over the years, that has typically meant items bought via mail order catalogs, over the phone, or out of state - in places like New Hampshire, for example, where no sales tax is charged. In recent years, it has increasingly refered to purchases made over the Internet, where a retailer is not usually required to charge sales tax.

The latest compliance program - which cost the state almost $300,000 - appeals to Mainers to estimate what, if any, use tax they may owe between 2006 and 2012. They are asked to pay tax only for the three years during that period in which their tax liability is the highest. Payment must be made by the middle of next year.

Stan Campbell admits the collection of use tax is very difficult to enforce, and that the compliance program is basically an honor system. Tax experts agree.

Christopher McCloon"The use tax is really a hard tax to administer," says Christopher McLoon (left), a Portland tax attorney, who says many of his larger clients are not aware that some of their large purchases are exempt - manufacturing equipment for example. He says these exemptions are not spelled out by the state in its summary of the compliance program.

"It's a hard tax to investigate, so many purchases are not really well documented, not reported to the state," McLoon says. So really, a lot of times the use tax is paid only because somebody comes forward and says, 'I bought this.' And it's purely voluntary."

McLoon says the answer to this problem is really a wider policy issue, and the solution may lie in multi-state agreements requiring online retailers to charge sales tax. Bricks-and-mortar retailers in Maine and elsewhere have long argued the case for this kind of "level playing field." John Porter is president of the Bangor Chamber of Commerce.

"All our local merchants would like to see some kind of consistent sales taxing policy across state lines," Porter says, "because they're competing with out-of-state folks who, in many cases, if they don't have a Maine-based operation, they're not collecting taxes."

And this, he says, speaks to the need for the tax system to catch up with the 21st century. Stan Campbell of Maine Revenue Services estimates the state is losing $15 million to $20 million a year in unpaid use tax.

Photo by Tom Porter.


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