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Group threatens to challenge new Maine tax law

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Maine Heritage Policy Center says household credit provision is unfair to new residents.
September 17, 2009

PORTLAND — A conservative public policy group has charged that Maine's new tax system is unconstitutional and unfairly burdens out-of-staters who work here and people who move to the state.

The Maine Heritage Policy Center made its claims Wednesday during a news conference in Portland.

Its argument centers on the part of the law that eliminated the deductions and personal exemptions that taxpayers used to reduce their taxable income for state returns and replaced it with a household credit system.

Under the new law, only established residents can take the household credit. So, for the first tax year in which a taxpayer lives in Maine, the taxpayer can't take the deductions and exemptions, or use the new credit system, the group said.

It will be an annual issue for people who live out of state and work in Maine, says the Maine Heritage Policy Center.

Tarren Bragdon, CEO of the Maine Heritage Policy Center, referred to the difference that non-residents will pay compared to established Maine residents as the "Welcome Back Tax."

"It's wrong and, guess what – it's unconstitutional," he said.

Arnold Clark, director of the group's Center for Constitutional Law, said the new tax system violates several parts of the U.S. Constitution, including the commerce clause, the privileges and immunities clause, and the equal protection clause.

But Maine Attorney General Janet Mills disagreed, saying the state addressed constitutional issues in the bill satisfactorily before it became law this spring.

"Our position on the bill is, it's certainly defensible from a constitutional standpoint," she said.

Mills said it was appropriate for the Legislature to give taxpayers different treatment to benefit people who bear the burden of maintaining households in Maine.

Lawmakers also had the right to determine when the household credit takes effect, said Mills, who likened the law's provisions to setting different college tuition rates for in-state and out-of-state residents.

And, Mills noted, new Maine residents must wait a year before they can take other tax benefits, such as the homestead exemption and the circuit breaker program.

Last week, Republicans and Green Independents turned in 60,473 signatures to the secretary of state in an attempt to force a people's veto of the Democratic-backed law.

The state will have to verify the signatures; opponents of the law need 55,087 valid signatures to put the law before voters in June.

If the state finds that enough signatures are valid and the issue goes to the polls, the Heritage Policy Center will wait and see what voters do, said Bragdon.

If voters decide to keep the law, the group will file a lawsuit challenging the law's constitutionality, he said. The group also will sue if the state finds that not enough valid petition signatures were filed.

The new tax law replaced Maine's four income tax brackets, which topped out at 8.5 percent, with a flat 6.5 percent rate for households that earn less than $250,000 a year – the vast majority of tax filers.

Incomes above $250,000 will be taxed at 6.85 percent.

The law seeks to recoup the loss in income tax revenue by broadening the state's 5 percent sales tax to a wide number of services that never have been taxed before, such as some amusements, transportation and labor on car repairs.

Supporters say the new system will provide stability to state revenue by broadening the sales tax base beyond car sales and construction materials.

Staff Writer Matt Wickenheiser can be contacted at 791-6316 or at:

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