Public Hearing Shows Divided State Opinions About Rep. Friedmann's Local Options Lodging Tax
Augusta hearing held before Taxation Committee, Wednesday
AUGUSTA—The Maine Taxation Committee listened to public testimony for two closely related bills on local option taxes, March 12. The bills were presented by Rep. Gary Friedmann (D-Bar Harbor) and Rep. Charles Skold (D-Portland). Testimony was meant to encourage the committee to recommend or not recommend the bills’ passage.
Both bills would allow municipalities to opt into local taxes on lodging with the towns and cities maintaining some of that tax and the state taking the other portion for affordable housing needs.
During verbal testimony, there was more support for Rep. Friedmann’s proposal, which would create a 2% tax that would be added to the current 9% lodging tax for short stays. Rep. Friedmann’s proposal would allow municipalities to choose how they use the money received back from the state, which would collect it.
“They’re both local option lodging taxes. The difference is that 90% of the revenues in my bill would stay in the collecting municipalities,” Rep. Friedmann said as he explained the difference between his bill and Rep. Skold’s.
He sees the tax as a tool to lower property taxes. “This bill is property tax relief for service center taxpayers who have been” dealing with increases every year, he explained.
An important element, Rep. Friedmann and Rep. Skold stressed was communities’ ability to buy into the tax, or not, through a public vote.
Rep. Skold said, “All we are saying is let the communities have the conversation. Let them weigh the costs and the benefits, relative to their context and experience and their community makeup.”
If tourism communities need help to offset the costs of being a tourist community, the state should go to that community and help them, Rep. Skold said, adding that such a tax is constitutional if the legislature authorizes it.
Rep Friedmann said that many small towns without hotels could gain thousands of dollars in property tax relief, he said, not just tourism communities.
NOT JUST BAR HARBOR, NOT JUST PORTLAND
For some, like Judith Sproule who has spent years on boards working on budgets for the smaller town of Trenton, Maine, the proposed local options tax offers relief and potentially hope.
“This bill proposes a 2% tax on short-term lodgings to support visitors’ share of the use of a town’s resources, such as public safety, roads, infrastructure, and park upkeep. In legal terms it is a tax, but in practical terms, it is a user fee,” Sproule wrote. “It also laudably supports a statewide need by remitting 10% of the revenue it generates back to the state, specifically to Maine State Housing Authority, to support rural affordable rental housing.”
She said Trenton, like other towns, pays for infrastructure and services on the county level as well. The towns have no control over the county budget, which she said has increased dramatically.
“Our school budget is a significant portion of our total budget, and like many towns that are coastal or cater to tourists and recreation, our high state valuation disqualifies us from receiving general purpose aid,” she wrote. “Our annual ritual as we approach the budget work is to ask ‘what can we cut,’ and when we cut back on education, we are taking away from Maine’s future. Even with cuts, every year our aging population is at greater risk of not being able to keep their homes.”
Sproule cited a recent Hancock County Planning Commission study which states that 85% of Trenton’s households can’t afford the 2023 median home price.
“Our town’s 2024 annual report listed 104 out of its 1006 housing units (10%) whose owners were in arrears of property tax payment six months after the due date,” Sproule wrote. “Like our neighboring towns, we also support visitors to our state.”
TESTIMONY
Multiple Bar Harbor residents spoke in favor of the taxation committee recommending the bill including Gary “Bo” Jennings, Bar Harbor, president of the Bar Harbor Chamber of Commerce board.
“Bar Harbor’s businesses, most of whom are owned and operated by year-round residents, find themselves under constant attack. Hospitality and tourism, the lifeblood of our economy, has become divisive in Bar Harbor. While I may not always agree with some members of my community, they are still my neighbors. We all live in a tourist destination, but for some, they do not benefit from the vibrant tourism and hospitality scene. That’s because Bar Harbor, and other coastal towns, do not get their fair cut of the revenue sharing from Augusta. The state’s lack of proper revenue sharing has caused some residents in Bar Harbor to become (at times) hostile towards tourism,” Jennings said.
Jennings said that Bar Harbor is yearly one of the top three creators of taxable income for the entire state.
“However, every year we are embarrassingly shortchanged by the revenue sharing sent back to Bar Harbor. In 2022, we had over $258 million in taxable revenue, but in 2023 we were #122 out of 486 municipalities in terms of revenue sharing, and that number was 115 out of 486 in 2024,” Jennings said. “I have been told by multiple state legislators, including those in this room, that the revenue sharing formula will never change. So, towns like Bar Harbor, up and down the coast, continue to drive revenue, but are short changed in terms of revenue sharing from the state, leaving all businesses and residents to make up for that inequity with increased property taxes.”
Bar Harbor in 2021 generated $236 million in restaurant and lodging sales tax revenue for Maine, but less than 1% of that comes back to the town.
Typically less than half of one percent is coming back to the community in which it was generated.
The revenues that are generated by the town are passed onto the state, but not the town itself for the infrastructure needs to support the tourism that creates the revenue, many in favor of the tax stress.
Bar Harbor Town Manager James Smith said the town welcomes over 3.5 million people each year, but only just over 5,000 residents.
“The cost of supporting tourism is outpacing our ability to pay for it,” Smith said.
Police and fire departments, water, and wastewater are examples of what the town has to support at an increased capacity because of the influx of tourists and seasonal residents each year.
“The capacity has to exist to support the level of intensity,” Smith said. “It really does hit across a whole spectrum of municipal services.”
“We are reaching a breaking point,” Smith added. “Property taxes continue to rise.”
With the increased cost to keep a home in Bar Harbor, or a business, there is an increased frustration. Many on fixed incomes or who have lower incomes but may have lived in town for generations have to scrape together ways to stay in their homes.
That frustration, Smith said, is not unique to Bar Harbor and without action, the state and many local communities risk a backlash to tourism, which is an economic driver for the state as a whole.
“It’s not a mandate. It’s a tool,” Smith said of Rep. Friedmann’s bill and it gives towns like Bar Harbor a way to manage tourism without driving out local residents.
The Maine Municipal Association representative supported Friedmann’s bill, but not Skold’s.
The Maine Center for Economic Policy provided written testimony, stating, “In general MECEP opposes proposals that seek to allow broad local option sales taxes because they would allow resources to be concentrated in certain areas of the state, which could further exacerbate inequality. For example, some small coastal towns with high property values and retail centers would disproportionately benefit although they already have greater resources than many other Maine towns. For this reason, we instead would advocate for an increase in the statewide lodging tax to raise additional revenue to meet the needs of Mainers.
“However, this proposal is narrowly focused on short-term lodging, which would largely fall on tourists. Roughly two-thirds of taxes paid under this bill are likely to be exported to those traveling from out of state. But it is important to consider that approximately one-third will still fall on Mainers. Because sales tax is regressive, meaning those with lower incomes pay a greater proportion of their income in this type of tax, this remaining amount is likely to fall more on those who cannot afford it. If the Committee moves forward with this proposal, it would be important to consider exceptions to this tax for those who are without permanent housing and living in short-term rentals, using emergency rental assistance, or living in mobile home parks, so this tax doesn’t fall on those it is trying to help support.”
Earl Brechlin, a town councilor speaking as a private citizen said that the law is desperately needed for the service center communities across Maine, mentioning the $43 million bond Bar Harbor took out to get its infrastructure shored up. The school, leaky and broken, needed to be replaced, requiring another multi-million bond from the approximately 5,000 residents. At the same time, he stressed that 60% of the land in Bar Harbor is taken up by Acadia National Park and is untaxed and a billion dollars in nonprofits cannot be taxed.
“Soaring tax rates threaten the very vitality of a year-round community. We have cut back on cruise ship visits and capped investor-owned vacation rentals to try and save the quality of life and year-round character of our town. But we also desperately need fiscal relief. It is the top town priority,” he said. “Unlike a broader local options tax, a targeted one on short term rentals will not affect Maine residents in their daily lives as it won’t apply to retail sales or meals (keeping restaurant sales robust.) Sure, Maine residents staying overnight would see a change, just as they do when they go anywhere else.”
“We’re stopping the hemorrhage,” Brechlin said. People are moving to other communities, he told the members of the taxation committee.
“So many people who work on the island can’t afford to live there.” He said there’s also an erosion of residential property to commercial property. “We’re just trying to keep the community alive.”
Anna Durand, owner of Bar Harbor Acacia Inn, urged the committee members to recommend Rep. Friedmann’s bill. They’ve had 40,000 guests in 15 years. She has also run Morning Glory Takeout and Cafe and Bakery.
“LD 746 is a win-win waiting for you to set it in motion. Our energetic tourism model depends right now on the year round taxpayers—plenty of whom have no connection to tourism other than having to suffer the increased summer traffic. Critical infrastructure such as the sewer drain bond and road repair are huge tax dollar outlays and are disproportionately needed by tourism. A local options tax would help Bar Harbor send even more money to the state for desperately needed housing, and would bring home dollars to ease the tax burden on the year ‘round residents. As an innkeeper, I can promise you that none of my guests would balk at the increased tax, or even notice it. Sewer fee increases would cause me to raise my room rates, which they would notice. No tourists will avoid Bar Harbor because of an extra $4 dollars on a $200 room. But those $4 dollars would add up to a significant savings for local taxpayers, and significant monies for the state as well,” Durand said.
Scott Morelli, city manager for South Portland offered conditional support for Rep. Friedmann’s bill. He said 101 Maine towns and cities would benefit (or could) directly benefit from the tax.
“It would have a broad and fairly meaningful impact,” he said.
He said his city also supported the concept of allowing voters to decide on municipalities’ participation in the tax and also was in favor of it expanding to meals.
Audrey Miller of Boothbay, owner of Cottage Connections, vacation rental professional of Maine, suggested that everyone is looking in the wrong place for relief. She said the real issue is affordable housing, but that they are “going after the golden goose” in state. Bookings, she said, are slow this year compared to 2019.
“This being our best source of income,” she said. “Why ruin it…? Leave the golden goose alone…. Don’t gamble with our future.”
Alexis Miller, also of Boothbay and Cottage Connections, also spoke against both bills for similar reasons.
“We oppose these bills and increases to the lodging tax,” Nate Cloutier of Hospitality Maine said.
Cloutier said the industry is already dealing with a 9% decrease in visitation last season, looming international tariffs, fluctuations in travel patterns, and the tax would be another competitive disadvantage against other states, he said.
About 750,000 of all tourists, or 5% are Canadian.
The local options tax could create uneven competition between communities, Cloutier said. If Bar Harbor had a tax and Southwest Harbor or Ellsworth didn’t, people would stay in Ellsworth, he reasoned. He added that there is a hostile environment for lodging businesses and the business community already. A local options lodging tax would cement the state’s reputation as highly taxed, he said.
He added one third of those who use lodging are Mainers. “It’s a misnomer to say it’s a tourist tax.”
Deborah Hart, Maine Campground Owners Association and several others also voiced their opposition. Cynthia Robbins of Poland Spring Resort, the Maine Association of Realtors, and the Maine State Chamber of Commerce opposed. Governor Janet Mills’ (D) administration also sent a representative who testified against the bills. He said this is a consistent stance for the administration.
“If we continue to increase costs for visitors it will most certainly hurt our industry. I am speaking up along with hotel operators and real estate professionals who understand how important this 100-year-old industry is to Maine's economy and the livelihood of thousands who live here,” Heather Allen, one of the founding members of Vacation Rental Professionals of Maine wrote in opposition to the bill.
HISTORY OF THE TAX EFFORTS
As explained by the Sales Tax Handbook, “A local option sales tax is a municipal sales tax administered by a local government body, often a county or city. Local option sales taxes can also be administered by local transportation districts, school districts, recreation districts, and other special local government divisions.
“Traditionally, municipal governments rely on personal property taxes for the majority of their tax revenue. However, local option sales taxes account for a bit over 11% of all municipal tax revenue nationwide. In certain states, especially in the south, municipal governments are more reliant on sales taxes for revenue and thus levy higher local-option tax rates.”
Maine does not currently allow local options sales tax. Many other states do. Efforts to pass local options taxes have come before the legislature for decades and have been consistently voted down.
Back in 2007, Dick Cough, a member of the Local Sales Tax Option Committee in Bar Harbor held sessions and had an action plan intended to gather regional support for a local options sales tax. At one point, the committee had three alternative plans.
The town’s 2022 Existing Conditions Report reads, “If property taxes keep rising it may have the effect of pricing out low to moderate income households, or seniors on a fixed income who can no longer afford the cost of housing and taxes in Bar Harbor.
“Eight of the top ten largest taxpayers in Bar Harbor are either hotels or restaurants and comprise nearly 7% of the town’s total tax levy,” the report continues. “The town’s reliance on tourism and hospitality as a source of revenue to pay for capital and operational expenses poses a potential risk if future public health or public safety issues arise, or future environmental risks and climate change impact the natural environment which draws visitors to Bar Harbor.”
Bar Harbor’s current proposed budget would increase the tax rate to $10.76 from the current year’s $10.04, a 7.2% increase.
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