(The Center Square) – Maine lawmakers are considering a bill that would hike taxes on hotel rentals to help plug gaps in public school funding, but critics say the move will hurt the state’s tourism sector.
The proposal, one of several tax increases being considered by the majority Democrats state Legislature, would create an additional 3% sales tax on hotel or lodging places, increasing the existing lodging rate of 9% to an effective rate of 12% – making Maine’s lodging tax the second-highest stay tax in the country.
The revenue from the expanded tax would be earmarked for the state Department of Education to be used to fund school construction and K-12 education, according to the bill’s sponsors.
“Generally speaking, the state’s tax policies do not accomplish enough in exporting Maine’s tax obligation to out-of-state visitors,” state Rep. Michael Brennan, D-Portland, the bill’s primary sponsor, wrote in recent testimony. “This bill would be a step in the right direction.”
But critics say the move would hurt the state’s tourism sector, which industry groups say is struggling amid a drop in visitors from Canada and a decline in tourism over the past year.
Nate Cloutier, director of government affairs for the tourism group Hospitality Maine, said the tax increase, if approved, “would make the state less attractive, less affordable, and less competitive” by driving away tourists.
“Maine’s hotel occupancy rates are already lagging behind the rest of New England, and that disparity continues to grow,” he wrote in testimony opposing the bill. “Rather than adding additional burdens on tourism-dependent businesses, we should be focused on policies that strengthen Maine’s appeal as a destination and support economic growth.”
Cloutier said the lodging tax increases also affects Mainers, with more than one-third of lodging stays in the state’s hotels and motels booked by Maine residents.
“Higher lodging costs would make travel within our own state more expensive for local families, compounding an already high tax burden,” he wrote. “Whether it is tourists or Mainers booking lodging, increasing the lodging tax, especially by such a significant amount, means less discretionary spending in restaurants and retail stores.”
Harris Van Pate, a policy analyst at Maine Policy Institute, said the bills “take the wrong approach by imposing a damaging and inequitable tax on the tourism sector – an industry critical to Maine’s economy.”
“Instead of solving the root causes of Maine’s housing affordability challenges, this bill threatens small businesses, increases the cost of lodging for visitors and creates an unstable, inefficient revenue stream,” he said.
Gov. Janet Mills’ $11.6 billion two-year preliminary budget plan, unveiled in January, calls for higher taxes on tobacco products, cannabis and streaming services to help whittle down a projected $450 million budget shortfall next year. The Mills administration also faces a projected $118 million revenue shortfall in MaineCare, the state’s Medicaid program.
Lawmakers recently approved a spending plan that rejected those tax hikes but are considering several other taxing plans to help plug projected gaps in spending after next year.
Other bills would allow Maine cities and towns to impose a local sales tax on short-term lodging to cover municipal costs or fund affordable housing.
