Tax Reform also stabilizes state revenue during swings of the economy by extending our low 5% sales tax to additional items.
Maine's sales tax law covers only 26 categories, and most revenue comes from two of them: automobiles and construction, both highly sensitive to economic conditions. When the national economy declines, sales tax revenue in Maine drops more than in other states which have a broader base for their sales taxes. This is a long-standing problem the legislature has wrestled with for 40 years. It was finally addressed in the Tax Reform law. Broadening the coverage of Maine's 5% sales tax will 1) bring in most of the revenue to make up for revenue lost in the income tax reduction to keep the law revenue neutral, and 2) help stabilize sales tax revenue so future economic swings have less effect on Maine's fiscal health....Click on chart for larger view
Why would you say Maine's sales tax is "low"?
Especially during the last few years, states have been raising their sales tax to capture additional revenue. Most states allow counties and cities to piggyback their own sales tax on top of the state rate. The average sales tax in the U.S. is 6.8%, including all regional, county and city taxes. (Source: The Sales Tax Clearinghouse - https://thestc.com/strates.stm). Four states, New Hampshire, Montana, Oregon and Delaware charge no state sales tax.
Of the states that do have a sales tax, Maine, at 5% statewide, has the lowest sales tax rate in the continental U.S. One other state, Virginia, has a 5% rate, but it also has a 2.5% tax on groceries and other food items bought for consumption at home. A tip of the hat here to Governor Baldacci. Nice legacy.