AUGUSTA, Maine — With plenty of extra revenue factoring into Maine’s budget negotiations, a ream of tax-related proposals may result in difficult decisions for Gov. Janet Mills and lawmakers in both parties.
The repeal of a municipal property tax cap and a new 5.5 percent tax on streaming services such as Netflix and Spotify are among the bills and budget provisions the Democratic governor and legislators are considering ahead of aiming to pass a spending plan and adjourn by mid-April.
A revenue forecasting committee said this month that revenue is set to increase by nearly $108 million through 2025 while revising future downward by $72.6 million. While the state’s rainy day fund is at a legal maximum, Mills has fiscal caution and has taken some heat from the left and right for urging lawmakers to set aside $100 million rather than spending it or lowering taxes.
Here are the tax debates cropping up early in negotiations.
Another try at a ‘Netflix tax’
One part of the governor’s supplemental budget proposal that has garnered some national attention is an effort to add a 5.5 percent tax on “digital streaming services,” such as Netflix, Hulu and Spotify. Republican lawmakers called a news conference to assail it, but this idea has bipartisan support and was even tried by former Gov. Paul LePage.
Mills offered a similar plan in 2020. LePage, a Republican, tried to add a “Netflix tax” in 2017. Budget Commissioner Kirsten Figueroa noted the 5.5 percent sales tax for customers and 6 percent tax for providers already covers cable and satellite TV, radio, DVDs and cassette tapes, online music, books, movies and other audio content.
“In other words, the sales tax code is treating the new streaming platforms more favorably than similar older distribution models,” Department of Administrative and Financial Services spokesperson Sharon Huntley said.
The Mills administration proposed repealing the 6 percent service provider tax and lowering it to the 5.5 percent rate that will also now cover music and entertainment streaming services like Spotify. Its premium, ad-free plan ranges from about $11 a month for individuals to $17 a month for families, while Netflix plans range from $7 to $23 a month.
The new streaming tax should bring in more than $10 million a year when fully phased in, said Figueroa, adding that 25 states apply similar taxes to digital streaming services.
But Huntley added the governor’s full slate of changes will become “roughly revenue neutral” through 2025. Those offsetting changes include Mills wanting to exempt all nonprofits from the sales tax, which the state estimated will cost about $10 million annually.
Sen. Jim Libby, R-Standish, criticized the streaming tax and said “it’s just outlandish that this got put in the budget.” Still, two Republican lawmakers on the tax committee — Reps. Micky Carmichael of Greenbush and Tom Lavigne of Berwick — voted to advance the bill it was added to last week.
Axing an old property tax cap
A proposal to repeal a 2005 law limiting the amount of property taxes a municipality can collect passed each chamber with support from most Democrats this week. But there is a question about whether Mills will sign the bill, as she voted in favor of the limit nearly two decades ago when serving as a state lawmaker.
Sen. Teresa Pierce, D-Falmouth, sponsored the bill and testified in February that while the property tax levy limit “seemed necessary” when lawmakers created it, it has “proven outdated and confusing for towns and their residents.”
Pierce’s bill passed the Senate 19-16 on Wednesday but was tabled in the House on Thursday. Democratic opponents in the upper chamber were Sens. Peggy Rotundo of Lewiston, Craig Hickman of Winthrop and Mike Tipping of Orono.
Many Maine towns approve budgets through referendums, but Pierce said voters in some cases “have approved the municipal budget and spending priorities but failed to pass the cap override, even though it would not have affected their taxes.”
Currently, surplus revenue must go to a property tax relief fund that towns use to reduce levies in future years. Voters and municipal officials can vote to exceed the property tax levy limit.
Officials from various Maine municipalities, including Gray and Bangor, testified in support of the repeal. The Maine Municipal Association also supports the bill, with legislative advocate Amanda Campbell testifying that other internal financial controls already exist and the current limit is “confusing to calculate” while often resulting in accidental disapproval of municipal budgets.
But Assistant House Minority Leader Amy Arata, R-New Gloucester, who previously chaired her town’s budget committee, said the repeal would “limit the voices of our voters.”
Reimbursing towns for a costly property tax freeze
One issue already settled is a plan to reimburse municipalities for lost revenue associated with a since-ended property tax freeze program for older Mainers.
The budget Mills signed in 2023 included an end to the popular but expensive 2022 initiative from Senate Minority Leader Trey Stewart, R-Presque Isle, allowing many Mainers 65 years and older to freeze property taxes at the previous year’s level. But the program ended up costing towns double what was anticipated.
That led to its repeal and an expansion of other programs that assist older, low-income Mainers. Last week, Mills signed into law a bill from Rep. Melanie Sachs, D-Freeport, transferring $15 million to fully reimburse municipalities for costs under the property tax freeze program.