April 2, 2009

Testimony Neither for Nor Against LD 1088

An Act to Modernize the Tax Laws and Provide over $75,000,000 to Residents of the State in Tax Relief

By Patrick Strauch, Executive Director



Senator Perry, Representative Watson, distinguished members of the Taxation Committee, my name is Patrick Strauch and I am the Executive Director of the Maine Forest Products Council.
I am here today testifying neither for nor against LD 1088 representing a broad spectrum of businesses in Maine. This diversity creates an obligation to advocate on behalf of the welfare for all members and I want to try and identify sectors of our industry where there is concern with this legislation.

Before getting into any technical details or concerns, we wish to applaud Representative Piotti and others who have been working so hard to bring tax reform to Maine. However, we are also keenly aware of the need for the Legislature to reduce public spending in order to bring true comprehensive tax relief to the people of our state.



Policy Concerns

Recent economic forecasts show that Maine may not see any significant improvement until the fourth quarter of 2010, and will experience a steady growth of unemployment during the same period, perhaps even doubling. Knowing that, we believe that the reduction in the income tax from 8.5% to 6.5% is a great step for working families. But, it is unclear to us what effect the elimination of some exemptions combined with increased sales taxes will have on their incomes. It is important to ensure this tax reform will provide true relief to the people working in the forest industry and throughout Maine.

The Maine Forest Products Council stands strong in our support for natural resource based rural economies, and want to recognize our friends in the hospitality and tourism communities who have found threats in this legislation. We recognize them as a crucial sector of our forest economy and we are concerned for their economic viability in these challenging economic times as well.



Specific Technical Concerns

MFPC appreciates the work that has gone into LD 1088, and we believe that it has alleviated many of the concerns we had during the Legislature’s last discussion on tax reform. The real estate transfer tax modifications are important to us. We are especially appreciative of the consideration that has been given to the exemption of business to business service transactions. It is our hope that you will further clarify this exemption to exclude service on our forestry equipment in the field. This will be essential for Maine Revenue Service to apply consistency to their decision making processes.



Section B-10 Installation , Repair or Maintenance Services, and Personal Property Services

In many of our manufacturing facilities a large portion of our repairs are sent to specialty repair shops (motor repairs, repair part machining facilities) and it is not clear if these expenses are exempt from the provisions in LD 1088. In our harvesting and transportation sectors it does not appear that they would be exempt from increased taxes on maintenance done in independently owned repair facilities. Maine Revenue Services distinguishes between production services and gathering raw materials services (wood harvesting) and we believe LD 1088 does not protect these critical forestry operations from tax increases.


Section B-13 Personal Property Services

Much of the wood cut and moved in Maine is through contract services with independent loggers and truckers. It is not clear if these forestry operations are exempt from the increased tax provisions of the bill.


Section B-11 Lease or Rental

Within the forest harvesting sector there is considerable leasing of both wood processing equipment and trucking equipment. It does not appear that these uses would be exempt from increased taxes.



Conclusion

The MFPC is concerned that the all the integrated sectors of the forest industry have been evaluated for effects of the proposed legislation on their businesses. We are willing to provide more information and analysis of our concerns to better inform your deliberations. The natural resource industries and workers are critical to Maine’s economy and great care needs to be given in protecting these businesses from unintended consequences.

Thank you