Wrap up | Summarizing good legislative news for Maine businesses
Session earns high marks
- Biz leaders praise lawmakers
- LD 1, tax changes cited
After years of giving legislative sessions poor grades, Maine’s business community is rating the just-concluded session an overall B. Some say it should get an A-.
“I would have to say that overall I would give this session a B+,” said Dana Connors, president of the Maine Chamber of Commerce. “This is a session marked by some real progress when often, in the past, we were always playing defense. We had some real gains this year.”
He said the state budget, with its $153 million tax cut package and reduction of the state’s long-term pension obligations, showed strong bipartisan cooperation. The top personal income tax rate will drop from 8.5% to 7.95%. “Most small business owners pay their taxes through their personal income tax and this tax reduction of the top rate will be a great help to small business,” he said.
David Clough, Maine director of the National Federation of Independent Business, gives the session a B grade. “For a number of years we measured success in a session by what we avoided,” he said. “We saw some real improvements this year.”
In addition to lowering the income tax rate, the law allows businesses to deduct the cost of new equipment in the same year it’s purchased instead of being depreciated over a period of years. Maine had limited the Section 179 deduction to $25,000 a year, but the new law allows the federal deduction of $250,000. “That is very important to small businesses,” Clough said. “We have heard complaints for years with companies having to keep two sets of books for depreciation.”
John Porter, president of the Bangor Region Chamber of Commerce, said most encouraging to business is lawmakers’ change in attitude. He gives the session an overall grade of B+, and highlighted the regulatory reform bill, LD 1. “There is no such thing as a perfect regulatory scheme,” he said. “I think LD 1 is an excellent first step forward.”
“I think LD 1 will definitely improve the regulatory climate,” said Chris Hall, vice president of the Portland Regional Chamber of Commerce. “But, there is no silver bullet. Regulatory reform means changing a mindset in Augusta and that will take time.” Hall gave the session an A-.
Liquor change to fund programs
- State to rework wholesale contract
- New deal could double value
A little-noticed provision in the new $6.1 billion state budget requiring a renegotiation or extension of the contract for wholesale liquor sales in the state will help fund transportation, drinking water and other state programs, as well as boost state reserves.
“This is a different way to handle the liquor contract that will provide some new and ongoing resources,” said Rep. Pat Flood, R-Winthrop, co-chairman of the Legislature’s appropriations committee. Flood authored the section of the budget that requires the existing contract, which runs out in 2014, to be renegotiated by June 2013, with an upfront payment of at least $20 million. The language also spells out how money from the new contract will be distributed, with 15% allocated to the safe water and clean water programs, 20% to the highway preservation and rehabilitation paving program, 30% to the budget stabilization fund and 35% to the general fund.
“This is a well-thought-through and comprehensive approach,” said Rep. Peggy Rotundo, D-Lewiston, the lead Democrat on the panel. She said structuring the payments to meet various needs, like providing matching funds for federal money for water projects, is a creative approach. Most water projects generate $90 in federal funds for every $10 the state provides.
Sen. Richard Rosen, R-Bucksport, the panel’s co-chairman, said the provision will provide new revenues without raising taxes. The current contract generates about $18 million a year in payments on top of liquor taxes. The projected payments for the next two years total $15.6 million.
Finance Commissioner Sawin Millett says looking back, the existing state liquor contract was not a very good deal. “I think the contract is likely to be worth certainly well over double what we got in the current contract, maybe more like $350 to $400 million,” he said. By awarding the liquor contract in 2004 to Maine Beverage Co., Maine got $125 million upfront to balance the state budget. Millett’s estimate is in line with a 2009 study by the accounting firm Deloitte & Touche, which put a 10-year value on the liquor sales contract of $380 million.
Millett said the large upfront payment in the 2004 agreement was less attractive to bidders than the smaller payment called for in the budget. “It’s more of an incentive to a bidder because they are not putting present-value dollars out there for the huge portion of an upfront payment,” he said.
If the state took over the wholesale business in 2014, when the current agreement ends, the 2009 study estimates the state would get $40 million a year in revenue from wholesale liquor sales in addition to the taxes collected on liquor sales.
Definition of ‘employee’ studied
- Group looks at varying guidelines
- Employers frustrated by ambiguity
Gov. Paul LePage vetoed several measures calling for studies this past session, but he did sign a measure authorizing a study to draft a uniform definition of an employee, a first step toward implementing a promise he made earlier this year.
“The whole point is to get one definition for everybody,” he said in January, as he abolished a task force looking at employee misclassification. LePage said he was concerned that state definitions and rules have virtually eliminated the use of independent contractors by some businesses. State law has differing definitions and guidelines for income tax purposes, unemployment and workers’ compensation coverage.
The Employee Misclassification Task Force was set up by Gov. John Baldacci in 2009 after union groups argued that the use of independent contractors and cash payments for work “under the table” was widespread, particularly in building and construction, and undercut union workers and employers. The task force’s preliminary report said employee misclassification occurs when an employer improperly designates a worker as an independent contractor instead of an employee, sometimes to avoid paying workers’ compensation and payroll taxes. Labor department analysts estimated that tax losses to the state from worker misclassification could total as much as $36 million a year.
The study group, which includes both worker and employer representatives as well as state officials, is to report back by Jan. 15, 2012.
The business community argues the issue is crucial to employers, who must juggle three separate definitions, one by Maine Revenue Services, one by the Workers Compensation Board and yet another by the Unemployment Commission. “Small employers feel like this is a gotcha situation,” said Chris Hall, vice president of the Portland Regional Chamber. “They don’t know who is an independent contractor and who is not. They need a simple, bright line definition.”
Mal Leary runs Capitol News Service in Augusta. He can be reached at editorial@mainebiz.biz. Read more of Mal’s columns here.
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