Maine Revenue Goes Rogue

by Reps. Jonathan McKane and Kathy Chase

Our state government was designed and created so that the people of Maine, through their elected representatives, would have ultimate control over it. As the size and scope of our government has grown, it has become clear that this is not always the case.

Maine Revenue Services (MRS) is a good example. Over the past eight years, this department (formerly the Bureau of Taxation) has made important taxation decisions on its own without even notifying the Legislature. Although technically their methods may not be illegal, they certainly violate the intent and spirit of both Maine law and the state Constitution.

MRS has been put on autopilot with one mission – get as much of your money as possible without technically violating the law. They accomplish this through “enforcement initiatives,” where they reinterpret laws in order to tax items never taxed before. Essentially, in the eyes of MRS, if an item is not specifically exempt, it is taxable.

There are many examples of this aggressive reinterpretation of Maine’s tax laws:

Tire sales have long been subject to Maine’s 5 percent sales tax. But last year, MRS decided that not only should the tires be taxed but also the disposal fee of the old tire ($3 per tire). This new tax was not brought before the Legislature as it should have been. The Legislature has since exempted the disposal fee.

In the late 1970s, Maine enacted the bottle bill. The intent of the bill was to focus on litter reduction and encourage recycling. Just this past spring, MRS decided that the bags used to sort, store and transport these beverage containers should be subject to the sales tax. These bags, which have never been taxed in the past, are instrumental in the operation of Maine’s bottle redemption program. This new tax, which never came before the Legislature, will have to be absorbed by the redemption centers.

Maine’s tax on meals and prepared foods has been in effect for decades. Its original intent was to tax meals at restaurants, sandwich shops and delis. Recently, however, several attempts have been made to expand it without legislative approval.

Only a few years ago, in a desperate effort to balance the biennial budget, MRS claimed that meals at summer camps were taxable. They also claimed that back taxes and penalties were due. Once the Legislature found out, a bill was quickly offered to exempt these meals and the House and Senate agreed. The governor was forced to acquiesce.

Now we are faced with an even larger initiative – a new tax on meals at retirement facilities. Again, MRS is saying that not only should these meals be taxed going forward; but retirement facilities owe back taxes and penalties going back six years. And, like the other initiatives, this new tax did not go before the Taxation Committee or the Legislature. Although the audits of these facilities have been halted temporarily, Governor Baldacci has said he would like the audits to continue “to see how big a problem this is.” In other words, how much money could the state take in by forcing the issue?

At present, it appears a deal has been made with retirement facilities and MRS for much less than the original amount. MRS still gets quite a bit of dough; and the facilities, tired of fighting them, are glad to be done with the issue, at least for now. A bill will still have to go forward exempting these meals.

These are just some of the examples of MRS freelancing and dictating policy – reinterpreting tax laws without regard to the original intent – and then enforcing them with their heavy hand.

In order to put a stop to this predatory taxation, a bill was submitted by Rep. Kathy Chase (R-Wells) in 2007 that would force MRS to notify the Legislature whenever a tax law was reinterpreted and when one of these “initiatives” was to be enforced. MRS put up a good fight, claiming that their job was to “interpret and enforce” tax laws written by the Legislature and that this notification would be unconstitutional. They would, however, agree to notify the state attorney general’s office.

The reinterpretations and aggressive taxation has continued. MRS complied with the new law simply by having a low-level AG staffer present at the bi-weekly MRS meetings. This has proven unsatisfactory.

Under the Maine Constitution, all bills involving revenue must initiate in the House of Representatives. Over the past eight years, MRS has been allowed to sidestep this law. This must not be allowed to continue. Rep. Chase’s bill will again be submitted – this time with tougher language requiring notification of the Legislature of all new tax law interpretations and enforcement initiatives.

Maine Revenue Services has become something of a rogue agency – out of control and acting on its own. What is disturbing is the trend that the problems with MRS illustrate – a swollen and ever-growing government machine that has lost touch with and is no longer controlled by the people of Maine.