Maine Revenue waging tax war against retirement centers

by Rep. Brian Langley

Maine’s elderly in retirement facilities are facing a crisis. Maine Revenue Services (MRS) has reinterpreted state tax law to require a 7 percent tax on food served in common dining areas. This change treats Mainers who reside in retirement facilities as though they are dining in a restaurant rather than their homes. After paying Maine taxes for years, they now have to worry about MRS putting a bulls-eye on their lunch.

The tax also has implications for retirees’ health, because it pushes many of them to eat in their rooms rather than in social areas to avoid the meals levy. While this may seem like a mere inconvenience, studies show that a solitary lifestyle causes depression,  health problems and can even potentially shorten life spans.

So why would we allow this overzealous interpretation of the law which potentially hurts our parents, grandparents or great-grandparents?

MRS estimates that this tax will bring in about $550,000 annually. We all agree that the Maine budget is in crisis due to the recession; but taxing essentials, such as meals for retirees, is not the answer. This annual half a million dollars is a mere drop in the bucket compared to Maine’s current $5.4 billion two-year budget.

While this tax is almost inconsequential to fixing Maine’s budget woes, it places significant new burdens on retirement facilities. To make matters worse, MRS is conducting retroactive audits of 75 or 80 facilities, going back six years, with penalties and interest that total an estimated $3 million. Yes, that is correct. When MRS conducts an audit, they can go back six years and add fines and penalties to the back taxes. Imagine paying taxes on meals eaten six years ago. But MRS has already audited about 20 of these retirement centers and plans to hit them all.

If MRS is not stopped, citizens living in these facilities could face higher costs for services. Facilities in need of repair could see delays and possible layoffs. Worse, many folks living in these retirement communities pay their own way. If costs increase significantly, their savings will dry up quicker, putting them at risk of ending up on the welfare rolls sooner rather than later.

To add insult to injury, these taxes are now counted as income in future budgets and it is nearly impossible to stop MRS. The Taxation Committee unanimously supported a bill to exempt the meals prepared in retirement centers from taxation, but because of its cost, the bill died.

MRS continues to reinterpret state statutes to collect more money from Maine businesses and individuals. Just recently they claimed plastic bags used by redemption centers should be taxed. In the not-so-distant past, they claimed disposal fees for used tires, meals served in summer camps and prescriptions for pets should be taxed. Only one entity has the constitutional power to tax. That is the Legislature, and in the upcoming new session the Taxation Committee needs to rein in MRS. They are out of control.

Republicans and Democrats alike are working to right this wrong. We need to remedy this by simply exempting retirement centers from the meals tax. Several pieces of stand-alone legislation were introduced in the last session by members of both parties to stop this unfair tax on retirees.

In June, Republican Senators Kevin Raye and David Trahan formally asked Governor Baldacci to suspend the tax audits. As their letter to the governor said, “At a time when pensions and retirement funds are hard hit by the economic downturn, it would be unconscionable to require residents to pay more for a service they received in the past.” The governor’s spokesman replied that the audits will move forward.

The Taxation Committee has further requested that any reinterpretation of tax law be brought before the committee prior to assessing back taxes and penalties. That request now must come as a change to state law to ban MRS from reinterpreting the law and then banking a savings without first getting statutory approval from the Legislature.  

Breaking bread together with friends is a right we all share; it’s not a privilege. Squeezing more money out of the fixed incomes of our parents, grandparents and great-grandparents for eating in their homes with their friends is nothing short of outrageous.

Rep. Brian Langley (R-Ellsworth) serves on the Taxation Committee in the Legislature