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Great Tax Divide creates “retail oasis” in N.H.

The vast tax differential between Maine and neighboring New Hampshire has created a “retail desert” on the Maine side of the border, while helping to create a “retail oasis” in New Hampshire, according to a new report released by The Maine Heritage Policy Center.

The report, “The Great Tax Divide: Maine’s Retail Desert vs. New Hampshire’s Retail Oasis,” authored by MHPC Chief Economist Scott Moody, compares the sales tax, cigarette tax, gasoline tax, bottle tax and alcohol tax between the two states.

In all cases, New Hampshire’s tax rate is much lower than Maine’s, which has resulted in significant cross-border shopping, where Maine residents, particularly from border counties (Oxford and York), travel to New Hampshire to purchase goods at a much lower cost.

“Between 1951 and 2007, if Maine had the same level of retail activity as New Hampshire, sales in Maine would have been up to $2.2 billion higher and created thousands of retail jobs,” Moody said. “New Hampshire’s low tax burden creates real incentives for Mainers to cross the border to spend their money. Maine should take meaningful steps to drastically lower its high tax burden, or we will continue to chase jobs and money out of state.”

Maine’s five-percent sales tax rate has been in place since 1970, except for a brief period during the 1990s when it temporarily rose to six percent. In stark contrast, New Hampshire does not levy a sales tax, creating a significant incentive for Mainers to shop there. In fact, every $100 Mainers spend in New Hampshire yields $5 in sales tax savings.

The report also highlights a 64 percent gasoline tax differential between the two states. New Hampshire’s gas tax stands at 18 cents per gallon, which has been its rate since 1992. But Maine levies a 29.5-cent-per-gallon gas tax. And while New Hampshire’s gas tax remains steady, Maine’s gas tax is on autopilot.

Maine’s gas tax automatically rises each year with increases in the rate of inflation. But it never decreases with a drop in inflation rates, creating an ever-growing incentive to fill up in New Hampshire.

Maine may be moving toward leveling the playing field with New Hampshire when it comes to the gas tax. Governor LePage’s budget includes a proposal to take the gas-tax hike off autopilot beginning in 2012.

In addition to billions in lost retail sales, other symptoms of this Great Tax Divide deal with population and personal income growth. In 1940, Maine’s border counties had just 31,346 fewer residents than New Hampshire’s border counties. By 2008, after a series of tax hikes on the Maine side of the border, that difference climbed: Maine’s border counties now have 242,790 fewer residents.

Per capita personal income in Maine’s border counties was just 9.3 percent less than in New Hampshire’s border counties in 1969. But by 2008, that gap widened considerably: Maine’s border county per capita personal income was now 24.1 percent less than in New Hampshire’s border counties.

“If we adjust our sales, cigarette, gas, alcohol and bottle taxes to approach the New Hampshire rates, we will immediately level the playing field,” Moody said. “Unless we create these significant tax incentives for residents to stay in Maine to shop and spend their money, we will continue to lose out on billions in retail sales, and undermine our efforts to create new jobs.”

A follow-up report will analyze symptoms of the Great Tax Divide between Maine and New Hampshire at an industry-by-industry level.

For more information on the report and The Maine Heritage Policy Center, see www.mainepolicy.org.

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