Should Maine have a seasonal sales tax?

A bill under consideration in “Vacationland” — otherwise known as Maine — would introduce a seasonal sales tax in 2024. What would that be like for the people who live there?

Seasonal sales taxes generally target tourists. Where they exist, which isn’t many places, sales tax rates rise during the height of tourist season and drop back to normal after the tourists depart. That’s the way seasonal sales taxes work in South Dakota, Alaska, and some resort areas in Montana. (Neither Alaska nor Montana have a statewide sales tax but both allow certain jurisdictions to levy a local sales tax. In Montana, these are known as resort taxes.)

Visitors may never realize the sales tax rate in Sitka, Alaska, is higher in August than in January, but you can bet residents do. Since residents typically live in their homes year-round, they’re affected by seasonal sales taxes as much or more than tourists. They have to suffer crowds and higher sales tax rates. Nice.

What would a seasonal sales tax in Maine look like?

House Minority Leader Billy Bob Faulkingham of Winter Harbor introduced HP 941 as an act to enact a seasonal sales tax to provide income tax relief to Maine residents. Should it become law, it would add a 2% sales tax to the existing 5.5% Maine state sales tax for about five and a half months each year, starting in 2024. There are no local sales taxes in Maine.

All tangible personal property and services currently subject to Maine’s 5.5% sales tax would be taxed at the following rates:

7.5% from the last Monday in May until the second Monday in October (between Memorial Day and Indigenous Peoples Day)
5.5% from the second Monday in October until the last Sunday in May

The proposed dates are a bit surprising. In every other jurisdiction with a seasonal sales tax, the rates change on a set date, not a fluctuating date like “the last Monday in May.” Most seasonal sales taxes take effect the first day of a month and terminate the last day of a month, though some resort taxes in Montana end on November 15. Having the sales tax rate change on the last Monday in May and again on the second Monday in October seems unnecessarily complicated.

“The fluctuating dates are going to make it much more difficult for businesses to report in May and October,” observes Heidi Genest, Director of Tax Compliance at Avalara, who happens to reside in Maine.

Furthermore, the language of the bill is a bit hard to interpret. Does “until the second Monday” mean the rate changes on the second Monday, or on the following Tuesday? This is something Maine Revenue Services will have to clarify if the measure is enacted.

How would a seasonal sales tax benefit Maine residents?

The extra sales tax revenue raised by the seasonal sales tax would fund a Maine Residents Income Tax Relief Fund. It would also be used to increase the maximum refundable sales tax fairness credit to $300 and increase the income levels at which the credit is phased out. See the text of the bill for details.

Would the trade-off be worth it?

“How this helps is a function of the spending/income earnings ratio between high-income folks versus low-income folks, and high-spending folks versus low-spending folks,” notes Scott Peterson, VP of Government Relations at Avalara. “Everyone shops and everyone needs income to do that shopping. However, a dollar more paid in sales tax might not directly reduce income taxes by a dollar.”

As for Genest, she’s disappointed at the thought of all local Maine residents paying a higher tax rate five months a year.

All businesses that have sales tax nexus with Maine, including online sellers, will need to collect, remit, and report the seasonal sales tax if it becomes law. Taking a free sales tax risk assessment can help you determine whether you have a sales tax obligation with Maine. Implementing Avalara sales tax software can help minimize the burden of sales tax compliance.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.