Mainebiz

V O L . X X I I I N O. V I M A R C H 2 0 , 2 0 1 7 30 F or years, working professionals with mobile careers and retirees with the fi nancial resources to relocate have fl ed Maine for friend- lier environs like Florida, which has no income or estate tax. e exodus is gathering pace in light of a new levy critics warn could do long-term harm to Maine's economy. As of Jan. 1, 2017, households earn- ing $200,000 or more are subject to a 3% surcharge to raise funds for educa- tion. It comes top of the 7.15% regular income tax rate for everyone, putting the top marginal rate at 10.15%. at's a new high for Maine and No. 2 in the nation after California, which applies its top 13.3% rate only after $1 million. " e tax surcharge reinforces the perception of Maine as a high-tax state and adds to the reputation as a bad place for doing business," says David Robinson, a senior fi nancial adviser and co-managing member of Robinson Smith Wealth Advisors LLC in Portland. "Many of us are pro-education, but it is unclear if this additional tax is Tax headache or good deed? New 3% surcharge raises fears of exodus out-of-state B y R e n e e C o r d e s W E A LT H M A N A G E M E N T / R E T I R E M E N T F O C U S 1 Highest in U.S. 2 Regular tax rate 7.15% + 3% surcharge 3 State has a flat tax rate 4 5% tax on interest and dividends S O U R C E : TaxFoundation.org S O U R C E : 2015 U.S. Census data; 2011–15 American Community Survey 5-Year Estimates S O U R C E : Stand Up for Students Tax impacts households earning $200,000+ Median household income of all Mainers: $49,331 needed or will ultimately hurt education by causing Maine to lose higher-income taxpayers. e concern is that it's very short-sighted." e surcharge took eff ect after voters approved Question 2 in a November referendum by a tally of 50.6% to 49.4%. Up to $157 million a year in expected revenues from the new tax are to be earmarked for public schools. e Stand Up for Students ballot initiative was billed as a way to help Maine meet a 55% funding obligation mandated by voters in 2004 by "asking the wealthiest Mainers to pay a little more." at's not how those in the top income bracket —16,823 households, or 3% of the total, according to 2015 U.S. Census data — see it. Many already feel put upon by the 7.15% tax rate compared to 5.1% in Massachusetts, which recently shed its tax-happy image, and zero in a handful of states including Florida and New Hampshire. e surcharge comes a few years after Maine imposed new limits on itemized deductions, including for charitable giving. e growing tax headache has prompted high earners to seek an escape route, led by retirees who spend much of the year away already. "You see many people nearing retirement spending time in Florida or elsewhere, maybe three to four months a year at fi rst for climate reasons, then sooner or later after they retire it becomes longer and longer, until it makes sense to spend six months and a day to avoid paying Maine income taxes," says Robinson. With the surcharge now on the books, the fl ight to Florida and else- where has taken on a greater appeal, say fi nancial and legal advisers who are see- ing an uptick in queries since January. "In my own practice, I've seen a steady stream of people leaving for the past 17 years or so," says Pierce Atwood LLP tax partner Jonathan Block. "Since the referendum it has defi nitely accelerated. What I'm getting is two kinds of calls: from clients who want advice on relocating, changing their domicile to another state, and from companies who are very concerned about attracting the workforce they need, people with sci- entifi c pedigrees and qualifi cations in A F F E C T E D H O U S E H O L D S I N C O M E TA X R AT E S I M PAC T O N S C H O O L D I S T R I C T S Making high earners pay more for education funding Nearly 17,000 households with a taxable income of $200,000 or more are subject to Maine's new 3% tax surcharge, which is intended to help fi ll the education-funding gap. 3% of Maine households affected (16,823 households) $0M $1M $2M $3M $4M $5M $6M $7M $8M $9M $10M $11M RSU 39 (Caribou) Ellsworth Sanford Augusta RSU 54 (Skowhegan) Auburn Lewiston RSU 17 (Oxford HIlls) Biddeford Bangor Scarborough Portland State Top marginal rate California 13.3% 1 Maine 10.15% 2 Vermont 8.95% Connecticut 6.99% Rhode Island 5.99% Massachusetts 5.1% 3 New Hampshire 0% 4 Florida 0% The initiative will generate an estimated $157 million more per year in state funding and is expected to increase over time. Below are some examples of the impact the additional state funding would have on individual districts. These increases are additional state funding that would have been received by each district in the 2015–16 year if the initiative was in effect.

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