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The law lowers income tax rates, broadens the sales tax and raises the meals and lodging tax.

By GLENN ADAMS, The Associated Press June 13, 2009

AUGUSTA — Gov. John Baldacci praised lawmakers Friday for passing legislation that is considered Maine's most significant tax change since the state's income tax was enacted in 1969.

Baldacci called the bill "a historic step" for lowering the top income tax rate while broadening the sales tax to cover more goods and services.

"This has been an enormous undertaking, and one which required many people to work very hard over a period of time," he said as he signed the bill before supporters who packed his State House office.

"You're basically taking a historic step when many other states are raising income taxes and making it more difficult for working men and women and families and small businesses to be able to keep more of their hard-earned tax dollars," he said.

The law culminates repeated efforts to significantly alter Maine's tax laws. A measure that included the same basic ingredients was considered in 2007 but fell short of passage. Even critics of the measure that won passage on Thursday consider it the most sweeping change in Maine's tax code since the income tax was adopted four decades ago.

Baldacci said the package will reduce the tax burden on Maine residents by nearly $55 million. It lowers the top income tax rate from 8.5 percent to 6.5 percent for income up to $250,000, and lowers the top income tax rate for incomes above $250,000 from 8.5 percent to 6.85 percent.

The legislation also broadens the sales tax to include such items as car repairs, and increases the meals and lodging tax from 7 percent to 8.5 percent.

Democrats, who supported the bill, said it lowers the nation's sixth-highest top income tax rate, which they called "an excessive burden on our citizens." Republicans complained that the bill was rammed through with too little public review.

Analyses of how taxpayers would fare were prepared for an earlier version of the bill, which was replaced by a version incorporating changes the Democratic governor sought. No analysis under the new legislation was available Friday.

Businesses were happy with some components and unhappy with others, said David Clough, lobbyist for the National Federation of Independent Business.

They are pleased with lower income tax rates, although for some it may mean higher taxes because of a loss of deductions and a phase-out of credits, he said.

Clough said the law may hurt businesses that have to charge the new sales taxes and those that will have to pay the sales tax on electronics and mechanical equipment servicing.