On October 1, 2013, Mainers felt the sting of a 10 percent increase in the sales to 5.5 percent from 5 percent and 14 percent increase in the Meals and Lodging tax to 8 percent from 7 percent.
It is well-known that Maine and New Hampshire are polar opposites when it comes to tax policy. In Fiscal Year 2011, Maine has one of the highest tax burdens in the country at 18.5 percent of private sector personal income (6th highest) while New Hampshire has one of the lowest tax burdens at 11.4 percent (49th highest). These 7.1 percentage points represent one of, if not the, largest tax differentials between any two states in the country.
The close geographic proximity of the two states leads to numerous arbitrage opportunities for Mainers to escape their significantly higher tax burden. The most obvious way is through direct cross-border shopping which we know occurs up and down the Maine-New Hampshire border. More specifically, Mainers are engaging in cross-border shopping in New Hampshire in response to Maine’s higher sales tax, cigarette tax, gasoline tax, bottle tax and alcohol taxes (beer, wine and liquor).
Table 1 shows that nationally the Gross Domestic Product for the retail and wholesale industries generates $6,184 for every person in the country in 2013. Maine is significantly below the national average with $5,644 per person (-8.7 percent). On the other hand, New Hampshire is significantly above the national average with $7,141 per person (15.5 percent).
Of course, this trend has been going on for a long time. As shown in Chart 1, New Hampshire’s retail and wholesale industries have outperformed Maine’s in every year between 1997 and 2013. More troubling, the gap between the two states has also been growing over that time-period.
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