‘- State’s sales tax on off-highway diesel hurts farmers and loggers

AUGUSTA — As the 127th Maine Legislature attempts to complete its first session, the topic of tax reform is certainly dominating the conversation, with most of the conversation focused on income taxes.

Certainly, income taxes are important to both commercial agriculture and commercial wood harvesting, but in the long run, the health and well-being of these industries has much more to do with other factors than just the income tax.

However, because L.D. 290 is not in the budget, it has been referred to the Special Appropriations Committee Table for review at the end of the session.

Generally, items referred to the Special Table are not viewed favorably since they are considered after the budget has been settled. Hopefully, this will not be the case with this bill, as this kind of common-sense tax relief is critical for farming and logging.

Farming and logging have a great deal in common, notwithstanding that they’ve both been part of the economy from the state’s beginning as part of the three F’s: farming, fishing and forestry.

Generally, they are family-based businesses that get handed down from generation to generation. However, it is getting harder and harder for both to continue as viable family businesses as costs continue to rise and profits continue to fall. More and more family businesses are shutting down because they can’t remain profitable.

In fact, two longtime logging businesses in Aroostook County shut down in the past two weeks, laying off over 50 employees because they can’t afford to stay in business. This tide has to change to ensure that a staple of our economy will continue for the foreseeable future.

For both industries, one factor that is driving up cost and minimizing profit is related to fuel, which is used for practically everything in production-based businesses like logging and farming.

Farmers and loggers predominantly use off-highway diesel for most of their production. In 2002, the average cost of off-highway diesel was 93 cents a gallon and the state sales tax was 5 percent. By 2013, the average gallon of off-highway diesel cost $3.52, and the state sales tax was 5.5 percent. This represents a 280 percent increase from 2002.

In 2002, Maine loggers spent $33.6 million on off-highway diesel and an additional $1.5 million in sales tax to harvest 16.75 million tons of wood.

In 2013, loggers spent $107 million on off-highway diesel and an additional $5.071 million in sales tax to harvest only 14.4 million green tons. This represents an increase in overall cost of 228 percent to produce 2.3 million fewer tons.

For Maine farmers, it is a similar story. In 2003, they spent $17.7 million on off-highway diesel and an additional $885,000 on sales tax. By 2010, this jumped to $35.7 million and $1.9 million respectively – a whopping 203 percent increase to produce Maine’s farm products.

As fuel costs have increased, so has the cost of parts, equipment and supplies that are made with fossil fuels. The rising price of fuel has severely limited capital reinvestment and business growth. Many have left the business or downsized significantly to remain alive.

What did loggers and farmers get in return for this increase in cost and tax? Very little.

In 2011, the 125th Maine Legislature provided a sales tax exemption for off-highway fuel used on commercial fishing vessels. However, commercial wood harvesting operations and commercial agriculture, the other two F’s, were not given the same treatment and to this day, the issue still has not been remedied.

Why is off-highway diesel subjected to a state sales tax? Off-highway diesel is just that – off-highway; therefore, it must be utilized in off-highway operations. However, it is unclear why off highway diesel is taxed because its use has virtually no impact upon state services. State government has benefited while loggers and farmers have not.

Massachusetts, New Hampshire, South Carolina, Wisconsin, Vermont and other timber/agricultural producing states do not tax diesel fuel used off highway. In a very competitive global economy, Maine farmers and loggers are at a disadvantage to others.

As the Legislature wraps up its work for the session and Democrats and Republicans argue over what effective tax reform will provide, please do not forget L.D. 290 and the little old farmers and loggers. We have been forgotten since 2011, and in the long run, who’s left standing might be just one F rather than three.