Policy Documents

The Great Tax Divide: Maine’s Retail Desert vs. New Hampshire’s Retail Oasis

J. Scott Moody –
April 13, 2011

 

It is well-known that Maine and New Hampshire are polar opposites when it comes to tax policy. Maine has one of the highest tax burdens in the country at 12.6 percent of personal income (6th highest) while New Hampshire has one of the lowest tax burdens at 8.7 percent of personal income (49th highest). These 3.9 percentage points represent one of, if not the, largest tax differentials between any two states in the country and is the basis for “The Great Tax Divide.”

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 previous MHPC studies have shown to be occurring up and down the Maine-New Hampshire border.[1] This study builds on this research by utilizing comprehensive retail data from the U.S. Census Bureau over the last 60 years.[2]

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). Additionally, retailing in New Hampshire was given a significant boost in the early 1990’s when they reformed their tax code instituting the Business Enterprise Tax in place of other job-killing taxes.