Scarborough facing unpaid property taxes

SCARBOROUGH — A town can do a lot with $150,000, but not if it can't collect it, a dilemma that has the Scarborough Finance Committee fretting over how to get personal property taxes out of businesses that simply refuse to pay.

Like most towns, Scarborough depends on the 1,400 commercial enterprise within its borders to voluntarily divulge an inventory of business equipment, and to declare its value. That property is taxed, said Town Assessor Paul Lesperance, at the same 13.03 mill rate set for real estate, resulting this fiscal year in $1.51 million for town coffers.

Wendy Frazier, the town tax collector, said Scarborough has a “very good” 97 percent collection rate on personal property taxes. For the fiscal year that ended June 30, only 37 bills are unpaid, totalling $37,714.75.

However, lists used by the finance committee at its June 19 meeting show  what Chairwoman Judy Roy called a “considerable chunk of change,” $148,212, still unpaid from previous years.

To get at that money, Roy has suggested the creation of a new “general business license” in Scarborough, which the Town Council could refuse to renew when a tax bill goes unpaid.

The problem, said Roy, is that some businesses won't even submit the declaration form. In one instance, described by Town Manager Tom Hall as "particularly egregious," Stearns Property Service, a landscaping company based at 287 Gorham Road, has "refused" to pay the tax for 15 years, raking up a past due bill of $12,269.

"That particular business does not believe in a personal property tax and does not file," said Roy at the June 19 committee meeting. "The question for us is, how do we make it fair for the conscientious person, as opposed to the folks who just stand back and balk at it.

"I am not a Republican,” said Roy. "I support business, but I do not support people not doing their fair share.

"What I really want to look at is some way in which we can even the playing field," she said.

In some cases, the town can refuse to issue or renew a permit, such as a food handler's license, until a past due tax bill is paid in full. But not all businesses need a permit, said Roy, suggesting a "nominal fee" of $25 for a permit all businesses in town would be requred to obtain to keep the doors open.

That fee would generate about $35,000 for the annual budget and give officials a way to more accurately track the number of businesses in town, now roughly estimated at 1,400. But more importantly, said Roy, a general permit requirement would give officials a powerful tool to use as leverage against delinquent taxpayers.

One business, Maine Earthmoving, of Runway Road, hasn't paid its personal property tax since 2006. It now owes the town $38,359. Another, Maietta Construction, of Pleasant Hill Road, has not paid up since 2007, generating a bill of $19,609.

Both businesses have since filed for bankruptcy, said Frazier, and either are, or will soon, make payments on their past due bills.

Still, they were several years in arrears before filing for bankruptcy. Had a local permit been required, payment of the personal property tax might have been a higher priority for these and other businesses, suggested Roy, potentially preventing that unpaid tax from piling up year after year.

Other possible solutions, to be fleshed out at the next finance committee meeting on Aug. 21, include placing liens on property or filing suits in small claims court. In the former case, Frazier said, a lien is good for only five years, and simply puts the town at the front of the line in case of a sale.

Either of those options may be tried before implementation of a general license. Because the town might have to "chase pretty hard" to get all existing businesses in town to apply for such a permit, it could become "an administrative headache," said Hall.

"I don't want to be overly aggressive at all," said Hall, "but if you have a few bad actors, it might make more sense to go after those who are the worst offenders."

Before that decision is made, however, the full council at its July 18 meeting will consider writing off $27,660 in unpaid taxes. Those bills, ranging from less than $20 to more than $5,500, are owed by 58 businesses that have either folded or moved their operations out of Scarborough.

"We'll never collect on any of these," said Hall.

The Stearns bill also may go uncollected. The company phone number has been disconnected and owner B. D. Stearns could not be reached for comment. Officials seem similarly in the dark. The property has been for sale, and while the tax bill has been sent to collections, no liens were filed, said Frazier. Lesperance said he heard Stearns is moving his operations to Gorham. Hall said he thought the company was sold. Either way, he added, whether or not Scarborough will ever see a personal property tax payment is "a good question."

For "utterly defiant" business owners like Stearns, Roy said, affixing a personal property tax is a "grab in the air." Lesperance said Scarborough taxes at the original cost of equipment, depreciating the value at 10 percent each year down to a minimum of 30 percent. When a business doesn't submit a declaration form, Lesperance's office estimates a tax based on equipment lists turned in from similarly-sized companies in the same industry. By law, the tax bill cannot be appealed if claim forms are not submitted, Lesperance said. However, he noted, even where appeals are possible, the town does not have the resources to verify what is claimed.

"Most towns don't have the staff to chase this down," said Roy. "They rely on the honesty of the business owner."

But honesty aside, there's often disagreement over what should be taxed.

"Some claim everything in the store is for sale," said Roy, "but if I walked in and said, 'I want to buy your cash register today,' I doubt they'd sell it to me."

Hall said such fights over what to claim are only natural. The personal property tax was created, he noted, to aid mill towns, where giant paper machines were worth more than the land on which they were situated. Applying it to mom-and-pop shops has resulted in  state refund programs, like the Business Equipment Tax Exemption (BETE) program – which earned Scarborough 70 percent of forgiven taxes this year, or $151,572 – and the Business Equipment Tax Refund (BETR) program, under which businesses apply directly to the state. In addition, Hall pointed out, proposals appear in seemingly every legislative session that would make towns whole while getting small business off the hook.

"BETE has become so watered down and convoluted at this point,” Hall said. “We should do away with the personal property tax, because, frankly, it's just a nuisance for everyone involved.”

A CLOSER LOOK

The following list includes the 10 largest unpaid personal property tax bills in Scarborough for companies that have folded or moved out of town, with business name, address, years assessed and total amount left unpaid. The Town Council is expected to write-off these and 48 others bills totaling $27,659.93 at its July 18 meeting.

1.    Damon and Malone                20 Parkway Drive     2009-2010    $5,587

2.    Alliance Construction             160 Pleasant Hill       2007-2008    $3,979

3.    Clipper Mart M.W. Seawall    439 Payne Road       2010              $2,848

4.    Virtual Sales Group                27 Gorham Road      2008-2009     $2,130

5.    Choice One Communications 381 Payne Road       2006               $1,148

6.    Cityside Collision Center        42 Holmes Road      2006              $1,148

7.    Sunsations Spa                       426 U.S. Route 1      2006-2009     $894

8.    ESN North Atlantic                15 Holly St.              2008-2009     $797

9.     Freaky Bean Coffee              360 U.S. Route 1      2008              $753

10. B Fit Gym                             183 U.S. Route 1      2006              $656

Among 16 delinquent companies still in business, these are the 10 largest outstanding personal property tax bills in Scarborough. Amounts listed are for 2010 assessments due for payment June 30, 2011. Names marked with an asterisks have reportedly filed for bankruptcy protection.

1.    Maine Earthmoving Inc.*      12 Runway Road          2006-2010    $38,358

2.    Maietta Construction*          154 Pleasant Hill Road   2007-2010    $19,609

3.    Stearns Property Service       287 Gorham Road         1997-2010    $12,269

4.    Watermatic Irrigation Co.       21 Washington Ave.    2006-2010      $3,142

5.    Innes Photo Services            201 U.S. Route 1           2005-2010      $2,814

6.    G.M. Pollack                       600 Roundwood Drive   2009-2010      $1,755

7.    Rutter's Garage                     68 Pleasant Hill Road        2010           $1,131

8.    Oak Hill Dry Cleaners          27 Gorham Road            2007-2010       $631

9.    AT&T                                 383 U.S. Route 1                2010             $505

10. Creative Awards                 225 U.S. Route 1             2009-2010      $377