Water extraction tax: Business threat or revenue opportunity

In Alaska, the state’s multibillion-dollar budget surpluses in recent years have been closely tied to the profits of the oil industry. Just a few years ago, Republican Governor Sarah Palin and Alaska’s legislature approved a major increase in taxes on the industry, which together with increased oil prices, led to a doubling of Alaska’s oil-related revenue. Alaska oil industry now sends over $10 billion in annual payments to the state.
While Alaska officials again find themselves exploring new ways to spend their surplus, Maine Gov. John Baldacci’s 2010-11 budget is meant to make up an $830 million shortfall. It includes the cutting of hundreds of state jobs, higher education cuts, and requiring some state employees to pay a portion of health care cost.
Is there anything Maine can learn from Alaska’s approach? Jon Hinck, the State Representative for District 118, thinks so. Just as the state of Alaska benefits from its own natural resources, Hincks believes Maine can do the same. He has drafted a bill to impose an excise tax on bottled water operators at a rate of 1 cent per gallon of water extracted for bottling in Maine.
Hinck believes the excise tax is justified because Maine has invested substantially over the years to protect the state’s environment. “We invest money through state parks and the Land for Maine’s Future program,” he explains “that protects lands that are part of the water recharge zone. Maine has also put a lot of effort into controlling harmful air and other pollutants.” Hinck also believes the tax is reasonable, especially since it is 20 times lower than one that was discussed in the state in 2004. It amounts to only one-eight of a cent for each half-liter bottle.
But, Mark Dubois, natural resource manager for Nestle Waters North America/Poland Spring Bottling Co., disagrees with the premise that the consumer will be happy to pay extra simply because Poland Spring water comes from a natural spring source rather than municipal water of Nestle’s biggest competitors, such as Aquafina. “The tax will amount to a $7 million dollar burden on Nestle,” Dubois says “which equates to 18 percent of our 40 million dollar payroll in the state of Maine.” While he acknowledges the company has not yet completed any research regarding the effect of a 1/8 cent per bottle price increase on consumer demand, he says “the tax simply cannot be passed on to the consumer without effecting demand.”
While Dubois sees the tax as an unfair burden on Nestle, which he says would be the only company paying the tax at this time, Hinck points out that $7 million dollars in new revenue would help address a looming budget crisis. In fact, he has proposed that the resulting revenue be applied 50 percent to tax relief for Maine residents, 25 percent to watershed and water quality protection, and 25 percent to the municipality where the water was extracted “in recognition that persons extracting large amounts of groundwater in Maine for sale benefit from the state and local groundwater protection activities.” Hinck says that just as the residents of Alaska benefit from their state’s natural resources, the people of Maine should be able to do same.
Mark Dubois, however, believes that “unlike oil, water is something that is replenished each year in Maine.” Oil extraction he says, on the other hand, does not work in this manner. This argument strikes Hinck as “the classic distinction without a difference.” The water still comes from under the ground of our state, Hinck says. “The bottom line,” he insists “is that the State does a lot that has the effect of protecting and enhancing the Poland Spring brand.”
Ultimately, Dubois believes that the tax is really a tax on doing business in Maine. “It’s a great time to tax business — during a recession,” he says with irony; “it doesn’t make sense and will lead to exporting future jobs for our industry.” In fact, Dubois believes the tax will prevent Nestle from growing in the future, although he acknowledges that Nestle has not shared any type of strategic long-term planning about sites with the state and that future growth depends on market conditions.
As the debate about taxing bottled water extraction continues, a closer look at Nestle’s capacity to handle the tax will be required. While the company’s 2008 data will not be public until February 19, the available data shows that Nestle — the world’s largest food company — experienced almost a 16 percent increase in its 2007 net profits. The company generates about 30 percent of its profits in North America. Perhaps the distaste of some for taxing companies during a recession will be overcome when the people of Maine consider the state’s role in the Poland Spring brand and the benefits of resulting revenues to every-day Mainers. The people of Alaska would understand.

(Anna T. Collins is a columnist and regular contributor to The Portland Daily Sun. Respond to this commentary by e-mailing news@portlanddailysun.me.)