Republicans support full conformity;
Democrats support Governor’s proposed compromise
After several weeks of work sessions, the Joint Standing Committee on Taxation voted along party lines on the supplemental budget bill – LD 42, An Act Making Certain Supplemental Appropriations and Allocations and Changing Certain Provisions of the Law Necessary for the Proper Operations of State Government. The tax conformity debate has escalated during the past few weeks as the state grapples to determine the degree that Maine will, or will not, conform to the income tax changes made by federal government.
On January 25, the Maine State Chamber testified in opposition to provisions in the supplemental budget change package proposed by the Mills administration. LD 42 does not conform to the federal government’s treatment of the Paycheck Protection Program (PPP) loans, net operating losses, or the business interest deduction. It also eliminates the Federal Derived Intangible Income (FDII) provision.
Conformity of PPP Loans…
During the past couple weeks, the Taxation committee held a couple of very short work sessions on the bill. Republican committee members have insisted on full conformity with the federal government – providing a one-time double benefit in keeping the PPP loans tax free, while allowing for businesses to deduct expenses associated with the loans, as well as adopting the same stance on the other business provisions.
Committee Democrats have sided with Governor Janet Mills on her newly-crafted proposal on tax conformity. The governor is proposing that the state treat Paycheck Protection Program (PPP) loans up to $1 million as tax free, while also allowing businesses to deduct business expenses associated with the loans up to the $1 million threshold. This would cover about 99.1% of Maine businesses that received federal PPP funds.
For the remaining 251 businesses (or 0.9 percent) that received more than $1 million in PPP, the state would match the double benefit on the first $1 million received and maintain standard tax treatment for proceeds in excess of that amount. These proceeds would be treated as taxable income eligible for offsetting deductions.
There is an $18 million difference between the cost of the governor’s proposal (approximately $82 million) and the cost of full conformity on the PPP loans (approximately $100 million).
Eliminating the FDII provision…
Unfortunately, the elimination of the FDII provision remains in the governor’s proposal. This may result in a tax increase on Maine businesses of approximately $8 million to $12 million each year over the next few years. The Maine State Chamber is urging businesses to review their income tax filings to see how they apportion their income, which will determine if they are in fact affected by this tax increase. It is difficult to determine which companies this affects, because the state is prohibited from releasing individual income tax data that would ultimately identify impacted employers.
The Taxation committee will now send a letter to the Appropriations committee detailing both parties’ recommendations. For more information or to answer any questions, please contact Linda Caprara by calling (207) 623-4568, ext. 106, or by emailing email@example.com.