Governor Janet Mills will tax the federally forgiven pandemic loans Maine small businesses received to stay afloat. She is picking and choosing which parts of federal tax changes to enact in her supplemental budget and has directed MRS to create forms and software based upon her choices, without legislative input, for the tax filings that start February 12
FOR IMMEDIATE RELEASE: Monday, January 25, 2021
MEDIA CONTACT: Julie Rabinowitz, Executive Director, 207-292-2722 ext. 102, Julie@mainepbp.com
AUGUSTA – Today’s hearing on Governor Janet Mills’s supplemental budget made it clear that the state of Maine will not match the federal laws that exempt forgiven Paycheck Protection Program (PPP) loans from taxation or that provide for additional relief by allowing related expense deductions. By not matching federal law, the state expects to receive an estimated $100 million dollars in taxes from businesses that took PPP loans.
“This morning’s hearing on the Mills Administration’s tax proposals revealed that she will not provide the same tax relief to Maine’s struggling businesses as the federal government is doing, forcing them to pay an additional $100 million in state taxes. It is clear that Governor Mills needs that $100 million to balance her budget for this fiscal year,” stated Julie Dumont Rabinowitz, executive director of Maine People Before Politics. “The Governor’s proposal puts the burden for paying for her increased state spending over the past two years on the backs of businesses trying to stay afloat.”
Rabinowitz continued, “We renew our call that Maine match the federal tax code changes enacted last year to help businesses recover from the pandemic, including not taxing forgiven PPP loans as well as matching the changes passed last month that would provide an additional $100 million stimulus to businesses as estimated by Maine Revenue Services.”
In an acknowledgement of the confusion not matching the federal law will create, the Mills Administration told the Taxation and the Appropriations and Financial Affairs Committees this morning that they will waive interest and penalties for businesses who have paid estimated taxes under the assumption that the state would match the federal tax code.
More than 28,000 Maine businesses have received PPP loans totaling over $2 billion.
The Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act made changes to the Internal Revenue Service Code and exempted Paycheck Protection Program (PPP) loans from federal taxes. The Consolidated Appropriations Act (CAA) enacted in December made the exemption explicit and created a second stimulus by allowing expense deductions for expenses covered by the PPP loan.
Rabinowitz stated, “Governor Mills will not only force businesses to pay more in taxes, but, in addition, will needlessly create headaches for Maine’s employers by matching only certain provisions—and some only in certain years—making tax filing more complex.”
Businesses that have been taking advantage of the federal tax changes to stay open will need to treat certain expenditures and deductions differently in their state tax filing if Governor Mills’s proposal passes. Specifically, they will not be allowed to take deductions for PPP-related expenses as they can at the federal level.
In addition, Governor Mills has ordered Maine Revenue Services to create forms that match her proposals for the tax filings that begin in just days. If the Legislature chooses to match more or all of the federal changes, then the tax forms and software will not match state law. The 2020 tax return filing begins February 12.
Rabinowitz noted, “Since March, small businesses have been making critical decisions to help keep people working and their businesses alive. They have been counting on state leaders to follow Congress’s lead on PPP and the tax code. Governor Mills has chosen to protect her spending increases instead of Maine’s employers, some of whom have lost everything.”
Many states automatically adopt the federal changes. In other states, like Maine, the Legislature must pass the changes into law. States generally match tax changes to make it easier for individuals and businesses to prepare and pay taxes and because doing so makes it less costly for the state to conduct audits.
A number of the changes conforming to federal law could have been enacted if the Legislature had been called into session last year. The changes passed in the CAA must be addressed in this session.
Last summer, MPBP was one of the first organizations to call on Governor Janet Mills to conform to federal changes to the tax code, including the intent of Congress that PPP loans that have been forgiven not be taxed.
###
Below, MPBP has pulled the relevant changes proposed by Governor Mills as outlined in today’s hearing. The term decouples means that the state will not incorporate those changes into the state’s tax code.
Excerpts from the January 25 Testimony of Kirsten LC Figueroa, Commissioner of the Department of Administrative and Financial Services, before the Joint Standing Committees on Appropriations and Financial Affairs and Taxation:
“Part D, on page 1 of the change package, decouples from the temporary Coronavirus Aid, Relief, and Economic Security Act, or “CARES Act,” suspension of the federal excess business loss limitation. …
“Part E, page 3 of the change package, decouples from the temporary CARES Act relaxation of the federal business interest deduction limitation. …
“Part F, page 6 of the change package, excludes qualified improvement property placed in service after December 31, 2017 and prior to January 1, 2020 from the Maine capital investment income tax credit, thereby avoiding the retroactive inclusion of this property. …
“Part G, page 8 of the change package, decouples from the additional charitable contribution deduction allowed to corporations pursuant to the CARES Act for taxable years beginning after January 1, 2019 and before January 1, 2020. …
“Part H, page 13 of the language document, conforms with the federal net operating loss limitation and the CARES Act suspension of the limitation. …
“Part V of the Governor’s supplemental budget proposes to maintain the longstanding, tax neutral treatment of forgiven loans. [This section rejects PPP-related expense deductions allowed on the federal level under the CAA passed in December.] …
“Part W, page 13 of the change package, likewise decouples from similar federal treatment to certain other loan forgiveness and business financial aid assistance enacted in the Consolidated Appropriations Act, 2021. …
“Part X, page 14 in the change package, decouples from the temporary expansion of the deduction for business meals also enacted in the Consolidated Appropriations Act, 2021 for tax years 2021 and 2022, but conforms for tax year 2020. …
“Part U, page 10 of the change package, proposes to decouple from the foreign-derived intangible income, or ‘FDII,’ deduction enacted by the federal Tax Cuts and Jobs Act of 2017.
“In order to prepare for the February through April filing season, tax forms are developed over the fall by Maine Revenue Services and then implemented by electronic filing providers and sent to the printers at the end of the year. As such, they are now complete. Maine Revenue Services prepared the forms, at the Governor’s direction, to reflect the Supplemental Budget proposal while reserving blank lines to allow for modifications to that proposal by the Legislature.”