The Governor’s administration cited cost as the main reason for a proposal to mirror only a small portion of a federal tax-cut package for businesses related to a stimulus package last year.
Governor Mills tax conformity proposal, which was presented to the Legislature as part of a budget fix on Monday, is a side effect of the $2.2 trillion CARES Act. It directed $8.9 billion into Maine, with most going to the forgivable Paycheck Protection Program loans and other programs for businesses as well as unemployment benefits and payments.
At the federal level, forgivable loans and other grants to businesses will not be taxed. Changes passed by Congress in late December also allow businesses to deduct expenses made to keep employees working, such as rent or utilities retroactive to March, meaning businesses could claim those deductions on their federal taxes, regardless of whether loans were forgiven.
It was effectively a smaller stimulus on top of earlier stimulus. Unlike the federal government, states have to balance budgets. While they largely adhere to major federal tax changes for state tax purposes, they do so to varying degrees as full adoption could lead to massive increases or decreases in tax revenue. State conformity after a major federal tax change is always an open question, but typically Maine has fully conformed.
For state taxes, Mills is proposing to include the business loans as income but allow businesses to deduct the expenses. The full package would cost the state $11 million into mid-2023. Governor Mills Administration has said that the State cannot absorb the $100 million cost without congressional aid. Another key provision in Mills’ conformity plan would be to create an allowance for Maine residents who moved to the state during the pandemic to avoid them having to pay income taxes in two states. The state is also looking to allow teachers to deduct personal protective equipment and cleaning supplies from their expenses.
The Legislature’s Tax committee will meet will continue to meet to discuss the provisions. The Tax Committee will report back to the Appropriation’s and Financial Affairs Committee on any recommendations by early February.