The $2 Trillion federal CARES Act, passed by Congress in late December included several provisions to lessen the economic impact of the COVID-19 pandemic on employers and businesses. In order for Maine to benefit from this relief, Maine must adjust its tax code to conform with federal law.
Governor Janet Mills proposed taxing those provisions at the state level rather than adhering to federal law. With tax filing deadlines approaching, Maine businesses were going to be faced with having to pay state income taxes on any forgiven part of their Paycheck Protection Program (PPP) loans against the intent of Congress
Governor Mill’s original proposal meant taking an estimated $125 million away from Maine businesses trying to survive and recover from nearly a year’s worth of lost income, revenue losses and worker layoffs.
There were many that were publicly oppossed to the Governor’s original plan. Due to the overwhelming opposition, the Governor proposed to conform with most, but not all, of the federal changes. Governor Mills plans to pay for her plan through $81 million in withdrawals from the Budget Stabilization Fund (Rainy Day Fund). For more details on the Governor’s new proposal see the previous story, Mills Administration Proposes PPP Compromise.
On Tuesday, the Taxation Committee discussed the Governor’s new proposal on tax conformity for companies receiving PPP loans. The Governor proposal would implement full tax conformity for businesses that received under $1,000,000 in PPP loans. Additionally, those businesses that received over $1,000,000 would get full conformity on the first $1,000,000 and then the remaining amount would be taxed as income for Maine tax purposes.
Despite the benefit to the many small and medium sized businesses in Maine who would benefit from full conformity because they received PPP loans under $1 million, there are still many businesses who would not be eligible for full conformity. The Governor’s proposal would cost the state approximately $82 million, to be funded through the Budget Stabilization Fund. Full conformity would cost Maine an addition $20 million.