Governor Janet Mills creates tax increases and compliance headaches by failing to bring Maine law in line with Coronavirus-related changes to the federal tax code
FOR IMMEDIATE RELEASE: Monday, July 20, 2020
MEDIA CONTACT: Julie Rabinowitz, Director of Policy and Communication, 207-292-2722 ext. 102, Julie@mainepbp.com
AUGUSTA – Last week, Maine Revenue Services (MRS) notified taxpayers that the state has not adopted the federal tax changes and exemptions enacted this spring to protect struggling businesses.
Since taking office, Governor Janet Mills spent virtually all of the state’s projected revenue surplus, adding almost $1 billion in new state spending. Now the state faces revenue shortfalls and immense, unbudgeted expenses caused by the pandemic, the related recession, and the need to address the effects of the virus. Not conforming to the federal tax code, especially as it relates to Paycheck Protection Program (PPP) loan forgiveness, would fill some of the state’s empty coffers.
“By taking no action, the Mills Administration will force Maine businesses—whose PPP loans have been forgiven—to pay state taxes on the loan,” said Julie Rabinowitz, Director of Policy and Communication for MPBP. “Out of all the tax changes that need to be made, this is the most disturbing, because Congress and the Trump Administration explicitly intended PPP loans as relief to keep those businesses afloat. Maine businesses who worked hard to meet the terms for loan forgiveness will have to pay state taxes on the forgiven loan unless Maine changes the law.”
As of July 6, more than 27,000 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. 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.
In order for Maine to conform its tax code to the federal code and exempt forgiven PPP loans from state tax, the Legislature must pass a bill. In other words, if the Mills Administration or the Legislature continue to do nothing, the state will see an increase in revenue from the tax on PPP loans and the other changes to the tax code will not be reflected in Maine law. These include changes to charitable donation deductions, treatment of net operating losses, depreciation of property improvements, the Employee Retention Credit and business interest deductions.
The Governor’s Economic Recovery Committee’s plan released last week outlines the severe effect of the pandemic and related response on Maine’s businesses and strongly recommends additional relief programs. The report, however, made no mention of the harm businesses will suffer if the federal provisions are not reflected in the state tax code, especially exempting forgiven PPP loans.
Rabinowitz noted, “Right now, based on what the federal law allows, small businesses are making critical decisions to help keep people working and their businesses alive. But since Maine’s tax law doesn’t match, businesses might not be able to take advantage of the federal changes, hurting their ability to survive this pandemic.”
Many states automatically adopt the federal changes. In other states, like Maine, the Legislature must pass the changes; many of these, including New York, California, Colorado, Georgia, Iowa, New Mexico, and North Carolina, have already taken action to adopt all or most of the federal changes.
Maine Revenue Services issued guidance to taxpayers in June stating, “Governor Janet T. Mills continues to review the recent federal tax law changes and is considering the extent to which the Administration will propose legislation conforming to certain new federal tax provisions.” Yet on July 12, MRS advised filers that they may have to amend prior years’ returns to comply with current state law.
“MRS’s July 12 guidance provided no update on the Governor’s review, and Governor Mills has not announced that she is putting in a Governor’s bill to ensure Maine matches the federal changes. She has not called the Legislature into session to do so. Meanwhile, state employees went ahead and updated complex instructions and forms so that the state can continue to collect taxes on money that will not be taxed under federal law,” stated Rabinowitz.
“The tax code is confusing enough without a global pandemic and recession. Right now, Maine businesses and tax advisors must comply with different state and federal tax rules. In not matching federal law, Governor Mills has created a needless, giant headache for Maine’s small businesses, hurting their ability to cope with the effects of the pandemic,” Rabinowitz said.
###
NOTE: People who have questions about the tax law changes and any PPP tax liability should consult their tax advisors. There is additional federal legislation pending to clarify the federal tax implications of PPP loans.