Today, Governor Janet Mills and her administration made it clear to the Legislature that she will tax the federally forgiven pandemic loans Maine small businesses received to stay afloat.

She will also not match the new tax relief Congress passed in December that allows businesses with PPP loans to take additional deductions.

By not matching federal tax law on PPP loans, the state expects to haul in an estimated $100 million dollars in taxes from the more than 28,000 businesses that took those emergency loans.

In fact, Governor Mills picks and chooses which parts of the pandemic-related federal tax changes to enact in her supplemental budget.

She even went so far as to direct Maine Revenue Services to create the 2020 tax forms and software based upon her choices, not the current law and without legislative input, for the tax filings that start February 12.

The Legislature can decide to match the federal law—not tax forgiven PPP loans and allow businesses to take the newly-passed deductions. But if they do, they must find $100 million in budget cuts, and the state will have to scramble to create new tax forms and software.

The Mills Administration did hint at a way they could implement the tax forgiveness and deductions: more federal money to cover the $100 million “revenue shortfall” that matching federal law would create.

Governor Mills needs that $100 million to balance her budget for this fiscal year.

In a nod to 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.

A number of those changes could have been enacted if the Legislature had been called into session last year. The changes Congress passed last month must be addressed in this session.

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’ proposal passes.

Her proposal matches only certain parts of the federal tax code—and some only in certain years—making tax filing more complex.

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.

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.

Instead, Governor Mills has chosen to protect her spending increases instead of Maine’s employers, some of whom have lost everything.

You can let legislators know your position on Governor Mills’ proposed PPP tax changes by contacting the Taxation Committee and the Appropriations and Financial Affairs Committee.

We’ve put the link to our convenient form to contact legislative committees in the top of the comments section below.