AUGUSTA, Maine — The state of Maine would not collect taxes on the first $1 million in federal coronavirus aid received by businesses under a plan unveiled Tuesday by Gov. Janet Mills.
The Democratic governor announced the plan just over two weeks after her administration first proposed a different one that would have taxed portions of forgivable loans received under the Paycheck Protection Program as income but allow them to deduct expenses paid.
It generated backlash from business interests and Republicans. Two days later, Mills said she would seek to find a way to fully conform by using federal dollars. The new plan was a subject of debate before the Legislature’s tax committee on Tuesday, where Democrats generally backed it but Republicans pushed for full conformity.
The proposal is said to cover nearly all businesses that received money under the Paycheck Protection Program in Maine and will cost the state $82 million. The initial plan would have cost the state $11 million through the next two years. Mills proposes to cover those costs by using all of the $61 million it had proposed adding to the rainy day fund and $20 million more generated from increased federal Medicaid reimbursement rates and state cost reductions.
Maine said 251 businesses — or less than 1 percent of businesses that received money under the program — would have to pay some in taxes under the plan. The state will provide conformity for the first million and require the rest to be reported as income. Maine already allows businesses to deduct expenses related to operations.
The Mills administration initially shied from full conformity, saying it would like to pursue the option but that the estimated $100 million cost to the state in one year was too steep, especially as the state faces a $650 billion revenue shortfall through 2023.
The Mills administration said it consulted with NFIB and other business groups, including the Maine State Chamber of Commerce, to come up with the proposal. David Clough, the state director of the National Federation of Independent Businesses, praised the proposal, saying it would be “substantial help” for small businesses.
“It means they can continue to use their money to operate their business as well as continue to get through the coronavirus and plan to rebuild and recover, once this is all over,” he said.
Mike Santo, who chairs the Maine Society of Certified Public Accountants’ taxation committee, said his organization approved of the proposal. But there could be challenges for accountants ahead if it’s not passed quickly. Tax returns are not due until April 15, but the state will need to draw up new instructions and forms to follow.
Many businesses also need to send returns in by March 15 for federal tax purposes to get information for their personal returns. Not having a full answer on conformity will make it “tough” to process returns in time, Santo said.
The issue split the Legislature’s taxation committee Tuesday, with Republicans supporting full conformity and Democrats indicating support for Mills’ plan in a straw vote. Their recommendations will ultimately go to the budget committee, which will make a final decision.
Republicans maintained anything less than full conformity with the federal law would unfairly burden businesses and go against Congress’ intention for the money.
“They have the money and they know how to best spend it to keep their employees on and their doors open,” Rep. Ted Kryzak, R-Acton, said in an interview.
But the tax committee’s co-chair, Sen. Ben Chipman, D-Portland, broke from his party by voting against conformity altogether, saying the state should focus its efforts to help needier businesses.
“PPP loan recipients who made a profit for the year would get an added tax relief up to a certain threshold, and that’s my biggest concern,” he said.