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Tax Conformity First Big Issue for Maine Lawmakers

AUGUSTA, Maine — Within the first few weeks of the legislative session, lawmakers will have to decide whether Maine should follow the lead of Congress and adopt some or all of the four dozen tax breaks for 2014 approved in the final hours.

Gov. Paul LePage says he will propose the state conform to federal changes so long as the state can afford to do it.

Gov. LePage is waiting for Maine Revenue Services to give him detailed estimates of what it would cost to match the various tax breaks at the federal level. He says he knows the price tag is in the tens of millions of dollars, but many of the tax breaks and credits help employers create jobs.

"I've asked the [Maine Revenue Services] people to look at that," LePage says. "If it is at all possible, we're going to try to conform."

Finance Commissioner Richard Rosen says many of the breaks are applicable to Maine and are especially important to Maine businesses. Now, the federal government is scrambling to change tax forms to reflect the recently approved changes, and Maine will have to do the same.

"It's not the best way for Congress to approach this every year," Rosen says. "Ideally, of course, they would settle the tax code going into a calendar year rather than this pattern now of the 11th hour."

Maine State Chamber of Commerce President Dana Connors says businesses are pleased Congress passed the so-called tax extender package. And he hopes the governor and the Legislature will support tax conformity on several of the measures important to Maine employers.

"One would be the New Markets Tax Credit, which really does encourage private investment, particularly in those areas that are economically struggling," Connors says. "Business expensing provisions that allow more rapid amortization, that has received a lot of support in the past."

If the state does not conform to the federal changes on depreciation of equipment purchases, companies in Maine would have to keep separate sets of books to track the differences in tax treatment, and Connors says that is a cost that could take away from job investments. He says conformity also helps companies that operate in multiple states.

"The more that we can conform, the more it makes sense," Connors says, "the more there is a level playing field, if you will, that we are always confronted with when you are doing business with varying states."

Most of the breaks passed by Congress are broad, but some are very narrow and may not apply to any Maine taxpayers. House Speaker Mark Eves, a Democrat from North Berwick, says Congress' late action means Maine lawmakers will need to act quickly so Mainers can file their taxes on time. He says Democrats will want to make sure the changes help grow the economy and benefit most Mainers.

"It's always a little frustrating when we have to comply with Congress and knowing where they are going," Eves says. "But, we are going to take a look at that, and we are going to make sure whatever it does, whatever tax policy we focus on it hits the middle, which is where we need to be focused on."

Some of the 48 tax breaks do affect individuals, such as the tax break for teachers who buy supplies for their classrooms, and the deduction for higher education expenses. Maine also has a relatively high number of self-employed individuals who will be affected by the general business tax provisions.

The governor says his tax conformity proposals reflect only a small part of what he wants to do with tax policy in his two-year state budget.

Journalist Mal Leary spearheads Maine Public's news coverage of politics and government and is based at the State House.