Gov. Janet Mills is proposing to accept only a portion of the federal tax cuts being offered to small businesses that received Paycheck Protection Program loans under the stimulus bill last year.
Congress opted not to tax the proceeds if employers spent it on payroll, rent and utilities. But the Mills administration said on Monday that it will not follow the federal government’s lead — a decision that is coming under fire from Republicans and business leaders in Maine.
To lessen the economic impact of the pandemic last year, Congress passed the Paycheck Protection program, or PPP, that offered loans to business to stay afloat, provided the money was used for certain business expenses, including payroll. And Congress decided that the income from those loans would not be taxable.
State Finance Commissioner Kirsten Figueroa says the state would like to be able to give that extra break to businesses on their Maine income taxes, but can’t afford the cost.
“The administration would have preferred to fully conform to the federal government’s double benefit on this program, but at an estimated cost of $100 million it was not able to do so and balance the budget,” she says.
But critics, including the Maine State Chamber of Commerce, testified before a legislative hearing on the tax conformity that Congress intended to provide maximum relief for businesses through PPP loans.
“It was Congress’ specific intention that the value of these proceeds not be diluted by taxing them if the proceeds are used for specific economy benefit uses,” says Linda Caperara, a lobbyist for the business trade group.
That position was supported by the National Federation of Independent Businesses and the Maine Society of Certified Public Accountants, which both argued that failure to follow Congress’ lead amounts to a $100 million tax increase on Maine businesses.
But Sarah Austin, a policy analyst for the progressive-leaning Maine Center for Economic Policy, says that’s not so.
“The treatment in the change package is revenue neutral,” she says. “It is not a tax increase on businesses. It is submitting a double benefit.”
Austin says unlike the state of Maine, the federal government does not have to worry about balancing its budget, and she says Maine is not obliged to always conform with federal tax policy.
The tax conformity changes would need to be made quickly, as the IRS will begin accepting tax filings on Feb. 12. But within hours of Monday’s public hearing, Republican legislative leaders blasted the measure, saying Maine employers have not recovered from the economic effects of the pandemic, and should be provided that extra income tax relief.
Tax conformity measures require a two-thirds vote of both the House and Senate and a unified GOP could block the measure.