Tax Conformity – Today’s Update

Today, the Taxation Committee discussed the Governor’s recent proposal regarding tax conformity for companies receiving PPP loans.  In a nutshell, Governor Mills is proposing full tax conformity for businesses that received under $1,000,000 in PPP loans. Additionally, those businesses that received over $1,000,000 would get full conformity on the first $1,000,000 and then the remaining amount would be taxed as income for Maine tax purposes.

To read the Governor’s press release on her compromise proposal, identifying that it would extend full tax relief to more than 99% of Maine businesses that received PPP loans, click here.

However, according to a cursory analysis of public information, we have identified more than 30 MMTA members who would be adversely impacted by this proposal comparing their tax circumstance with full tax conformity.  Put differently, Governor Mills compromise proposal would have the state collect more than $3.3 million on the backs of MMTA members for the political decision not to completely conform Maine’s tax code to the federal code.

Despite the benefit to the many small and medium sized MMTA members who would benefit from full conformity because they received PPP loans under $1 million, the 30+ members who would not be eligible for full conformity employ almost 20% of all trucking industry jobs in Maine.  We will be sure to remind legislators that the jobs that these employers provide are no more or less important than those provided by other Maine businesses.

MMTA will push for finding a way to allow full conformity for all Maine businesses.  The Governor’s proposal would cost the state approximately $82 million, to be funded through surplus funding, drawing on carryover funds and utilizing unencumbered funds.  Which means the legislature needs roll up its sleeves to find another $20 million for full conformity.

To share your opinions with the MMTA, please email Brian or Tim.  To contact your elected official, click here for the Senate and here for the House.

 

Want to learn more about the tax conformity issue?  The Maine Jobs Council has put together a summary of the problem here as well as a list of arguments for and against conformity for educational purposes below.

The Arguments For State Conformity

  • Congress intended the money to be tax-free and the expenses to be deducted. Maine should do all it can to support that policy.
  • Now is not the time to take money out of Maine’s small and mid-sized businesses.
  • Not conforming could put many Maine companies out of business.
  • Conformity would save jobs for working Mainers.
  • Maine’s economy needs the additional stimulus of the added tax deductions.
  • Maine’s state government needs to be more efficient and should find ways to offset the revenue loss in favor of stimulating the economy.

The Arguments Against State Conformity

  • PPP grants would not be taxed even if included in gross income because there are by definition offsetting expenses.
  • Conformity would amount to a “double dip” as companies not only get free, untaxed PPP grants but also deductions that would be taken against regular taxable income.
  • Unlike the federal government, Maine cannot go into debt, so losing what’s estimated to be $100 million in revenue is unacceptable at a time when the state needs to increase government programs.
  • Most of the tax benefits will go to companies that received large PPP grants (and therefore, would have large deductible expenses) and also had large 2020 profits from which they could be deducted.
  • Companies that did not make money in 2020 and are the most in need of help will get no benefit from conformity this year because they have no taxable income for the deductions to offset.
  • Conformity will cause cuts in essential state services or a tax shift as taxes are raised on other Mainers to pay for the tax savings for PPP recipients. If there are businesses that need help, there are better ways to focus tax savings that will be more effective and equitable.