The Maine Legislature and Taxation Committee members are deciding if Maine should tax Payroll Protection Program loans, the loan forgiveness and deductions paid with the loans.
We should demand the Legislature adopt Payroll Protection Program tax provisions that are exactly the same as the federal tax law.
The writers of the federal law specified that taxpayers can still claim normal tax deductions for business expenses paid with PPP money even if forgiven.
We should demand the same in Maine.
As a certified public accountant, I have been certified in four states in addition to Maine, and want to offer my tax policy experience to the Taxation Committee. My experiences in five different states over a 40-year career provide me with a unique perspective on taxation and tax policy matters.
Tax policy decisions made now will have an impact, whether positive, negative or neutral, for many years.
Maine’s income per capita ranks 34th in the U.S. With a base of about 500,000 employees or adults prospectively in that category, and about 42,000 employment establishments, Maine’s economic engine is clearly small businesses.
The record shows 28,270 PPP loans were extended to Maine businesses. The total amount loaned to Maine businesses was about $2.3 billion, for an average loan of $80,098 per borrower with an average of nine employees, according to the independent website Federal Pay (federalpay.org/paycheck-protection-program/me/200).
Maine’s economic engine is small business. As a state with an economy driven by commercial fishing, paper and allied products, food products, shipbuilding and tourism, among other industries, small businesses account for most of the employment excluding Bath Iron Works, health care and a few headquarter companies. Small businesses comprise the lion’s share of all of the above industries, as shown by the statistics provided by Federal Pay at the link provided.
The Maine economy has suffered tremendously in 2020, and any recovery from 2020 will be slow and laborious regardless of tax levies, which will only make a recovery slower. To the many businesses that will never reopen, the levy of additional taxes would add insult to injury; to those trying to reopen or otherwise struggling to stay open, a possible death knell.
The tourism industry, one of the main drivers of the economy, is weakened by COVID, and the paper and pulp industry is hampered by low demand and low prices. Most, if not all businesses are struggling with lower demand, lower prices, lower profitability and lackluster prospects in the near term.
The taxation of PPP loan proceeds, which are tax free at the federal level, sends a clear message to businesses that the Legislature is anti-business and anti-growth. This will further impair the creation and attraction of new businesses to Maine now and in the future, as well as drive more of our youth out of state to seek better and more attainable opportunities.
Conforming Maine to the federal treatment will eliminate an additional level of complexity in Maine taxation, reduce Maine tax burdens on Maine taxpayers in a time of extreme need, and illustrate to businesses that Maine is indeed “Open to Business” and friendly to business endeavors, both large and small. If we want to have Maine thrive and grow, with quality opportunities, we need to begin with business-friendly tax policies.
Gov. Mills has proposed, as an alternative, that taxpayers with PPP loans of less than $1 million be provided the complete relief as discussed above, and taxpayers with loans in excess of $1 million be disallowed deductions attributable to the PPP loan in excess of $1 million. That proposal would at least eliminate the onerous state tax on most small businesses.
We should demand Maine conform to federal law to protect all Maine taxpayers. If the Legislature will not protect all taxpayers, they should at a minimum, protect taxpayers who borrowed less than $1 million, as suggested by Gov. Mills.
Additionally, taxpayers and their accountants need this resolved immediately so they can file complete and accurate tax returns.
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