The Mills Administration proposed a compromise to lawmakers to solve the Maine’s issues with conformity to federal tax treatment of Paycheck Protection Program (PPP) funds.
Because Maine’s estimated cost to fully conform to federal treatment of PPP loans is $100 million, the supplemental budget Mills submitted for fiscal year 2021 originally proposed the State of Maine decouple from the CARES Act and Consolidated Appropriations Act, 2021 (CAA) provisions allowing for the forgiven portion of a PPP loan to be excluded from federal taxable income and for eligible business expenses paid using forgiven PPP funds to be deducted from federal taxable income. Maine’s estimated cost under the new proposal is approximately $82 million in tax revenue. Surplus funding previously allotted to the Budget Stabilization Fund would be utilized to cover the loss.
Under the new proposal, PPP loan recipients of $1 million or less would receive the same double benefit they will receive at the federal level. For PPP loan recipients of more than $1 million, Maine would provide partial relief by matching the double benefit on the first $1 million. PPP funds up to $1 million are not included as taxable income, and associated expenses are eligible for deduction. Proceeds in excess of $1 million would be subject to standard tax treatment, meaning these proceeds are included in taxable income and are eligible to offset deductions.
“With this proposal, we are matching the measure enacted by the Congress in late December to deliver full tax relief to 99 percent of Maine businesses that received PPP in order to do the most good for the most businesses and the most employees,” stated Governor Mills in her press release on February 9th.
My team at ARB will be watching the situation closely and will issue updates as negotiations ensue. Feel free to contact me if you have questions and visit our COVID-19 Financial Resource and Tax Center for additional information.
by David Jean, CPA, CCIFP, CExP
David Jean is a firm principal and the Practice Leader for ARB’s Business Advisory, Construction & Real Estate, and Succession Planning Services Groups. David focuses primarily on financial accounting and consulting for construction, real estate, and manufacturing companies. He is a member of The Certified Public Accountant Advisory Council, an exclusive, 10-member council formed to serve as the resource team for the National Association of Surety Bond Producers (NASBP).