On March 18, 2021, Maine Governor Janet Mills signed the fiscal year 2020-2021 supplemental budget into law. The supplemental budget includes legislation ruling that the State of Maine will conform to the federal treatment of PPP loans. For PPP borrowers in Maine, this means the forgiven portion of a PPP loan may be excluded from Maine taxable income, even if it would otherwise be treated as cancellation-of-debt income, and eligible business expenses paid using forgiven PPP funds may be deducted from Maine taxable income.
“This supplemental budget is the result of a long and, at times, arduous debate. But ultimately it was sensible compromise on all sides that got it across the finish line,” said Governor Janet Mills.
Because Maine’s estimated cost to fully conform to federal treatment of PPP loans was estimated to be $100 million, the supplemental budget Mills originally submitted for fiscal year 2021 proposed the State of Maine decouple from the CARES Act and Consolidated Appropriations Act, 2021 (CAA) provisions mentioned above.
The legislation provides additional relief for Maine taxpayers…
In conformity with the American Rescue Act Plan of 2021, Maine now exempts unemployment benefits from state income taxes. Recipients of unemployment compensation in 2020 with income (regardless of filing status) under $150,000 will not have to pay Maine income tax on up to $10,200 of their unemployment compensation.
The State of Maine now conforms to the TCJA’s 80% net operating loss (NOL) limitation, as well as to the CARES Act deferral of this limitation for tax years beginning before January 1, 2021.
Maine now provides a tax credit for residents telecommuting and subject to taxes in another state for wages earned while working from home.
The legislation decouples Maine from certain other federal provisions:
Excess Business Losses for Non-corporate Taxpayers – Under the new Maine law, losses realized by non-corporate taxpayers will be treated pursuant to the TCJA, which limits excess losses ($250,000 for single taxpayers and $500,000 for those married filing jointly) and requires taxpayers to carry forward excess losses to subsequent years as a net operating loss (NOL).
Business Interest Expense – The CARES Act increased the interest expense limitation from 30% to 50% of adjusted taxable income (ATI) for tax years beginning in 2019 and 2020. Maine taxpayers must add back the amount of interest deducted at the federal level that exceeds the 30% threshold. As long as no more than 25% of the amount is used as a Maine deduction in any one tax year, the taxpayer is allowed to recoup the lost Maine deduction starting in 2021.
Corporate Charitable Deductions – For C corporations, the CARES Act increased the charitable contribution deduction ATI limitation from 10% to 25% for charitable contributions made in 2020, and the CAA extended the provision through 2021. Maine does not conform to this increase, and an addition modification will be required. Through a subtraction modification in tax years 2020 through 2024, taxpayers can recoup the resulting charitable contribution carryover.
Qualified Improvement Property (QIP) – The CARES Act corrected a TCJA drafting error that inadvertently made QIP subject to a 39-year depreciable life by retroactively allowing for a 15-year depreciable life, making QIP eligible for bonus depreciation starting in 2018. Maine excludes QIP placed in service in 2018 and 2019 from the calculation of the Maine Capital Investment Credit.
GILTI and FDII Deductions – While the State of Maine has always decoupled from the federal global intangible low-taxed income deduction enacted under the TCJA, Maine has expanded nonconformity to include both the 50% GILTI deduction and the 37.5% foreign-derived intangible income (FDII) deduction for tax years beginning on or after January 1, 2020.
Maine Revenue Services will provide formal guidance in the coming days.
A federal extension of the PPP deadline is on the horizon…
The PPP Extension Act of 2021 was introduced in the House on March 11, 2021, and passed by the House (415 – 3) on March 16th. If passed by Congress, the Act would extend the PPP application deadline to May 31, 2021. ARB will issue updates as the bill makes its way through the Senate.
by David Jean, CPA
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).