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Richard R. Coshow of Bridgton is a certified public accountant.
The Maine Legislature should adopt Paycheck Protection Program (“PPP”) tax provisions which conform entirely with the federal tax provisions immediately.
The intent of the PPP loan was to provide needed money for wages and other key expenses. The loan forgiveness was key too, that despite normal tax rules, if forgiven, it will not be income. Thus, taxpayers can still claim normal tax deductions for business expenses paid with PPP money, even if forgiven.
Additionally, the Consolidated Appropriations Act, 2021 clarified congressional intent that the deductions paid with the PPP loan proceeds were to be deductible, even if the loan was forgiven:
“No deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by [the loan forgiveness provision that says forgiven PPP loans will not count as income].”
I am a certified public accountant, having been certified in four states in addition to Maine. My experiences in five different states over a 40-year career provide me with a unique perspective on taxation and tax policy matters.
Maine is in a unique position in this current, COVID-impaired environment, and tax policy decisions now will have a positive or negative effect (or no effect at all) for many years.
Maine is a small state, with a blend of income, property, sales and use, and miscellaneous taxes including excise taxes and fees providing Maine’s revenue sources. Furthermore, geographic isolation, education and a limited industrial base has resulted in Maine’s income per capita ranking 36th in the U.S . With a base of approximately 500,000 employees or adults prospectively in that category, and approximately 42,000 employment establishments, Maine’s economic engine is clearly small businesses.
For background, 28,270 PPP loans were extended to Maine businesses. The total amount loaned to Maine businesses was approximately $2.3 billion, with an average loan of $80,098 per borrower with an average of nine employees.
Maine’s economic engine is small business. As a state with an economy driven by commercial fishing, paper and allied products, food products, ship building and tourism, among other industries, small businesses account for most of the employment excluding Bath Iron Works, healthcare, 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.
It is clear 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.
With specificity though, we now find ourselves and Maine in the depths of an economic morass caused by COVID, with potentially no end in sight. 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, tax free at the federal level, would send 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.
As an alternative, Gov. Janet Mills has proposed taxpayers with PPP loans of less than $1 million be provided complete relief like the federal government provides (tax-free loan proceeds, non-taxable loan forgiveness, and allowing deduction of all expenses paid with the PPP loan proceeds). Mills also proposes that for taxpayers with loans in excess of $1 million, loan proceeds above $1 million would count as taxable income, which would be offset by the deductions of all expenses paid with the PPP loan proceeds. They would receive the same treatment as small businesses on the first $1 million of PPP loans.That proposal would at least eliminate the onerous state tax on most small businesses.
Complete conformity to federal law should be enacted to protect all Maine taxpayers. If the Legislature will not protect all taxpayers, they should at a minimum, protect taxpayers that borrowed less than $1 million as suggested by Mills.
Taxpayers and their accountants need this resolved immediately.