In the wee hours of the morning, the Maine Legislature passed a compromise FY 2021 supplemental budget. Importantly, the budget fully conforms Maine’s tax treatment of Paycheck Protection Program (PPP) loans to the federal tax-exempt treatment of the loans.
As a result, Maine businesses will not face increased Maine income tax as a result of either PPP loan forgiveness or taking a federal deduction for business expenses paid with forgiven loan proceeds. This compromise budget differs from the governor’s proposal, which would have conformed to the federal treatment up to the first $1 million of forgiven PPP loan proceeds. This is a significant win for Maine businesses.
As passed, the supplemental budget also includes the following new tax-related provisions:
- FDII Addback Study. As part of the governor’s original proposal, the supplemental budget expanded a Maine addback to apply to both the 50% global intangible low-taxed income deduction and the 37.5% foreign-derived intangible income deduction under IRC § 250(a)(1). In addition, the budget passed last night will require Maine Revenue Services to study the FDII addition modification to determine its impact on Maine-based businesses.
- Unemployment Compensation Limits. The supplemental budget conforms to the federal American Rescue Plan Act of 2021 by exempting up to $10,200 of unemployment compensation received during 2020 from Maine income tax, for individuals whose federal adjusted gross income is less than $150,000.
The supplemental budget otherwise adopts the governor’s proposed tax provisions and decouples from the federal treatment of excess business losses, interest expenses, and charitable deductions, while conforming to the federal treatment of net operating losses. Additional analysis on these and other tax changes in the budget is available in our recent alert, Maine Governor’s Proposed Supplemental Budget – Federal (Non)Conformity Summarized.