Maine Tax Alert: Interesting Tax Changes Made by Maine's 126th Legislature (and One by Maine Revenue)

The 2nd Regular Session of the 126th Legislature has adjourned and as usual the Taxation Committee had a number of issues to address. However, unlike last session, the issues tended to be narrow and targeted, as opposed to the comprehensive tax reform bills seen in previous sessions.

This session saw the repeal of some unpopular changes made during the previous session. For example, in January, a $27,500 cap on itemized deductions was enacted to help close the budget gap. The Legislature became concerned that the cap would have an adverse impact on charitable contributions and taxpayers with significant medical expenses. To address that concern, medical and dental expense deductions are now excluded from the cap—and are therefore, fully deductible. Taxpayers seeking to deduct charitable contributions in excess of the $27,500 cap will have to settle for a gradual phase-out of the limitation. For 2014 and 2015 the cap remains in place as to charitable contributions. For 2016, an additional $18,000 of charitable contribution deductions will be allowed. For 2017 and beyond, there will be no cap on charitable contribution deductions.

Changes were also made to some of the state’s economic and community development programs. The income tax credit available to Pine Tree Zone companies was reduced only to be reinstated to its original status before the reduction took effect. The Seed Capital Tax Credit Program was reauthorized and made permanent—although the amount of credits available this year is just $675,000 (with substantially more available in later years). The Historic Preservation Tax Credit was clarified to ensure that the $5,000,000 cap applies to each building that is a component of a certified historic structure. An income tax credit was also created for primary care doctors and nurses that practice in certain underserved areas.

This session also saw the defeat of one interesting—and controversial—bill. LD 1120 would have required corporations that file unitary income tax returns in Maine to include income from certain foreign jurisdictions (so-called “tax havens”) in net income when apportioning income among tax jurisdictions. The bill was passed by the Legislature but vetoed by the Governor. That veto was sustained.

Finally, Maine Revenue Services has revised its long-standing position that real estate transfer tax should be collected for transfers involving Fannie Mae and Freddie Mac. This issue has been litigated in a number of states. A consensus developed that Fannie Mae’s and Freddie Mac’s exemption from “all taxation” includes indirect taxes, such as real estate transfer taxes. Accordingly, Maine Revenue has advised the registries of deeds to cease collecting from these entities.

A more detailed summary of the new laws discussed above, and several others related to property tax and sales/use tax can be found in our 2014 Summary of New Maine Laws.

If you have a question about any of these new laws, what the statutory changes mean for you and your business, or how to prepare for the next legislative session, please contact any member of Pierce Atwood’s State and Local Tax Group.