Maine's Federal Tax Conformity Proposal

Pierce Atwood LLP

Pierce Atwood LLP

On Thursday, March 1, Alec Porteous, the Commissioner of the Maine Department of Administrative and Financial Services, and Dr. Michael Allen, Associate Commissioner for Tax Policy for the Maine Department of Administrative and Financial Services, led a meeting before the Appropriations and Financial Affairs and the Taxation Committees regarding state conformity to the new federal tax law.

At the meeting, Mr. Porteous unveiled Governor LePage’s proposed federal tax conformity legislation, titled the Conformity and Family Tax Relief Act. According to previous studies, full conformity to the federal code would repeal the personal exemption, which would result in a significant tax increase on Mainers. The proposal unveiled on Thursday seeks to balance the administrative benefits of conformity with the federal code with a desire to ensure that Mainers do not experience a dramatic tax increase. 

At the heart of the bill, therefore, is a structure whereby the state replicates the personal exemption in a manner that still allows for conformity with the federal tax law. The Governor proposes doing this by enacting a 0% tax bracket covering the first $4,150 (single-filers) or $8,300 (joint-filers) and creating a $500 child and dependent tax credit. The 0% bracket replicates the personal exemption for childless taxpayers; the proposed child and dependent tax credit would achieve this result for a taxpayer’s dependents.

With respect to taxes on businesses, the Governor’s proposal would conform Maine’s tax law to the new domestic business tax provisions of the federal code. Thus, for example, businesses would be able to take advantage of bonus depreciation at the state level and would be permitted to carry net operating losses forward indefinitely, subject to federal limitations. Conformity would also eliminate the Maine Capital Investment Credit and incorporate the new federal 20% pass-through deduction at the state level. 

Per the report presented to the Committees on Thursday, the intended impact of the corporate tax changes is to be revenue-neutral to the state. With respect to deferred foreign source income, which under the new federal law is deemed repatriated and subject to federal tax at a reduced rate (an amount that can be spread over eight years), the conformity measure proposes including 20% of the deemed foreign income in state taxable income in the first year (with no mechanism to defer the tax over multiple years). 

The Governor and Maine Revenue Services continue to consider the other international provisions of the federal tax law and will be proposing amendments responsive to these provisions in the coming weeks.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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