AUGUSTA — Gov. Janet Mills jabbed at minority Republicans in the Maine Legislature Thursday after they refused to support a supplemental budget bill that would bring state tax relief to thousands of businesses and unemployed workers.
“The failure to pass this commonsense budget is a loss for Maine,” Mills, a Democrat, said in a prepared statement late Thursday afternoon. “It is a loss for our unemployed and for 28,000 small business owners who would get tax relief but are now left to wonder what happens next.”
The bill, which would exempt federal Paycheck Protection Program loans from state taxes, failed to get two-thirds support in the House on a 83-63 vote. The lawmakers recessed at about 6:30 p.m. for two hours but didn’t return until 10:15 p.m.
Exempting the PPP loans from state taxes would save the 28,000 businesses roughly $100 million.
Dana Connors, president of the Maine State Chamber of Commerce, the state’s largest business organization, said the choice between full PPP conformity and no relief at all was not an option for his members.
“The fallback should have always been to protect the full PPP conformity, just as it had already been agreed to in a bipartisan manner,” Connors said late Thursday. He added that full PPP conformity was the top concern and top priority for the state chamber of commerce.
Mills said House Republicans were taking an “all-or-nothing” approach and encouraged them to “abandon their last-minute attempt to provide state tax breaks to large multistate, multinational corporations …”
The legislation, stuck at an impasse late Thursday, is meant to close a projected revenue shortfall of about $125 million in the state’s current budget year, which ends on June 30, but it also includes the tax relief provisions for businesses and the unemployed.
Maine’s Constitution also requires state government maintain a balanced budget or be forced to shutdown.
Lawmakers also face a deadline. While the federal tax deadline is April 15, corporate income tax returns are due to the state by Monday. Without a final decision by then, many Maine tax filers will likely be forced to file extensions on their returns.
The supplemental budget also would exempt up to $10,200 in unemployment benefits from state taxes. If the measure fails, the 160,000 Mainers who received unemployment would have to count 100 percent of the unemployment benefits they received in 2020 as income and pay state taxes on it.
“The ability to compromise – to set aside an all-or-nothing approach and achieve reasonable solutions through good faith negotiations – is a core tenant of governing,” Mills said in a prepared statement. “My administration, along with Republicans in the Senate and Democrats in both chambers, did just that. House Republicans can join us in achieving meaningful compromise on behalf of Maine people and Maine businesses.”
The full Legislature is meeting in person for only the second time since swearing in ceremonies in December of last year. They are meeting at the Augusta Civic Center – a bigger venue that allows social distancing for lawmakers to prevent spreading the COVID-19 virus. But the venue and the pandemic are also putting additional pressure on the lawmakers as the city-owned Civic Center is slated to again be set up as a mass-vaccination site for MaineGeneral Health on Friday.
The use of the facility is costing the Legislature about $21,000 a day.
As approved by the Senate late Wednesday, the supplemental budget bill expands upon an initial proposal by Mills that would have exempted the first $1 million in PPP funds a business received from the state’s corporate income tax. Instead the bill exempts all PPP funds from the state’s income tax, similar to a provision in federal tax law that Congress passed in December. That expansion will cost the state about $100 million in tax revenue and exemption on unemployment benefits paid in 2020 will cost an additional $47 million.
Those two provisions of the bill received bipartisan support on the Legislature’s budget-writing Appropriations and Financial Affairs Committee but ultimately the committee’s five Republicans voted against the final package setting up the partisan split on the bill.
Republican leaders have rebuffed claims they changed their demands in negotiations, saying they have been seeking total conformity with the federal tax code from the onset of the lawmaking session in January. But Democrats said Republicans were pushing only for full conformity on PPP funds and once Democrats agreed to that concession Republicans expanded their demands.
Other conformity pieces Republicans have asked for include matching federal law on allowing businesses to deduct 100 percent of the costs of business-related meal expenses and on foreign derived intangible income, which come from exporting products that are tied to intangible assets, such as patents, trademarks, and copyrights, held in the United States.
In 2017 the federal Tax Cut and Jobs Act created a single corporate income tax rate of 21 percent, but it also lowered the rate on foreign derived intangible income from 21 percent to 13.125 percent, that rate will increase to 16.83 percent in 2026. Combined, extending those tax benefits in state law, would cost Maine another $32 million.
Expanding the deduction for meal expenses has been derided by Senate President Troy Jackson, D-Allagash, and other leading Democrats as a write-off for “three-martini lunches.”
But Republicans have said many Maine businesses incurred increased business meal costs as they fed their employees during the pandemic to keep them on the job. The change on foreign derived intangible income impacts only about 200 companies that pay corporate taxes in Maine and only about 10 of those are based in the state, according to information provided to the state Senate by the Maine Revenue Service. Without the change those businesses would pay about $8.3 million more in state income taxes for 2020.
But Republicans were hard-pressed to name which companies would benefit from the shift when pressed on it late Wednesday night by their own colleague, Sen. Rick Bennett, R-Oxford.
Bennett and Sen. Brad Farrin, R-Norridgewock, later joined Senate Democrats to move the bill forward, 24-10, after Democrats agreed to add another $113,000 to the bill for a homeless veterans coordinator position that had been trimmed as cost-saving measure in Mills’ proposed supplemental budget.
Senate Minority Leader Jeff Timberlake, R-Turner, said Republicans have wanted full state conformity with federal tax law.
House Speaker Ryan Fecteau, D-Biddeford, said that would allow individuals and businesses to amend tax filings on income that was earned well before the onset of the pandemic in 2018 and 2019.
With their votes Thursday Republicans were turning their backs on Maine businesses, Fecteau said.
“These are the businesses who received PPP loans in my community. These are the businesses we know. These are people who have given blood, sweat and tears to survive the pandemic,” Fecteau said. “This was a vote on whether we stand with them. Republicans didn’t stand with them.”
This story will be updated.
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