AUGUSTA — Minority Republicans in the Maine House yielded on their demands for full tax conformity with the federal government late Thursday, preserving a deal that provides income tax breaks to more than 28,000 businesses and 160,000 unemployed workers.
House Speaker Ryan Fecteau, D-Biddeford, top, and Clerk of the House Robert B. Hunt work on the rostrum during Thursday’s legislative session at the Augusta Civic Center. Joe Phelan/Kennebec Journal Buy this Photo
Disagreement over a proposed supplemental state budget bill earlier in the day had left a $100 million state tax exemption for federal Payroll Protection Program loans in limbo.
Final votes on the bill were still pending at midnight Thursday, but leaders in both parties said they were behind the compromise.
A concession from Democrats to sock away another $8 million in the state’s rainy day fund brought enough Republicans on board to put the budget bill on a trajectory toward Gov. Janet Mills’ desk.
The PPP tax break is worth about $100 million to Maine’s business community, which now will avoid paying income taxes on the forgivable federal loans issued to protect jobs and preserve companies hard hit at the height of the COVID-19 pandemic.
Earlier in the night, Mills, a Democrat, had chastised the House minority caucus, which was digging in on its demands that Maine fully conform to the federal tax code, which would have cost state government another $32 million in tax revenue, while extending a range of obscure federal tax benefits to state law.
As part of the deal, the Department of Administration and Financial Services will be tasked with studying the impact for Maine if it adopted federal tax benefits 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. Republicans said failing to do so would cost some companies doing business in Maine and some Maine-based companies a combined $8.3 million in new taxes.
Ultimately, Republicans seemed unwilling to risk the broader tax relief package, including a provision in the bill that will exempt the first $10,200 of unemployment benefits from state income taxes.
The Senate reached a two-thirds majority on an earlier version of the bill with the support from two of the 35-seat chamber’s 12 Republicans.
Mills jabbed at minority Republicans in the House, saying they 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 …”
But House Minority Leader Kathleen Dillingham, R-Oxford, said Republicans and Democrats were not fully hearing each other about what they meant by “full conformity.” With Democrats believing that meant only full conformity on PPP, while Republicans expected full conformity to all federal tax codes.
Dillingham said the study would show whether the conformity piece Republicans wanted would be beneficial or not. “Is it beneficial to the businesses, how many businesses in Maine are using it?” Dillingham said. “Or do we want to continue to decouple from the federal tax code.”
She said lawmakers broke through on a deal by simply sticking to the negotiation table. She also credited House Speaker Ryan Fecteau, D-Biddeford, for being willing to stay in talks despite the heated rhetoric between the two caucuses.
Earlier in the night, 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.
Independent Rep. Walter Riseman of Harrison speaks during Thursday’s debate on amendments to the supplemental budget. Joe Phelan/Kennebec Journal Buy this Photo
“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.
The supplemental budget bill 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 included 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 were also facing tight deadlines, including a federal tax deadline of April 15, while corporate income tax returns are due to the state by Monday.
The full Legislature met in person for only the second time since swearing in ceremonies in December of last year. They were 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 also put 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 on 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.
Another conformity piece Republicans have asked for was matching federal law on allowing businesses to deduct 100 percent of the costs of business-related meal expenses.
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.
With their earlier 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.”
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