Taxes

Tax conformity crucial for Maine’s small businesses

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This article was originally published in The Ellsworth American.

The Maine Legislature is expected to adjourn in a few short weeks, but the March snowstorms put us somewhat behind schedule. There is a lot to be done and a short amount of time to do it in.

We have some major bills before us that are still working through the process, but there’s one proposal in particular that is of great importance — tax conformity.

Every state conforms to the federal tax code, either automatically or through legislation. Maine is a static conformity state, meaning the Legislature must vote on conformity. Historically, it has been relatively simple to conform to the federal tax code, but this year the changes are far more significant as a result of the largest overhaul of the federal tax code in 30 years.

Whether you agree with the changes at the federal level or not, there are significant benefits to conformity including ease of filing for individuals and businesses and significant savings to the state because conformity allows Maine to rely on the Internal Revenue Service to review returns and conduct audits.

In the absence of conformity, we need to drastically increase the workforce at the Maine Revenue Services to develop and enforce our own separate state tax code.

Failure to conform has dire consequences for all filers, but those who will be hit the hardest are our small businesses which, in the absence of conformity, will be required to maintain a separate set of books for their state taxes and follow two separate depreciation schedules for all investments they make in their business, both large and small. The increased burden of tax filing also would significantly increase the cost of professional tax preparation.

To be clear, I’m not talking about large businesses and corporations here. They typically have a team of lawyers and accounting departments on hand to handle these matters. The brunt of the burden will land squarely on small mom-and-pop businesses as they try to navigate two separate bureaucracies and two separate tax codes within their limited resources.

Putting tax conformity off for at least another year also forces businesses to operate under a cloud of uncertainty. Should the Legislature decide to conform next year, all individual filers who file exemptions and all businesses, both large and small, will be forced to file amended tax returns for 2018.

Not only will they have to pay to prepare and file their taxes twice, but no one today knows what rules they will be held to on investments made this year.

Under the new federal tax code, business investment is incentivized with what is called bonus depreciation. Under this new rule, businesses investing this year can write off most of, if not all of that investment in this calendar year rather than spreading that investment over a number of years. By not conforming now, Maine businesses will be held at a competitive disadvantage as businesses operating in other states will be able to fully take advantage of this expedited depreciation schedule.

The towns of Bucksport, Lincoln, Brewer, Old Town, Millinocket and East Millinocket have all worked very hard over the years to reinvent themselves after the recent paper mill closures, and there are significant business investments on our horizon that will lead to a lot of good-paying jobs for many people. But they aren’t the only ones with a lot at stake here. Many communities around the state have businesses moving in and looking to invest in our economy.

That’s why it is incredibly important that the Legislature act now, before the end of this session, to conform our state to the federal tax code in a way that won’t raise the tax burden on Maine taxpayers.

About Kimberley Rosen

Senator Kim Rosen is serving her second term in the Maine State Senate representing the people of Senate District 8. Currently, she is the Chair of the Legislature’s Criminal Justice and Public Safety Committee as well as a member of the Transportation Committee.

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