Taxes

After closing Maine businesses, Mills wants them to pay state taxes on their PPP loans

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Governor Janet Mills wants to balance her bloated budget on the backs of struggling small business owners, forcing them to pay $100 million in state income taxes on Paycheck Protection Program (PPP) loans. That’s what the public learned Monday at a meeting of the Appropriations and Financial Affairs Committee where members discussed the administration’s supplemental budget and tax conformity plan following a busy year of stimulus packages and tax changes from the federal government.

Maine Sen. Susan Collins helped devise the Paycheck Protection Program during the pandemic, which sent emergency relief funds to struggling small businesses across the country in order to keep their employees on payroll. The program was intended to prevent unemployment from ballooning to epic proportions amidst all the shutdowns and economic restrictions imposed by state governors, including Mills.

Early on in the pandemic, Congress passed the Families First Coronavirus Response Act and the Coronavirus Aid, Relief and Economic Security Act which altered the federal tax code to exempt PPP loans from federal taxes. In December, Congress passed the Consolidated Appropriations Act which, in effect, created a second stimulus by allowing expense deductions for expenses covered by PPP loans.

According to FederalPay.org, 28,270 Maine businesses received a PPP loan in 2020 totaling $2.3 billion in assistance, with an average award of $80,098. The governor’s proposal does not mirror federal law exempting these loans from state taxation or providing further relief through expense deductions.

When Republican members of the committee sounded the alarm about taxing Maine’s small businesses amidst the uncertainty that comes with the pandemic, Mills’ budget commissioner, Kirsten Figueroa, essentially cried poverty.

“The federal government is using the tax code to provide additional federal fiscal stimulus to PPP loan recipients. But without additional funding to the states to pay for this effort, this is a conformity provision that is challenging state governments across the nation.”

Essentially, Figueroa is saying that the state needs this $100 million from small businesses because Congress did not pass a law allowing states to use coronavirus relief funds for the purpose of backfilling lost revenue. Since Congress hasn’t stepped in to bail out Maine for Mills’ irresponsible spending, the administration is now forcing the burden onto the small business owners who struggled to make ends meet all year while trying to comply with their dizzying list of economic restrictions.

As noted by many groups that testified in opposition to the plan, including the National Federation of Independent Business, the Maine Society of CPAs, Hospitality Maine and the Maine State Chamber of Commerce, small businesses in Maine cannot afford a new income tax bill on federally forgiven loans.

“If not for PPP and the Maine Economic Recovery grants, half our industry would no longer exist in 2021,” said Greg Dugal of Hospitality Maine. “In this devastating economic time the one thing we all know for sure is small businesses should not be receiving unexpected income tax bills of $1,000 or more based on a rescue loan forgiven by the federal government.”

To add insult to injury, Mills already ordered Maine Revenue Services to draft forms that match her plan for the tax filing period that begins on February 12. After nearly a year of single-handedly dictating public policy in Maine, the governor moved unilaterally on this issue, again without the legislature’s input. It’s worth noting that two Senate Democrats, Sens. Jim Dill and Cathy Breen, submitted legislative requests before cloture to conform with federal tax law.

Mills tax conformity plan is grossly irresponsible. After growing state spending by $800 million in her first budget, the governor proposed her second biennial budget earlier this month that grows spending an additional $400 million. Instead of tightening our belt to reflect the economic uncertainty caused by the pandemic, the governor continues to spend money we don’t have.

Now she wants small businesses to foot the bill for her bad decision to lock down the state and micromanage every interaction between a business and its patrons. Maine doesn’t need this $100 million from small businesses owners to balance its budget; what Maine needs is a governor who values the people who create value for the rest of society.

About Jacob Posik

Jacob Posik, of Turner, is the director of communications at Maine Policy Institute and the editor of The Maine Wire. He formerly served as a policy analyst at Maine Policy. Posik can be reached at jposik@mainepolicy.org.

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