Maine Governor Janet Mills issued a press release Tuesday outlining a proposed path forward on the PPP issue that took center stage two weeks ago when the administration made clear its intention to collect state taxes on the federal benefits designed to keep struggling small business afloat during the pandemic.
The compromise plan would extend full state tax conformity to businesses that received less than $1 million in PPP benefits, while those that received federal support in excess of this amount would receive only partial relief. The release states full tax conformity would apply to more than 99 percent of Maine businesses that received PPP assistance.
According to an analysis by the Department of Economic and Community Development cited in the release, approximately 26,680 businesses received $1 million or less in PPP benefits, or about 99.1 percent of all Maine businesses that received PPP. These businesses employ nearly 184,500 people, or about 81 percent of the total employees at businesses that received assistance under the program.
There are 251 businesses that received more than $1 million in assistance, or about 0.9 percent of all Maine businesses that participated in the program. According to the release, the state “would match the double benefit on the first $1 million received and maintain standard tax treatment for proceeds in excess of that amount. These proceeds would be treated as taxable income eligible for offsetting deductions.”
The compromise would result in the state losing out on an estimated $82 million in revenue it would otherwise receive if full tax conformity is not achieved on the first $1 million in PPP assistance. Kirsten Figueroa, the governor’s lead budget officer, originally said the state could not conform to the federal tax code on the PPP because the state needed the estimated $100 million in revenue that would be generated from not conforming.
The loss in revenue would be offset by withdrawing surplus funds the administration had designated for the Budget Stabilization Fund in its biennial budget proposal.
The compromise earned the endorsement of the National Federation of Independent Businesses, and the release also noted the proposal was discussed with lawmakers on the Appropriations and Taxation Committees, as well as the Maine State Chamber of Commerce.
Republicans in the Maine Legislature issued a statement following the governor’s release stating they support full tax conformity across the board and disapprove of the governor’s attempt to pick winners and losers in tax policy.
“Today, the governor proposes to conform with most, but not all, of the federal changes. The Governor wants to pay for her plan through $81 million in withdrawals from the Budget Stabilization Fund (aka Rainy Day Fund) instead of from budget reductions favored by Republicans,” the release said.
“This is about keeping hardworking Mainers in their jobs,” Senate Republican Leader Jeff Timberlake said. “This pandemic is far from over. Businesses need this $20 million to keep their doors open and people employed. It is an investment in our economy and the many thousands of workers and the families who depend on them.”
“The Governor’s latest proposal will leave out federal relief for over 251 Maine businesses that employ more than 40,000 people (19% of PPP affected employees),” House Republican Leader Kathleen Dillingham said. “It’s not fair to provide relief to some employers, while leaving out others.”
It’s unclear if this is a hill Republican lawmakers are willing to die on in biennial budget negotiations. If Republicans withdraw their support of the budget over the issue, they could force the administration’s hand, though there’s still time for their counterparts to respond with a majority budget.