Maine Gov. Mills changes course on taxing loans after backlash

(The Center Square) – Maine Gov. Janet Mills is walking back plans to tax businesses that received federal Paycheck Protection Program loans, following criticism from Republican lawmakers.

Mills had proposed taxing the loans to balance her proposed $8.3 billion budget for the next two fiscal years. Her administration had estimated the move would help whittle down a projected $100 million shortfall in next year’s spending plan.

Republicans and business groups were quick to rip the plan, saying the governor was unfairly taxing businesses as they struggle to stay afloat amid pandemic-related government restrictions.

On Thursday, Mills reversed course, announcing that she was instead directing state departments to see if there is any federal funding available to avoid taxing the federal loans.

“The administration would prefer to conform to the federal government’s double benefit of treating these PPP funds as nontaxable and allowing the related expense as deductions, but, at an estimated cost of $100 million, was not able to do so and still balance the budget,” Mills said in a statement.

Maine GOP Executive Director Jason Savage ripped Mills’ plan, accusing her of “doing the Augusta two-step” and of trying to “pass the responsibility to someone else.”

“After trying to impose this outrageous pandemic tax on Maine’s struggling small businesses, she is now saying that they are looking into a $100 million bailout by raiding federal government funds Maine has put elsewhere to sustain Mills’ ‘balanced budget,'” he said in a statement. “No matter how hard she tries to pass the buck, Janet Mills owns her job killing policies and the financial ruin that has resulted for so many small businesses.”

The Paycheck Protection Program was approved as part of the $2.2 trillion CARES Act passed by Congress in March to help keep small businesses afloat during the current pandemic.

Under the law, borrowers are eligible for PPP loan forgiveness if at least 60% of the proceeds go toward payroll expenses.

A second pandemic relief package approved by Congress in December provided another round of forgivable PPP loans, and allowed businesses to claim tax deductions for the expenses they covered with forgiven loan proceeds.

More than 24,000 Maine businesses received about $2.2 billion through the first round of the loan program, according to data from the U.S. Treasury.

The loans aren’t subject to federal taxes, but states are allowed to treat the loans as revenue depending on how strictly they adhere to the Internal Revenue Code.

Mills’ budget plan businesses would be allowed to deduct expenses like rent, payroll and utility bills, but they would have to pay taxes on any other business related expenses.

Like many states, Maine has seen sales and income tax revenues decline amid layoffs and businesses shutting their doors.

The Maine chapter of the National Federation of Independent Businesses praised Mills for reversing course on taxing the loans, saying the added financial burden would have hurt many businesses that are struggling to survive.

“Right now so many small businesses in Maine, hard-hit by pandemic closures and restrictions, are barely hanging on due to government-imposed public health protections that began last March limiting their ability to bring in sales revenue,” David Clough, NFIB’s state director said in a statement. “So we are grateful to the governor for reconsidering the initial tax policy that would raise small business costs.”

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