Maine lawmakers wrangling over PPP taxes as Republicans object to exemptions for certain business

(The Center Square) – Maine lawmakers are moving to exempt certain businesses from paying state taxes on federal pandemic loans, but the plan is drawing criticism from Republicans who say it unfairly leaves some companies on the hook for taxes.

A supplemental budget, narrowly approved by the Legislature’s Appropriations and Financial Affairs Committee on Thursday, would eliminate state taxes on the federal Paycheck Protection Program for more than 28,000 small businesses that received the disaster loans. The 8-5 vote went along party lines, with the committee’s Democratic majority supporting the plan.

But the spending package wouldn’t eliminate state tax obligations for 251 businesses that received more than $1 million in loans through the federal program.

That drew criticism from Republicans, who pushed for those businesses to be included in the tax plan and ultimately voted against the supplemental spending bill.

In a statement, Maine House Republicans said the budget plan “misses an opportunity to recognize that all Maine taxpayers are trying to overcome the pandemic together.”

“The COVID-19 pandemic and resulting economic collapse has been tough on all Mainers,” the statement read. “From those who lost their jobs, to those who showed up every day to work under extremely stressful conditions, and to employers on the brink of shuttering their doors.”

The Paycheck Protection Program was approved as part of the $2.2 trillion CARES Act passed by Congress in March 2020 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 28,000 Maine businesses received about $2.2 billion through the first round of the loan program, according to data from the U.S. Treasury.

Congress exempted forgiven PPP loans from federal taxes, but Maine is one of 18 states where loans are taxed, according to the Washington, D.C.-based Tax Foundation.

Exempting the 28,000 businesses that received PPP loans will cost the state about $100 million in the lost tax revenue, according to the appropriations committee.

The supplemental spending plan, which is meant to keep the state government running until June, also includes a tax deduction for Maine workers who collected unemployment benefits last year. The committee said it will benefit about 100,000 workers, saving them an estimated $300 or more on their income taxes this year.

The budget is expected to go before the Legislature for a vote next week. Republicans point out the measure needs a two-thirds vote and will require their support to be approved.

“We hope there will be ongoing conversations to provide beneficial tax relief to all Mainers in the biennial budget,” Republican lawmakers wrote. “We are all in this together and it is unfortunate that Republicans were left sitting alone at the negotiating table by Democrats.”

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