In a special session, the Maine legislature passed tax conformity legislation on August 30, 2018, after having failed to pass this legislation prior to its spring adjournment. The legislation is now on the Governor’s desk awaiting signature and, once signed, will take effect immediately.
The legislation makes the following changes:
- Updates references to the federal code to refer to the federal code as amended through March 23, 2018 for tax years beginning on or after January 1, 2017, thereby conforming to the Tax Cuts and Jobs Act (TCJA).
Impact on Individual Taxpayers1
- Changes the Maine standard deduction to conform to the federal standard deduction and increases the amount at which the standard deduction begins to phase out.
- Increases Maine’s itemized deductions by the amount of real and personal property taxes not claimed for federal income tax purposes as a result of the $10,000 federal limitation on deduction of state and local taxes.
- Increases the amount at which the Maine itemized deduction begins to phase out.
- Establishes a Maine personal exemption deduction of $4,150 (with an additional $4,150 deduction for the taxpayer’s spouse if the taxpayer is married filing a joint return). The personal exemption deduction amount is subject to phase-out for higher-income taxpayers and is subject to an annual inflation adjustment. The personal exemption deduction may not be claimed for a taxpayer or a taxpayer’s spouse who is claimed as a dependent on another taxpayer’s return.
- Amends the sales tax fairness credit and the property tax fairness credit by replacing references to the number of exemptions claimed on the taxpayer’s return with references to dependents claimed under the federal child tax credit and removing the requirement to add the federal domestic production activities deduction to income for purposes of the programs. It also provides for the adjustment for inflation of the sales tax fairness credit and the property tax fairness credit beginning in 2019. Finally, it increases the property tax fairness credit to 100% of the benefit base above 6% of the resident individual’s income and increases the credit cap to $750 for individuals and $1,200 for individuals over 65 years of age.
- Establishes a new tax credit equal to $300 for each qualifying child and dependent of the taxpayer for whom the federal child tax credit is claimed for the same taxable year. This credit is subject to phase-outs above certain income levels.
- Amends the Maine College Savings Program to change the name to the Maine Education Savings Program and, as a result of recent federal changes to Section 529, extends the ability to use the program for enrollment or attendance expenses at an elementary or secondary public, private or religious school and to receive favorable federal tax treatment on the earnings portions of such disbursements.
Trusts and Estates
- Requires that any amount claimed as a special deduction provided by Section 199A of the federal code must be added back to federal taxable income for purposes of calculating income tax liability of estates and trusts under 36 M.R.S. ch. 809, 811. Individual taxpayers are not allowed the special deduction provided by Section 199A of the federal code in calculating Maine taxable income; this section provides similar treatment to estates and trusts.
- Retains the Maine exclusion amount under the estate tax at the amount in effect for deaths prior to January 1, 2018, subject to an annual inflation adjustment, and does not conform to the increases in the federal basic exclusion amount.
Impact on Corporate Taxpayers2
- The TCJA limits net operating loss (NOL) deductions to 80% of taxable income, eliminates the ability to carry back NOLs, and permits an unlimited carryforward of NOLs. Maine has not conformed to the 80% limitation and, consistent with current practice, only permits the carryforward of NOLs.
- Eliminates the application of the alternative minimum tax to corporate income.
- With respect to the federal mandatory repatriation of deferred foreign income under the TCJA, the taxation of dividends, subpart F income, and global intangible low-taxed income (GILTI):
- For tax years beginning on or after January 1, 2017, creates an addition modification in the amount of the participation exemption claimed in accordance with Section 965(c) of the federal code.
- Creates an addition modification in the amount of the GILTI deduction claimed in accordance with Section 250(a)(1)(B) of the federal code.
- For tax years beginning on or after January 1, 2017, excludes from dividend income subpart F income, GILTI included in federal taxable income and deferred foreign income included in federal taxable income.
- For tax years beginning on or after January 1, 2017, creates a subtraction modification for an amount equal to 50% of the apportionable subpart F income included in federal gross income. This section codifies longstanding administrative practice.
- For tax years beginning on or after January 1, 2017, creates a subtraction modification for an amount equal to 80% of the apportionable deferred foreign income included in federal gross income, pursuant to Sections 965(a), (b) of the federal code.
- Creates a subtraction modification for an amount equal to 50% of the apportionable GILTI included in federal gross income.
- Expands the corporate income tax brackets beginning in 2018.
- The current rate structure for taxable corporations consists of 3.5% on income not over $25,000, 7.93% on income of $25,000 but not over $75,000, 8.33% on income of $75,000 but not over $250,000 and 8.93% on income of $250,000 or more.
- The rate structure for tax years beginning after December 31, 2017 consists of 3.5% on income not over $350,000, 7.93% on income of $350,000 but not over $1,050,000, 8.33% on income of $1,050,000 but not over $3,500,000 and 8.93% on income of $3,500,000 or more.
- Provides a state credit under the income tax and the insurance premium tax equal to the federal credit for employer-paid family and medical leave. Consistent with the federal credit, the Maine credit expires on December 31, 2019.