AFA Update: Thursday, January 29, 2015- LD 138 Tax Conformity

Tax Conformity

The Appropriations and Taxation committees met for a public hearing on  LD 138 “An Act To Update References to the United States Internal Revenue Code of 1986 Contained in the Maine Revised Statutes, Decouple Federal Bonus Depreciation Deductions and Create a Maine Capital Investment Credit”, also known as the Conformity bill.

A Congressional Research Service report on the federal bill is here.

The Governor’s bill has 3 major sections:

  1. Updates references to the United States Internal Revenue Code of 1986 contained in the Maine Revised Statutes, Title 36 to refer to the United States Internal Revenue Code of 1986, as amended through December 31, 2014, for tax years beginning on or after January 1, 2014. This bill primarily affects the State’s income tax laws.

Significant deductions are:

teacher expense deduction

primary mortgage insurance deduction

  1. Decouples Maine individual and corporate income taxes from federal bonus depreciation deductions.
  1. Provides a Maine capital investment credit for taxable years beginning in 2014 with respect to depreciable property placed in service in the State.

The credit is equal to 9% of the amount of the net increase in depreciation attributable to   the depreciation deduction claimed by the taxpayer under the United States Internal Revenue Code of 1986, Section 168(k) with respect to property placed in service in the State during the taxable year.

Dr. Mike Allen clarified that the bill conforms to all aspects of the federal legislation except for the provisions related to bonus depreciation. Instead the bill resurrects the Maine Capital Investment Tax Credit to target investments made in Maine.

Members of the Tax committee, led by Chair Goode and Rep. Moonen, questioned the wisdom of resurrecting a tax credit that rewards purchases that have already been made, with no expectation of receiving a credit, instead of a forward looking credit to incentivize continued investment in Maine.

Instructions to tax preparers from Maine Revenue Services (MRS) has been to assume that the Legislature will approve this legislation and conform according to Acting Commissioner of the Department of Administrative and Financial Services (DAFS) Richard Rosen.

Rep. Moonen probed the ability of MRS to provide data on who receives this credit or who gets this credit and also takes advantage of the local business property tax exemption the Business Equipment Tax Exemption (BETE). They cannot.

Rep. Grant asked Dr. Allen and others testifying about measures of the effectiveness of the Maine Capital Investment Tax Credit.

The Fiscal Note for the bill as shared by Dr. Allen is as follows:

       Governor’s Proposal to Conform to the Tax Increase Prevention Act of 2014
2015 2016 2017 2018 2019
1) Bonus Credit-same as 2013 credit
Corporate  $          (3.115)  $       (0.860)  $          0.540  $          0.379  $           0.273
Individual  $          (7.197)  $          0.544  $          2.154  $          1.557  $           1.106
Total  $          (10.31)  $          (0.32)  $            2.69  $             1.94  $              1.38
2) Section 179
Corporate  $          (0.631)  $          0.008  $          0.686  $          1.933  $           1.571
Individual  $          (4.748)  $          0.563  $          1.436  $          1.038  $           0.737
Total  $            (5.38)  $            0.57  $            2.12  $             2.97  $              2.31
3) Other individual conformity items
teacher expense deduction  $          (0.359)  $                 –  $                 –  $                 –  $                  –
mortgage insurance premiums  $          (0.808)  $       (0.143)  $                 –  $                 –  $                  –
2015 2016 2017 2018 2019
Corporate  $          (3.746)  $       (0.852)  $          1.227  $          2.313  $           1.845
Individual  $        (13.111)  $          0.965  $          3.590  $          2.594  $           1.843
Total  $        (16.857)  $          0.113  $          4.817  $          4.907  $           3.688
General Fund  $        (16.014)  $          0.107  $          4.576  $          4.662  $           3.504
LGF  $          (0.843)  $          0.006  $          0.241  $          0.245  $           0.184

Schedule

AFA will resume meeting on Tuesday at 1:00 PM with an overview of DAFS and Other Special Revenue. The schedule for Wednesday and Thursday have not yet been determined.

The full schedule for next week is here.

You may listen live through the Legislature’s website.

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One thought on “AFA Update: Thursday, January 29, 2015- LD 138 Tax Conformity

  1. Pingback: AFA Update: Tuesday, February 10-Wednesday, February 11, 2015- Tax conformity and public hearings and work sessions on supplemental budgets | Maine Budget Blog

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