The Maine income tax conformity bill became law on September 12, 2018, without Governor Paul LePage’s signature. The legislation is in response to the Tax Cuts and Jobs Act (TCJA) of 2017. In addition to updating the IRC conformity date from December 31, 2016 to March 23, 2018, the new legislation makes several other changes that impact both businesses and individuals. Here are some highlights of the legislation.
Impacts on Businesses
- Tax Rates: The legislation drastically changes the corporate income tax brackets beginning in 2018:
| TAX RATE |
INCOME TAX BRACKETS |
|
Tax years beginning before 2018 |
Tax years beginning in 2018 |
| 3.5% |
$0 - $25,000 |
$0 - $350,000 |
| 7.93% |
$25,001 - $75,000 |
$350,001 - $1,050,000 |
| 8.33% |
$75,001 - $250,000 |
$1,050,001 - $3,500,000 |
| 8.93% |
$250,001 or more |
3,500,001 or more |
- Net Operating Losses: the TCJA limits the Federal NOL deduction to up to 80% of a taxpayer’s taxable income. The Maine legislation reverses the effects of the new limit on the NOL deduction, and allows a Maine NOL deduction of up to 100% of a taxpayer’s taxable income for tax years beginning after 2017.
- Credits: The law creates a credit for employer-paid family and medical leave, equal to the federal credit of the TCJA. The credit is a nonrefundable credit that can be applied to Maine income and insurance premiums taxes for tax years beginning after 2017.
- Business Income Deduction: The TCJA created a 20% deduction for qualified business income from a pass-through entity. This deduction is not applicable for Maine income tax purposes for individuals, estates, or trusts.
- Section 179 and Bonus Depreciation: The legislation made no changes to the previous rules for expensing and depreciating new eligible assets under section 179 and bonus depreciation. Maine will continue to conform to the Federal Section 179 limits, and will continue to decouple from the federal bonus depreciation provisions. The Maine Capital Investment Credit, applicable to assets placed in service in Maine for which federal bonus depreciation was taken, is unchanged.
- Other Maine Changes: The law also eliminates corporate alternative minimum tax (AMT) and the Maine addback for the federal domestic production activities deduction (DPAD), both of which the TCJA eliminated. These changes apply for tax years beginning after 2017.
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