Maine Gov. Paul LePage has signed budget legislation for the 2012-2013 biennium that makes numerous changes to the state’s corporate and personal income tax laws. Among other things, the legislation creates a new bonus depreciation credit, recouples Maine law to the federal asset expensing provisions, establishes new credits for investments in economically distressed areas and fisheries in Maine, modifies the personal income tax rates, adjusts personal income tax deductions and exemptions, eliminates additional taxes on individuals, and revamps the minimum taxability thresholds for nonresidents.
A nonrefundable tax credit equal to 10% of the federal bonus depreciation claimed under IRC §163(k) on property placed in service in Maine during tax years beginning in 2011 and 2012, excluding certain utility and telecommunications property, is authorized by the legislation. The credit is known as the Maine capital investment credit. Any unused portion of the credit may be carried forward for up to 20 years; however, the credit is subject to recapture if the property forming the basis of the credit is not used in Maine for the entire 12-month period following the date it is placed in service.
For tax years beginning in 2011 and 2012, an addback is required for (1) the bonus depreciation deduction claimed by the taxpayer under IRC §168(k) with respect to property placed in service in Maine during the taxable year for which a capital investment credit is claimed, or (2) the net increase in depreciation attributable to the bonus depreciation deduction claimed by the taxpayer under IRC §168(k) with respect to property for which a capital investment credit is not claimed (i.e., property placed in service outside Maine). The previous addback, which now applies only to tax years beginning in 2008 to 2010, was equal to the net increase in depreciation attributable to the bonus depreciation deduction claimed by the taxpayer under IRC §168(k).
The addback for bonus depreciation claimed in the 2011 and 2012 tax years with respect to property for which a capital investment credit is not claimed (i.e.,property placed in service outside Maine) is recaptured in future years through a series of subtraction modifications based on the difference between depreciation claimed for federal purposes and depreciation that would have been allowed had bonus depreciation on the property not been claimed. This is similar to the subtraction modification provisions applicable to property placed in service from 2008 to 2010.
IRC §179 Asset Expensing
The income tax addition modifications related to the IRC §179 business expensing thresholds are repealed for tax years beginning after 2010.
New Markets Capital Investment Credit
For tax years beginning after 2011, a Maine new markets capital investment credit modeled after the federal credit (IRC §45D) is available for certain taxpayers that invest in economically distressed areas. The total amount of the credit, which is claimed over a seven-year period, is equal to 39% of the taxpayer’s qualified investment in a “qualified community development entity.” The yearly credit amounts are 0% for the first two years, 7% in the third year, and 8% in the last four years. Prior to claiming the credit, the Commissioner of Administrative and Financial Services must enter into a memorandum of agreement with the taxpayer providing that the state will allow the tax credit and recognizing that the taxpayer is entitled to claim the tax credits.
The credit is fully refundable, and any unused portion of the credit may be carried forward for up to 20 years. However, the credit is subject to recapture if (1) any amount of the federal new markets credit available with respect to the qualified investment is recaptured, (2) the qualified investment is redeemed or repaid before the seven-year credit period ends, or (3) the qualified investment is not sufficiently applied within a certain time period.
The Finance Authority of Maine is required to develop a process for qualified community development entities to apply for allocation of the Maine credit, certify qualified investments, and adopt rules necessary to implement the credit program.
The credit may also be claimed against the insurance premiums tax.
Fishery Infrastructure Investment Credit
The legislation also provides a credit for investment in or contributions to eligible public fishery infrastructure projects in Maine (eligible projects must be certified by the Department of Inland Fisheries and Wildlife). To claim the credit, a taxpayer must obtain a tax credit certificate from the Department of Inland Fisheries and Wildlife. A tax credit certificate may be issued in an amount not more than 50% of the amount of cash actually invested in or contributed to an eligible public fishery infrastructure project in any calendar year. Credits must be taken in increments of 25% over four years and may not exceed 50% of the total tax imposed on the investor for the taxable year before application of the credit. Tax certificates may be issued for up to $5 million per project. Unused credits may be carried forward for up to 15 years; however, the credit is subject to recapture if the taxpayer’s tax certificate is revoked. The credit is effective June 20, 2011.
Personal Income Tax Rates, Deductions, and Exemptions
For tax years beginning after 2012, the legislation replaces the current personal income tax rate schedules (based on statutory rates of 2%, 4.5%, 7%, and 8.5%) with new tax rate schedules (based on statutory rates of 6.5% and 7.95%). Furthermore, the State Tax Assessor is no longer required to reduce the cost-of-living adjustment by an amount that increases estimated noncorporate income tax revenue by $10.5 million for the calendar year when adjusting the tax rate schedules for inflation.
In addition, the legislation conforms the Maine standard deduction amounts to the federal amounts for tax years beginning after 2011. Currently, Maine does not conform with the expansion in the federal IRC §63(c)(2) standard deduction that provided “marriage penalty” relief to married taxpayers and does not include the federal additional standard deduction amounts for real estate property taxes paid on personal residences (2008 and 2009 tax years) and state sales and excise taxes paid on the purchase of certain motor vehicles.
With regard to Maine itemized deductions, the legislation recouples Maine law with IRC §163(h)(3)(E), which allows a federal itemized deduction for mortgage insurance premiums, for tax years beginning after 2011.
The legislation also changes the Maine personal exemption amount from a set dollar amount (currently $2,850) to the same amount allowed for federal personal exemptions under IRC §151. This change is effective for tax years beginning after 2012.
Additional Taxes on Individuals
The Maine alternative minimum tax on individuals is eliminated for tax years beginning after 2011. In addition, the legislation reduces the lump-sum retirement plan distribution tax and the early distribution from retirement plan tax from 15% to 7.5% for the 2012 tax year and then eliminates these taxes for tax years beginning after 2012.
Taxation of Nonresidents
The legislation provides new minimum taxability thresholds for nonresidents for tax years beginning after 2010. Previously, compensation received by a nonresident for personal services performed as an employee in Maine was Maine-source income subject to taxation if the nonresident was present in Maine performing the services for more than 10 days during the tax year in which the personal services were performed. Under the new legislation, compensation for personal services performed in Maine as an employee is Maine-source income subject to taxation if the nonresident taxpayer is present in the state performing personal services for more than 12 days during that tax year and directly earns or derives more than $3,000 in gross income during the year in Maine from all sources. Performance of the following personal services for 24 days during a calendar year is not counted toward the 12-day threshold:
— personal services performed in connection with presenting or receiving employment-related training or education;
— personal services performed in connection with a site inspection, review, analysis of management or any other supervision of a facility, affiliate or subsidiary based in Maine by a representative from a company, not headquartered in Maine, that owns that facility or is the parent company of the affiliate or subsidiary;
— personal services performed in connection with research and development at a facility based in Maine or in connection with the installation of new or upgraded equipment or systems at that facility; or
— personal services performed as part of a project team working on the attraction or implementation of new investment in a facility based in Maine.
In addition, a nonresident who is present for business in Maine on other than a systematic or regular basis, either directly or through agents or employees, has Maine-source income derived from or effectively connected with a trade or business in Maine and is subject to taxation by Maine only if the nonresident was present in the state for business more than 12 days during the taxable year and earns or derives more than $3,000 of gross income during the taxable year from contractual or sales-related activities.
Provisions in the legislation concerning sales and use taxes (TAXDAY, 2011/06/22, S.19), estate taxes (TAXDAY, 2011/06/22, S.17), and various procedural provisions (TAXDAY, 2011/06/22, S.20) are reported separately.
L.D. 1043 (H.P. 778), Laws 2011, effective and applicable as noted