What Mainers need to know about the tax conformity debate

February 16, 2016 by

Sarah Austin blog 11-16-2015Maine legislators are currently debating tax conformity, a procedure primarily to make Maine’s tax code consistent with changes Congress made to the federal tax code last year. However, as the Bangor Daily News noted, “Over the years, Maine has been in different stages of compliance with the federal code around bonus depreciation, which allows upfront tax breaks for business equipment.” Choosing to conform to federal bonus depreciation is a contentious issue, not only because the policy is ineffective, but because the program costs the state millions in corporate tax revenue each year.

Gov. LePage’s proposal included funding for the Maine Capital Investment Credit (MCIC), Maine’s version of bonus depreciation, created as an incentive for businesses to purchase new equipment during the Great Recession. Based on federal laws that allow businesses to claim bonus depreciation, MCIC lets businesses depreciate large amounts of their capital expenses in the first year of purchase, speeding up a tax break they would otherwise still receive, just over a longer time period.

Over the next four years, Maine Revenue Services projects that funding MCIC as the governor proposes will cost more than $38 million, and the governor’s proposal does not specify how it will pay for MCIC. The Maine House has passed a tax conformity bill that repeals the MCIC after tax year 2015 and redirects $23 million to bolster state funding for local education.

The Maine State Chamber of Commerce and others argue that failure to fund MCIC fully for the next four years will hamstring Maine’s ability to attract and retain businesses and create jobs. It will not. In fact 31 states chose not to conform to federal bonus depreciation in 2015. “State Job Creation Strategies Often Off-Base,” research and analysis from our partners at the Center on Budget and Policy Priorities, recommends that: “To create jobs and build strong economies, states should focus on producing more home-grown entrepreneurs and on helping startups and young, fast-growing firms already located in the state to survive and to grow ― not on cutting taxes and trying to lure businesses from other states.”

MECEP has summarized the available information on the debate over MCIC. We urge the Maine Senate to adopt the House version of the tax conformity bill, phase out the MCIC, and use the funds saved to support state education aid, a more proven path toward jobs and a more prosperous Maine.

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