Mills proposes compromise plan for taxing PPP business loans

Gov. Janet Mills on Tuesday proposed a compromise in the two-week tussle over whether Maine will tax businesses for loans they’ve received from the federal Paycheck Protection Program.

Mills wants to make the first $1 million of PPP proceeds tax-free, an amount that would exempt 99% of the Maine recipients from paying a levy on proceeds as if they were income. Businesses that received over $1 million in PPP loans during 2020 would be taxed only on the amount above that threshold, according to a news release Tuesday morning.

For up to the million-dollar mark, businesses would receive the same “double benefit” offered by the federal tax rules: PPP funds would not be treated as taxable income, and any allowable associated expenses would also be deductible.

Nearly all PPP loan recipients in Maine — 26,683 businesses, or 99.1% of the total — received PPP loans of $1 million or less, according to the state Department of Economic and Community Development. Those recipients, primarily small businesses and members of the hospitality industry, employ over 184,000 Mainers, or 81% of the workers at businesses that got the loans last year.

A total of 251 Maine businesses received more than $1 million in PPP loans, according to the state. Data from July showed that loans of $5 million or more went to 19 Maine businesses, employing hundreds of workers and including essential health care providers such as InterMed P.A. and Mount Desert Island Hospital.

The issue of taxing PPP loans drew attention in late January, when Mills proposed a budget in which the state treated proceeds as ordinary income. That provision would have added $100 million to the state’s coffers, but was out of line with federal rules, which exempted proceeds and treated certain related expenses as tax-deductible.

However, many Maine businesses balked at the idea of paying state tax on the PPP loans, which can become forgivable grants and are intended to help businesses stay open and avoid layoffs during the pandemic.

Mills eventually walked back the original tax plan.

Her new compromise would cost Maine $82 million in tax revenue, a loss she proposes covering with other sources including surplus funds that were to be added to the state’s Budget Stabilization Fund.

“With this proposal, we are matching the measure enacted by the Congress in late December to deliver full tax relief to 99 percent of Maine businesses that received PPP in order to do the most good for the most businesses and the most employees,” Mills said in the news release.

David Clough, Maine state director for the National Federation of Independent Business, added, “We commend Gov. Mills and her administration for their work to find a solution to this problem. Her revised Paycheck Protection Program tax conformity proposal would be a tremendous relief to the thousands of small businesses that utilized this vital federal lifeline to keep their doors open, employees working and customers able to get their needs met locally.”