Maine was one of the few states that failed to pass conformity legislation during the regular session. However, during a recent short special session, the legislature passed a bill (SP 612) that updates Maine’s conformity to the Internal Revenue Code and also addresses federal tax reform for both individuals and corporations. Under the bill, the references to the Internal Revenue Code are revised to refer to the Code as amended through March 23, 2018. This change applies retroactively to tax years beginning on or after January 1, 2017.
For corporate taxpayers, the conformity legislation addresses certain key aspects of federal tax reform. First, the bill provides that effective for tax years beginning on or after January 1, 2018, a deduction is allowed for any NOLS that are not able to be deducted for federal purposes due to the 80 percent limitation. A corresponding provision requires an addback for any NOLs deducted for federal purposes that were previously allowed as an NOL deduction for Maine purposes. Another change is that Maine’s alternative minimum tax imposed on corporations is repealed effective for tax years beginning on or after January 1, 2018. With respect to the international federal tax reform provisions, the bill make clear that under Maine law, dividend income does not include Subpart F income, income included under IRC section 951A, or income included under IRC section 965. However, the bill does create new deductions for 50 percent of a taxpayer’s apportionable Subpart F income, 80 percent of amounts included in income under section 965, and 50 percent of the taxpayer’s apportionable GILTI. Both the deductions for Subpart F income and GILTI are net of related expenses. Any Subpart F income deducted is also excluded from the apportionment factor. For GILTI, the amount included in the apportionment factor is 50 percent of the section 951A income included in federal gross income. The conformity bill also requires an addition for any amounts deducted under section 965(c) and the GILTI deduction allowed under section 250(a)(1)(B). Another section of the conformity bill expands the corporate income tax brackets beginning in 2018. The current rate structure for corporations consists of 3.5 percent on income not over $25,000, 7.93 percent on income not over $75,000, 8.33 percent on income not over $250,000 and 8.93 percent on income of $250,000 or more. The rate structure for tax years beginning after December 31, 2017 is the following: 3.5 percent on income not over $350,000, 7.93 percent on income not over $1,050,000, 8.33 percent on income not over $3,500,000 and 8.93 percent on income of $3,500,000 or more. Please stay tuned to TWIST for more updates on state conformity to federal tax reform.