Maine: Conformity Legislation Decouples from Many Federal Provisions

Legislation was recently signed into law in Maine (House Paper 155) that updates the state’s conformity to the Internal Revenue Code. Specifically, for tax years beginning on or after January 1, 2018, the “Code” means the United States Internal Revenue Code of 1986 and amendments to that Code as of December 31, 2020. Previously, Maine conformed to the Code as of December 31, 2019, so had not adopted any of the tax changes included in the federal COVID-19 relief bills.  In addition to updating the conformity date, the legislation decouples from certain federal provisions for corporate taxpayers, including one of the CARES Act changes to IRC section 163(j). For tax years beginning on or after January 1, 2019 and before January 1, 2021, an addition is required for the amount by which the taxpayer’s federal business interest deduction exceeds 30 percent of adjusted taxable income. A subtraction applies for tax years beginning on or after January 1, 2021 for an amount equal to the value of any prior year addition that limited the interest expense deduction to 30 percent of adjusted taxable income. This subtraction applies only to the extent that Maine taxable income is not reduced below zero and no more than 25 percent of the amount is used as a modification in any given year.   Interestingly, Maine appears to conform to the CARES Act change that allows taxpayers to elect to use 2019 adjusted taxable income in computing the section 163(j) limitation for the 2020 tax year.

Maine also decoupled from the increase in the charitable contribution deduction and the provision temporarily allowing a deduction for 100 percent of business meals. For taxable years beginning after January 1, 2019 and before January 1, 2020, an addition is required for the difference between a corporate taxpayer’s charitable contribution deduction as determined under IRC section 170 with and without application of Section 2205 of the CARES Act. The amount by which federal taxable income was increased due to the addition can be deducted for tax years beginning after January 1, 2020 and before January 1, 2025.  For each tax year beginning on or after January 1, 2021, an addition is required in an amount equal to a corporation’s increase in deductions allowed for federal income tax purposes related to the provisions in the Consolidated Appropriations Act that temporarily allows 100 percent of certain business meals to be deducted. 

With respect to NOLs, a statute allowing a deduction for an amount equal to the NOL carryforward disallowed as a result of the IRC section 172(a)(2) limitation has been repealed effective retroactively to tax years beginning on or after January 1, 2018. As such, Maine conforms fully to the IRC treatment of NOL carryforwards under the TCJA, as amended by the CARES Act.  In other words, Maine will follow the temporary suspension of the 80 percent NOL limitation and then limit NOL carryovers to 80 percent of taxable income again in 2021. Finally, for tax years beginning on or after January 1, 2020, corporate taxpayers must add back the deductions for both FDII and GILTI claimed under IRC section 250(a). Previously, an addition was required only for the deduction claimed under IRC section 250(a)(1)(B) related to GILTI.  Please contact Nikhil Sequeira with questions on Maine’s conformity legislation.