AUGUSTA – Mainers are not likely to get the full immediate benefit of the federal stimulus package passed by the U.S. House because of the cost to the state of going along with tax changes that are aimed at boosting business investments.
Individuals, however, “will get the full benefit of the rebate checks,” said state Sen. Joe Perry, D-Bangor, co-chairman of the Legislature’s Taxation Committee. “We have been told the way Congress has crafted the rebates, they will not be taxed as income in Maine.”
Mike Allen, research director for Maine Revenue Services, confirmed that and said the impact of the rebate checks will be significant. He said a preliminary analysis of the House-passed bill indicates Mainers will receive about $410 million in payments.
Perry noted, however, that provisions aimed at boosting business investments would need state action to conform to the federal changes for Maine companies to get the full and immediate benefit of the package.
“I think we should conform, but that will cost a lot and we are in our own budget crisis and I don’t know where the money will come from,” he said.
Gov. John Baldacci is not recommending that the state conform to a provision for bonus depreciation and an increase in the amount of equipment that can be written off on taxes in the same year they are acquired, a procedure called expensing.
The governor said Maine companies will benefit from the federal change in depreciation, but over a longer period of time.
“Mainers will eventually be getting this, at the end of the depreciation schedule,” he said. “Businesses will still get the bonus depreciation, but it will be over time.”
That upsets business groups such as the National Federation of Independent Businesses. David Clough, executive director of the Maine branch of the organization, said small companies have been at a competitive disadvantage compared with other states for years. He said the state previously did not go along with bonus depreciation and greatly limits the use of expensing.
“Expensing is a big help to our smallest companies, yet Maine only allows $25,000 a year when the federal limit is $128,000 a year,” he said. “The proposal in the stimulus package is to go to $250,000, but we will stay at just $25,000.”
Allen said if Maine allowed the bonus depreciation, it would cost about $20 million over 2008 and 2009. He said to go from Maine’s current expensing cap of $25,000 to the $250,000 level would cost between $8 million and $10 million in lost revenue.
He said current federal law will reduce expensing allowed at the federal level to $25,000 in 2011.
While Clough believes failure to follow the federal provisions will discourage some investment, Allen doubted it will have much impact on business investment decisions.
“Most of the benefit is going to be at the federal level anyway,” he said. “I don’t think Maine, or any state not conforming to bonus depreciation, is going stop some company from making an investment.”
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