Gov. Paul LePage warned Thursday that some taxpayers might need to file amendments to their 2017 tax returns because the Legislature failed to pass a bill to conform the state’s income tax code to the new federal tax code.
But a liberal economic policy research group said the changes affect only a small group of tax filers — businesses that take bonus depreciation and individuals who itemize very high medical expenses.
And if the Legislature is able to return for a special session, lawmakers could pass a tax conformity bill that would make the amended tax filings unnecessary.
The new federal tax code made the bonus depreciation and medical expense deductions retroactive to the 2017 tax year. Another provision of the federal code generates new revenue from multinational corporations that are repatriating foreign income to the U.S.
If Maine doesn’t conform to the federal code, the state risks losing its share of that new revenue from repatriated income, estimated at $31 million.
Sarah Austin, a tax policy analyst with the Maine Center for Economic Policy, said a relatively small number of people might need to file amended returns because most individual taxpayers do not itemize deductions. Austin also said the bonus depreciation conformity for businesses involves only about $2 million in revenue.
LePage took aim at Democrats in a statement about the amended returns, blaming them for not supporting a tax conformity bill that was left in limbo when the Legislature adjourned in April — although it was House Republicans who refused to provide the votes needed to extend the lawmaking session.
“Their failure to act on my proposal has left Maine aligned to a federal tax code that no longer exists, placing an undue and preventable burden on both individuals and businesses,” LePage said of Democratic lawmakers.
LePage’s tax conformity bill would have cut taxes in Maine by about $90 million overall, even after the state collected its share of revenue from repatriating multinational corporations.
But lawmakers couldn’t agree on how much of LePage’s tax conformity package they wanted to accept.
The governor has the authority to call the Legislature back into session, but so far he has not been willing to do so.
Rep. Ryan Tipping, D-Orono, the House chairman of the Legislature’s Taxation Committee, said LePage’s announcement and the new tax alert only highlighted the uncertainty that was created when House Republicans refused to extend the session.
“If the governor and his allies in the Legislature truly want to consider the tax conformity bill, it’s time for them to support a special session without any further delay,” Tipping said. “We’re at the table and ready for when the governor and House Republicans decide to get back to work.”
But Julie Rabinowitz, LePage’s press secretary, said it was Democrats who held out on the tax conformity bill, hoping to use it for leverage on other issues.
“They could have put in their own bill. They didn’t,” Rabinowitz said in an email. “They could have held a couple double sessions or stayed late a night or two in April to hash it out. They didn’t. The Legislature failed to address it and they need to solve the problem.”
House Minority Leader Ken Fredette, R-Newport, also blamed Democrats, saying they insisted on attaching proposals to fund Medicaid expansion to other bills that had bipartisan agreement.
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