Conforming With New Federal Code Could Increase Maine State Taxes On Individuals

Feb 1, 2018

Mainers will see a significant increase in their state income taxes unless the Legislature takes swift action this session.

The sweeping tax reform bill passed in December will reduce federal income taxes for most Mainers, but because the state piggybacks its own income tax on the federal code, the changes will result in major increases in state income taxes.

Finance Commissioner Alec Porteous gave the bad news to a joint meeting of the Legislature’s Appropriations and Taxation committees.

“Full conformity, for example, would result in a tax increase of approximately $250 million annually for Maine individuals and businesses,” he said.

Most of that impact — about $233 million, would be felt by individuals. According to the report, 466,000 Maine families would see a tax increase. The federal law eliminates the personal exemption while increasing the standard deduction, and because the state already has a larger personal exemption, more Mainers would be hurt by conforming to the federal change.

On the plus side, Porteous says Mainers would see a federal income tax cut of about $510 million, pass-through business owners a cut of about $186 million and corporations will see their federal income tax go down by about $293 million. He says the governor has made it clear that he won’t let the federal reforms hurt Maine people.

“Gov. LePage has made clear to the Department of Administrative and Financial Services the he would not support tax conformity that increases the income tax burden on Mainers,” he says.

But Porteous says the governor has not decided how his administration will solve the problem.

Such legislation will not be easy to craft. It will have to address hundreds of tax provisions, and time is limited, as the legislative session ends in April.