This article is intended to provide a brief summary of the recently passed Maine tax law (LD 1495), which has been generating considerable interest at the local and national level.  The bill that passed is an offshoot of the legislation that was sponsored by House Majority Leader John Piotti, and incorporates many aspects of the bi-partisan tax reform bill that failed to pass two years ago. Barring further actions to repeal the law, it will be effective on January 1, 2010.

The bill is designed to be revenue neutral, and to broaden the state’s revenue stream, thereby making the state less vulnerable to economic downturns. The intent is to export taxes to non-residents to allow for income tax reductions for residents.

Some highlights of the tax reform bill:

• Reduces top Maine income tax rate from 8.5% to 6.5% (plus a surcharge of .35% for Maine taxable income above $250,000)
• Eliminates deductions for personal exemptions, the standard deduction, and itemized deductions.
• Enacts a “household credit” for resident individuals. The credit amount depends on the taxpayer’s filing status, number of dependents, and income level (phaseouts apply for higher incomes).
• Eliminates the alternative minimum tax on individuals.
• Increases the meals and lodging tax from 7% to 8.5%.
• Removes the sales tax exemption for installation, repair and maintenance services, and amusement, entertainment and recreation services.
• Leasing of tangible personal property is subject to sales tax (with some exceptions).

Those who may be positively impacted:

• Taxpayers with Maine itemized deductions that are a small percentage in relation to their Maine Adjusted Gross Income.
• Taxpayers with no Maine income tax liability – these filers now may receive a variety of refundable credits (Elderly Credit, Earned Income Credit, and Household Credit).
• Taxpayers who have previously paid Maine alternative minimum tax (or would have paid it under the previous tax laws).

Those who may be negatively impacted:

• Taxpayers with a high percentage of Maine itemized deductions in relation to their Maine Adjusted Gross Income.
• Taxpayers who spend a disproportionate amount of their income “eating out” or on services now subject to the expanded sales tax.
• Businesses that are impacted by the expanded sales tax – due to the additional costs and/or requirement to begin charging and collecting the tax (installation, repair or maintenance services, amusement, entertainment and recreation services; leasing of tangible personal property).

Summary

For many taxpayers, this tax reform law will likely result in a very minor tax savings or increase. But for some, the impact could be significant. Maine Revenue Services has created an “informational calculator” that can be accessed via this link www.state.me.us/revenue/incomeestate/1040/taxreformindividual.htm. Please contact your BNN tax advisor for answers to questions specific to your situation.

NOTE: This article is intended to provide information only and should not be relied upon by the reader for legal or financial advice. You can contact a BNN tax professional at 800.244.7444 or visit www.bnncpa.com for more information.

IRS CIRCULAR 230 DISCLOSURE:
Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter. Please contact us if you wish to have formal written advice on this matter.