Maine Tax Developments Jonathan A. Block Pierce Atwood, LLP November 3, 2016

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1 Maine Tax Developments 2016 Jonathan A. Block Pierce Atwood, LLP November 3, th Annual Maine Tax Forum -Nov2014 1

2 Ballot Question 2 Do you want to add a 3% tax on individual Maine taxable income above $200,000 to create a state fund that would provide direct support for student learning in kindergarten through 12 th grade public education? 10/11/ th Annual Maine Tax Forum -Nov2014 2

3 Ballot Question 2 Imposes additional 3% individual income tax surcharge on that portion of Taxpayer s Maine taxable income above $200,000 Applies to tax years beginning on or after 1/1/17 $200,000 threshold includes joint filer income and pass-through income on individual returns Revenue deposited into special Fund to advance public K-12 education Fund to be used to enable the state to meet 55% education funding target previously established Surcharge estimated to bring in $142 million in year 1 10/11/ th Annual Maine Tax Forum -Nov2014 3

4 2016 Rate Changes Top Marginal Rate Reduced from 7.95% to 7.15% OLD NEW 0% 5.8% 6.5% 6.75% % 10/11/ th Annual Maine Tax Forum -Nov2014 4

5 Tax Bracket Changes in Single Individuals Tax Bracket 2016 MTI 2017 MTI 5.8% <21,050 <21, % 21,050 to 37,500 21,050 to 50, % >37,500 >50,000 18th Annual Maine Tax Forum -Nov2014 5

6 PHASE-OUT OF DEDUCTIONS Itemized and Standard Deductions Phase-Out beginning in 2016 For single filers, phase out begins at $70,000 of income; phases out completely at $145,000 of income. (Amts indexed for inflation beginning in 2018). For married filing jointly:, phase out begins at $140,000 and phases out completely at $290,000. Itemized deduction phase out applies to charitable contributions (protection for charitable contributions was repealed last year) 18th Annual Maine Tax Forum -Nov2014 6

7 STANDARD DEDUCTION AMOUNTS 2016: Fixed at $11,600 for single filers $17,400 for head of household $23,200 for married filing jointly After 2016, above amounts will be inflation adjusted 18th Annual Maine Tax Forum -Nov2014 7

8 Repealed Deductions 2016: Deduction for Contributions to 529 plans repealed Deduction for Long term care premiums repealed 18th Annual Maine Tax Forum -Nov2014 8

9 Qualified tuition and related expenses Addback that decouples Maine s individual income tax from the federal deduction for qualified tuition and related expenses (IRS Section 222) is repealed 18th Annual Maine Tax Forum -Nov2014 9

10 Military Pension Income Beginning 2016, benefits received under a military retirement plan, including survivor benefits, are fully-exempt from Maine income tax 18th Annual Maine Tax Forum -Nov

11 Maine Capital Investment Credit for 2016 Now 7% for individuals (was 8% in 2015) 9% for corporations Maine decoupled from bonus depreciation Added back bonus depreciation for property not subject to Maine capital investment is recaptured through subtraction modifications beginning with th Annual Maine Tax Forum -Nov

12 Sales Tax Fairness Credit 2016 Refundable Credit for low and middle income residents Credit base depends on number of exemptions claimed on return; e.g. $125 for individual income tax return with one personal exemption; $175 for ind. Income tax return claiming 2 personal exemptions; $200 for individual income tax return claiming 3 personal exemptions, etc. Base credit increases from $125 to $225 in 2017 Credit does not apply to married filing separately; safe-harbor residents ; incarcerated individuals with no family members in Maine 18th Annual Maine Tax Forum -Nov

13 Sales Tax Fairness Credit Income means FAGI increased by certain amounts. Phase out begins for single filers at $20,000 (credit is reduced by $10 for every $500 that exceeds $20,000 of income). Higher phase-outs for HH and MFJ 18th Annual Maine Tax Forum -Nov

14 Education Opp y Credit Changes Refinanced and consolidated loans eligible for the credit are limited to those loans that consist exclusively of educational loans I.e. if the refinanced or consolidated loan includes non-educational debt, it is not eligible for the credit Applies to tax years beginning on or after January 1, th Annual Maine Tax Forum -Nov

15 Dependent Care Credits Child and dependent care credit no longer refundable for nonresident taxpayers New adult dependent care credit (2016) Credit =25% of applicable percentage of expenses paid for adult day care, hospice and respite care, to the extent not used to calculate federal child and dependent care credit Limit: $3000 for one qualifying individual; $6000 for 2 or more QI s. Applicable percentage is the same as used to calculate federal child and dependent care credit Refundable up to $500 18th Annual Maine Tax Forum -Nov

16 Repeal of Income Tax Credits for 2016 High Tech Credit Jobs & Investment Credit Family Development Account Credit Employer-Assisted Day Care Employer-Provided Long-Term Care Dependent Health Benefits Quality Child Care Biofuel Production Retirement and Disability Credit Forest Management Planning Credit 10/11/ th Annual Maine Tax Forum -Nov

17 New Credit for Certain Homestead Modifications Begins in 2017 Taxpayers with AGI <$55,000 Credit equals lesser of $9,000 or applicable percentage of qualified expenses incurred for certain home modifications to make home accessible to disabled individual. Qualified expenditures must be certified by MSHA Credit limited to taxpayer s tax liability, with carryforwards of unused credits Total credits limited to $1 million per calendar year 18th Annual Maine Tax Forum -Nov

18 New Credit for Disability Income Protection Plans Begins in 2017 Employers may tax credit against income tax for qualified short-term disability income protection plan or qualified long-term disability income protection plan. Credit: $30 per employee enrolled in a plan after 1/1/17 who was not covered under plan provided by the employer in the preceding tax year (i.e. 2016) Credit must be taken in first year employer becomes eligible, and can be claimed for up to 3 years Limited to tax liability, no carryforwards or carrybacks Addback to income if same expense used to calculate federal AGI. 18th Annual Maine Tax Forum -Nov

19 Corporate Income Tax Changes Maine C Corp return deadline conforms to changes in federal due dates Maine corporate income tax returns now due April 15 th for calendar year C Corps For corps with FYE June 30, deadline remains September 15 for tax years beginning before 2026 Maine extended due dates is still generally the IRS extension due date plus 30 days Example for a CY corporate taxpayer receiving 6 month extension from IRS to Oct. 15, Maine extended due date is November th Annual Maine Tax Forum -Nov

20 Maine Estate Tax For those dying on or after 1/1/2016, the Maine exclusion amount is indexed to the federal exclusion amount ($5,450,000 for 2016) 18th Annual Maine Tax Forum -Nov

21 Sales Tax Beginning in 2017, new refund/exemption for fuel purchased for use in commercial agriculture, aquaculture production, commercial fishing, or commercial wood harvesting Exemption for prosthetic and orthotic devices changed. Definitions added, and must be sold by prescription (eff. 10/1/16) 18th Annual Maine Tax Forum -Nov

22 Sales Tax New exemption for certain veteran s service organizations. Applies to sales to an organization that provides services to veterans and their families that is chartered under 36 USC, Subtitle II, Part B and is recognized as a veteran s service organization by the US Department of Veteran s Affairs (eff. 8/1/16) 18th Annual Maine Tax Forum -Nov

23 Maine BTA Decision Issue: Are forklifts transportation equipment for sales tax purposes? Casual sales are usually exempt from sales tax but casual sales of special mobile equipment are subject to sales tax SME is any self-propelled vehicle not designed or used primarily for the transportation of persons or property that may be operated or moved only incidentally over the highways 18th Annual Maine Tax Forum -Nov

24 Company argued that forklifts are not SME because they were designed and used primarily for transportation of property. MRS argued that the forklifts were not used primarily to transport property and therefore constituted SME Board decided in favor of taxpayer: forklifts are designed to transport property and therefore were not SME. Therefore no tax on casual sale of the forklifts 18th Annual Maine Tax Forum -Nov

25 Property Tax Petrin et al v. Scarborough, 2016 ME 136 (August 16, 2016) Town had longstanding policy of providing large tax breaks to owners of excess land on abutting parcels Maine Supreme Court held abutting land program unconstitutional Other towns may have similar suspect programs 18th Annual Maine Tax Forum -Nov

26 Property Tax Chadwick-BaRoss v. Westbrook, 2016 ME 62 (April 21, 2016) Held: Equipment out on lease did not qualify for exemption for stock-in-trade 18th Annual Maine Tax Forum -Nov

27 Other Decisions of Interest Maine BTA MRS argued that taxpayer could not raise tax issues at Board that had not been raised on reconsideration before Maine Revenue Services Board held that it had jurisdiction to hear issues not raised below. Board (along with Superior Court) is forum of origin 18th Annual Maine Tax Forum -Nov

28 Responsible Individual Liability BTA Responsible individual liability for trust fund taxes No trust fund liability for sales tax unless sales tax was collected by the company and not remitted Individual taxpayer proved that sales tax had not been collected by the company and therefore taxpayer was not liable as responsible individual 18th Annual Maine Tax Forum -Nov