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‘Let’s solve the PPP issue’: Mills explores ways to avoid taxing PPP loans

Gov. Janet Mills says she wants to work with the Maine Legislature and others to pursue solutions that will help Maine small businesses through the pandemic.
Credit: Getty Images/iStockphoto

AUGUSTA, Maine — After her budget plan received backlash in the Maine Legislature earlier this week, Gov. Janet Mills is asking her departments to find funds that would help both balance the budget and allow the state to avoid having to tax federal business loans.

Mills is now looking for a solution, directing her departments to see whether federal funding may exist to help Maine provide the same beneficial tax treatment to Paycheck Protection Program (PPP) funds that the federal government has.

The Maine Legislature began hearing public testimony over Mills’ proposed supplemental budget this week. As part of the new supplemental budget, federal PPP loans would be subject to taxes in an effort to offset the budget. 

Mills administration officials said during the hearing Monday it fears a possible $100 million budget shortfall for the state if it does tax those funds. According to the proposed budget, businesses would be able to deduct qualified expenses like rent, payroll, or utilities. However, they will have to pay taxes on any other expenses.

Republicans were quick to speak out against the plan, calling it unfair to businesses that believed they would be exempt from taxes on the aid.

"These small businesses are barely hanging on as it is. Taking away the savings that they have set aside to get through this winter and spring would be devastating. This is money they intended to use to pay their heating bills, pay their employees, and survive—all of the things the program was designed for," said Senate Republican Leader Jeff Timberlake, R-Androscoggin.

RELATED: Mills Administration submits proposed budget change aimed at supporting families, businesses ahead of tax filing season

The administration says it would prefer to conform to the federal government’s double benefit of treating these PPP funds as nontaxable and allowing the related expense as deductions, but, at an estimated cost of $100 million, was not able to do so and still balance the budget, particularly without additional federal aid to the states such as that which Congress recently rejected.

The Governor is now asking her departments to undertake a review immediately and expeditiously to determine whether there are any newly-available federal funds that could be tapped in order to help businesses’ bottom lines and preserve a carefully balanced budget.

Mills says she wants to work with the Maine Legislature and others to pursue solutions that will help Maine small businesses that are struggling amid the ongoing pandemic.

PPP provides loans to help businesses keep their workforce employed during the crisis.

“I am proud of the hundreds of small businesses across the state who used the PPP funds to keep people employed, to keep their doors open, and to keep our economy afloat during a time of extraordinary financial distress,” Mills said in a release Wednesday. “The Federal government recognized the value of their efforts when, in late December, it declared that it would provide a double tax benefit on proceeds appropriately spent. Unfortunately, at that time, it did not also offer compensation to the states for the loss of that tax revenue.”

Mills continues to say her approach “has always been to solve problems.” She says now that the Biden administration is in place, she’s asking her departments to “take a fresh look at whether there may be any newly-available Federal funds that would allow Maine to maintain our balanced budget and adopt the same additional benefit the Federal government is offering to the numerous entities that received PPP.”

The Mills administration has proposed maintaining standard treatment of PPP so no Maine business owes state taxes on funds spent to keep employees on payroll or on other deductible expenses such as rent or utilities.

Maine businesses received more than $2.2 billion through the first round of the paycheck protection program which ran from April to August of 2020. Applications for the second round of PPP became available to all lenders on Jan. 19, 2021.

RELATED: Hearings on proposed state supplemental budget continue