Maine Budget Bill enacted June 26, 2013

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Dawson, Smith, Purvis & Bassett, PA

Certified Public Accountants

Richard B. Dawson, CPA 15 Casco Street
David E. Smith, CPA Portland, Maine 04101-2902
Eric A. Purvis, CPA/ABV, MST, CVA Tel (207) 874-0355
Joel H. Bassett, CPA/PFS, CMA, CIA Fax (207) 874-0865
Kirk J. Purvis, CPA, CFE
William H. Souter, CPA, MST
Craig M. Pike, CPA
Adam P. Johnson, CPA
Patricia S. Hodgdon, CPA
Jeremy S. Handlon, CPA
Kevin M. Brunelle, CPA, CVA
Michael P. Kelly, CPA
Karla J. Brannen, CPA
Ryan W. Dawson, CPA

July 2, 2013

Dear Clients and Other Friends:

On June 26, 2013, the Maine Legislature voted to override Governor LePage’s veto of the budget bill. Following is a brief discussion of the significant income tax related provisions:

Conformity with Internal Revenue Code (IRC)
Under the new legislation, Maine’s IRC conformity date is updated to January 2, 2013, which is the date that the federal fiscal cliff legislation was passed. Accordingly, Maine is in conformity with the extenders passed in that legislation, including the $500,000 limit for expensing business equipment under Section 179. However, as it has done in the past, Maine has specifically decoupled from federal bonus depreciation, described next.

Bonus Depreciation
Historically, Maine has not allowed deductions for the rapid “bonus depreciation” that may be claimed on new business equipment at the federal level. For 2011 and 2012, the State’s Capital Investment Credit provided a tax credit of 10% of the amount claimed as federal bonus depreciation with respect to property placed in service in Maine. The new legislation extends this credit for 2013, but at a reduced rate of 9%.

Personal Income Tax Rates and Brackets
Previous legislation had set the highest individual income tax rate at 7.95% beginning in 2013 (down from 8.5% in earlier years). The new legislation leaves this rate change intact, but it does freeze the breakpoints of the income tax brackets at the 2013 levels for years 2014 and 2015. Thereafter, the inflation adjustments to the breakpoints will be smaller than in the past because they will be based on the Chained Consumer Price Index instead of the Consumer Price Index.

Limitations on Deductions
The legislation limits Maine itemized deductions to $27,500 for 2013, to be indexed for inflation thereafter. For many taxpayers, the total of items such as mortgage interest, real estate taxes, medical expenses, and charitable donations would exceed this level. Accordingly, this is a potentially significant tax increase. For those who do not itemize deductions, the standard deduction for a married couple filing a joint return is $10,150 for 2013, rather than the $12,200 allowed at the federal level.

Property Tax Fairness Credit
The State’s property tax “Circuit Breaker” program, which provided property tax rebates to taxpayers with relatively modest incomes and required a separate filing, has been replaced by the “Property Tax Fairness Credit.” The new credit will be claimed on the taxpayer’s income tax return, simplifying the process, but it is much less generous. The income limit has been reduced to $40,000, and the maximum credit is just $400, as compared to a maximum refund of $1,600 under the circuit breaker program.

As always, we welcome your questions and stand ready to assist in any way we can.

IRS Circular 230 requires us to inform you that any statements contained herein are not intended or written to be used, and cannot be used, by you or any other taxpayer, for the purpose of avoiding any penalties that may be imposed by federal tax law.

Very truly yours,