Bill Diamond: Supporting small businesses through the pandemic, without adding taxes

By Senator Bill Diamond

As we know all too well, this pandemic has been hard on our communities, our families and on us as individuals. We’ve had to adapt to a difficult situation none of us would have chosen, and we’ve often had to make sacrifices for the good of our community. This extends to Maine small businesses who, for almost the past year, have had to dramatically alter the way they provide service in order to keep their workers and their customers safe. Unfortunately, these changes often came at the expense of their bottom line. Small businesses account for 99.3 percent of all Maine businesses, and as of 2018 almost 285,000 Mainers were employed by a small business. Small businesses drive our local economies, power innovation and build community. They help give a town its character and they support local schools and organizations. They need and deserve our support during this difficult time.

As part of the CARES Act relief package that Congress passed in March 2020, the federal government created a new loan program called the Paycheck Protection Program, or PPP. These loans were designed to provide small businesses with funds to keep their employees on payroll so that people weren’t separated from their jobs and so businesses could survive the economic downturn caused by the pandemic. To encourage businesses to use their loans for this purpose, the federal government said that if employment and compensation levels were maintained, the loan was used for eligible expenses, and if at least 60 percent of the loan went directly to payroll, the loans would be forgiven. This would essentially turn the loan into a grant, giving businesses direct aid that they wouldn’t need to pay back.

In December, the federal government decided to exempt forgiven PPP loans from federal income tax. Additionally, businesses can claim deductions for eligible business expenses paid for by the PPP loan. This is unusual, since forgiven loans are usually taxable, but we are living in unusual times. PPP loans were often lifelines to small business that otherwise may not have made it through the pandemic, and many would have struggled to pay this tax.

When the federal government makes a tax rule, states must make decisions about if that rule will apply to state taxes, too. Maine’s constitution requires that the state have a balanced budget, and just as this year has caused Maine families to tighten the purse strings, a decrease in revenue has strained the state budget.

Conforming Maine’s tax code with the federal tax code and exempting forgiven PPP loans from income tax will be challenging for our state budget, but I truly believe it is the right thing to do. It’s what we need to do for our small businesses and our communities right now. Some of the businesses that received PPP loans would not have been able to keep their doors open if it weren’t for this help, and an unexpected state tax bill will be too much for some of them. I am encouraged that Gov. Janet Mills has directed her departments to look for federal funding that will fill the gap caused by not taxing these loans. However, regardless of the success of the Governor’s attempts to find funds elsewhere, I will not support any proposal that will tax the PPP funds. Such a tax would be contrary to the original purpose of the PPP funds. In fact, I am cosponsoring legislation that will require Maine to conform our tax rules with the federal tax rules, thus ending the threat of taxing the PPP loans.

As part of the second coronavirus relief bill passed in December, the federal government opened another round of PPP loans, dedicating $284 billion in funding. If you have a small business or are self-employed, I encourage you to learn more about your eligibility for a PPP loan, and to consider applying. I will keep you updated as the federal government considers further coronavirus support, and as the state looks for a way to avoid taxing forgiven PPP loans. You can read my monthly columns here and sign up to receive my weekly e-newsletter at mainesenate.org. And as always, if you ever have any questions, or if you need assistance, please don’t hesitate to send me an email at diamondhollyd@aol.com or to give my office a call at 207-287-1515. <