An Act to Support Maine Businesses by Establishing a Pass-through Entity Tax and Tax Credit
Summary
LD 191 creates a new Maine pass-through entity tax regime beginning with tax years on or after January 1, 2025. Under the bill, partnerships and S corporations may elect each year to have the entity itself pay Maine income tax on the members’ distributive shares of Maine taxable income, rather than having the tax paid only at the individual owner level. The entity-level tax is calculated using the highest individual income tax rate, and the election must be made separately for each tax year.
The bill also establishes a corresponding credit for owners of electing pass-through entities. A member would generally receive a credit equal to 90% of that member’s share of the tax paid by the entity, and any excess credit would be refundable. The bill includes special reporting rules for nonresident members whose only Maine-source income comes from an electing entity, and it allows credits for certain taxes paid to other states or the District of Columbia if those taxes are substantially similar. The Department of Administrative and Financial Services may adopt routine technical rules to implement the new chapter.
Impact
LD 191 would add a new chapter to Maine’s tax code authorizing an elective pass-through entity tax for partnerships and S corporations and creating a related member-level credit. It would also amend existing partnership tax provisions to clarify that partnerships are generally not subject to the tax except as provided in the new chapter. The bill would affect business entities, their owners, and the Maine Revenue Services administration of income tax reporting, withholding-like entity payments, and credits, especially for multi-state owners and nonresident members.
Sentiment
Based on the bill text and the absence of recorded committee testimony or votes in the provided materials, the overall posture appears supportive and pro-business. The bill’s title and structure indicate an intent to help Maine businesses and their owners by offering an entity-level tax election and a credit mechanism that can reduce or simplify individual tax burdens. No contrary sentiment is documented in the supplied record.
Contention
The main policy issues raised by the bill’s design are the size and structure of the credit, the use of the highest individual income tax rate to compute the entity-level tax, and the treatment of nonresident and multi-state taxpayers. The bill provides a 90% refundable credit, but it also denies a deduction for the related taxes and limits some credits for taxes paid to other jurisdictions to nonrefundable treatment. These features could draw attention from taxpayers, tax administrators, and lawmakers concerned about revenue effects, fairness between resident and nonresident owners, and conformity with other states’ pass-through entity tax regimes.