Maine Response to Bonus Depreciation

CCH, 3/27/03:

Maine taxpayers are reminded that, in its 2002 budget bill (Ch. 559 (H.B. 1574), Laws 2002), the state opted for less than full conformity with the Internal Revenue Code (IRC) provisions governing corporate and personal income taxes.

Depreciation Bonus
Under the federal Jobs Creation and Worker Assistance Act of 2002 (JCWAA) (P.L. 107-147), federal taxpayers are allowed to claim a temporary 30% deprecation bonus for property placed in service between September 11, 2001, and September 11, 2004. Maine is in full conformity with bonus depreciation applicable to property placed in service in 2001; however, Maine enacted legislation to defer this bonus depreciation on property placed in service in 2002, 2003, and 2004. Maine corporate income taxpayers generally are allowed to recapture the bonus depreciation disallowed during 2002, 2003, and 2004 in equal amounts over a three-year period that begins two years after the beginning of the taxable year of the disallowance.
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Tax Alert, Vol. 13, No.1, Maine Revenue Services, March 2003.

CCH, 8/27/02:

In its 2002 budget bill (Ch. 559 (H.B. 1574), Laws 2002), the Maine legislature opted for less than full conformity with the Internal Revenue Code (IRC) provisions governing corporate and personal income taxes and estate taxes in an effort to balance the state budget and in light of the federal changes enacted with the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) (EGTRRA) and the Job Creation and Worker Assistance Act of 2002 (P.L. 107-147) (JCWAA). Specifically, 36 M.R.S.A. Sec. 111(1-A) was amended to define "Code" to mean the IRC as amended through March 15, 2002. With the exception of the modifications discussed below, Maine is in full conformity with the amendments made to the IRC by EGTRRA and JCWAA.

Tax Changes for 2000 and 2001
For Maine corporate and personal income tax purposes, for tax years beginning or ending in 2001, net operating losses (NOLs) may be carried back only two years, while the JCWAA allows a five-year carryback. Any amounts carried back more than two years for federal purposes must be added back to determine Maine taxable income during those years.

However, the amounts added back can be used in the two years prior to the loss and/or all the allowable carryforward years as an additional state NOL carryback/carryover. Taxpayers may claim the additional state NOL carryback/carryover on Maine forms 1120ME (2001) or 1040ME, Schedule 1 (1998- 2000).

Tax Changes for 2002
For Maine estate tax purposes, only for deaths occurring in 2002, the 25% accelerated reduction in the state death tax credit enacted by EGTRRA is not allowed. Instead, Maine tax is calculated by dividing the state death tax credit by 0.75, but in no event may Maine tax liability exceed federal estate tax prior to application of the state death tax credit.

For Maine corporate and personal income tax purposes, for tax years beginning on or after January 1, 2002, NOLs cannot be carried back, and any amounts carried back for federal purposes must be added back to determine Maine income for the year of the carryback.

For tax years beginning in 2002 only, a portion of the federal JCWAA 30% bonus depreciation may have to be added back to determine Maine taxable income. The add-back would be a percentage of the available funds in the state's tax conformity reserve as of June 30, 2002, established to cover revenue shortfalls resulting from federal conformity. Thus, if sufficient funds are available, Maine may fully conform with the 30% bonus depreciation in 2002.

Moreover, the bonus depreciation add-back from tax year 2002 is recoverable in 2003 through 2005. If an add-back is required in 2002, 1/3 of the depreciation add-back may be subtracted from income in each of the three successive years.

(Maine Tax Conformity to Recent Federal Changes, Summary of Income Tax Provisions Contained in the 2002 State Supplemental Budget, Summer 2002, and Telephone Conversation, August 23, 2002, Maine Revenue Services, Income and Estate Tax Division.)

FROM: COMMERCE CLEARINGHOUSE (CCH), 4/2/02

Maine has enacted conformity legislation adopting the IRC as of March 15, 2002. The law specifically does not adopt the extended NOL carryback provision. Additionally, the law provides that "bonus" depreciation claimed for tax years beginning in 2002 may be reduced based on the amount of funding in the Tax Conformity Reserve account. No modification of depreciation is mandated for "bonus" depreciation claimed for tax year 2001 (Ch. 559 (H.P. 1574), Laws 2002).

From RIA, May 10, 2002:

Maine has enacted L. 2002, P.L. 559, conforming Maine corporate and personal income tax laws to the IRC as of March 15, 2002, with certain exceptions.

Bonus depreciation: For tax years 2001 and 2003, Maine income tax laws conform fully to the 30% depreciation bonus permitted by P.L. 107-147. For tax years beginning in 2002, however, a portion of the bonus may have to be added back to determine Maine taxable income, depending on the funding available in the tax conformity reserve at the end of fiscal year 2002-2003. If an add-back is required in 2002, one-third of the depreciation add-back may be subtracted from income in 2003, 2004, and 2005.

Net operating losses: For tax years beginning or ending in 2001, net operating losses (NOLS) may be carried back only two years, as opposed to the five years allowed by federal law. For tax years beginning on or after January 1, 2002, NOL carrybacks will not be permitted for Maine income tax purposes.