The compliance debate underscores the necessity for future tax laws

0
59
The compliance debate underscores the need for future tax legislation

The BDN Opinion section operates independently and does not set any newsroom guidelines or contribute to reporting or editing articles elsewhere in the newspaper or on bangordailynews.com.

Who had the money to make “tax compliance” a big political story? I would think these were long chances.

But as Tom Brady showed us again, those crazy bets sometimes pay off. Like a 199th overall draft in the 2000 NFL Draft.

Susan Collins made headlines almost a year ago when she led the indictment creating the Paycheck Protection Program (PPP). It wasn’t perfect, but it was an almost instant lifesaver for countless companies that were hit by the pandemic through no fault of their own.

This is where the story begins.

When Congress first passed the CARES bill in March 2020, they made PPP a forgivable loan program. If companies used the money for eligible expenses – especially keeping their payroll up – the debt would be forgiven.

One catch. When debt is forgiven, a taxpayer – in this case a company – must usually report that forgiveness as income. And be taxed on it.

That was a challenge for employers. While they were able to take on the (probably forgivable) debt under PPP and pay off their employees, government-mandated shutdowns were implemented nationwide in April and May 2020. So they could keep processing paychecks, but with no other sources of income, this would only help them get to the site of the crash.

Here there was some wisdom in Congressional PPP efforts. They contained a provision in the law that made the “forgiveness” part of PPP not reportable as income. This gave the company a certain amount of flexibility. They could pay their people with no problem while working to generate additional income to survive.

Then a second catch. Under Donald Trump, the IRS interpreted a different part of tax law as the intention of the neutral Congress. They spoke out in favor of the CARES Act but then claimed that the expenses paid through PPP were no longer deductible. That put employers back in the box by effectively making PPP forgiveness taxable.

If the loan made was income and the expenses were deductible, the tax would be $ 0. But if the loan made is not income and the expenses are not deductible, you are still at $ 0.

Congress got angry. All members of the Democratic Senator from Oregon Ron Wyden and the Republican Senator from Florida Marco Rubio lambasted the IRS and, more broadly, the Trump Administration.

In December, the latest coronavirus response law finally suspended the executive’s intragencience.

Then the battle moved to the States.

Governor Janet Mills encountered opposition headfirst by effectively following the Trump administration’s approach. The IRS said the loan was not income, but the expenses were not deductible. Mills’ instead said the loan would be income but the expense could be deducted. Two streets, same destination.

The PPP story continues, but it highlights a much bigger problem with Maine’s tax laws. Maine legislation must determine each year whether and to what extent it “complies” with federal income tax law. This has a major impact on the state budget.

But it also has a big impact on Mainer and companies. With January 1st rolling around, you have to guess what the tax law might look like. And if they guess wrong and make the wrong estimated payments, they will be punished. It’s a waste of time, effort, and resources that should better be spent building something new.

Mills’ inaugural address berated Kurt Vonnegut, claiming that Maine should have a “department of the future.”

If this is still the case, Augusta should keep an eye on tomorrow’s tax laws. Our state budget and business in Maine should not be tied to the whims of Washington. It means relying less or not on income taxes, but focusing on other sources of income. Especially ways in which people who live here six months less a day can still make a contribution.

If you can do it, you face great opportunities. There will be lots of naysayers and interest groups looking into the idea. However, with dedicated focus and political courage, these barriers can be overcome and we can write off “tax compliance” so that it is no longer an issue in the future.

Sometimes these crazy bets pay off. Just ask the 199th Draft Draft quarterback for Super Bowl Champion Tampa Bay Buccaneers.

Michael Cianchette is a Navy reservist who served in Afghanistan. He is an in-house advisor to a number of South Maine companies and was chief advisor to former Governor Paul LePage.