Eaton Peabody

Maine Legislative Update - Tax Laws - May, 2006

This Client Alert is being sent to inform you of important changes to Maine’s tax laws that were enacted during this legislative session. These changes take effect January 1, 2007, unless otherwise noted.

1. Definition of “Resident Individual”

The definition of a “resident individual” was amended to provide that a Maine domiciliary is not a “resident individual” if the individual does not: 1) maintain a permanent place of abode in Maine, 2) maintains a permanent place of abode outside of Maine, and 3) spends 30 days or less of the taxable year in Maine. In addition, an individual is not a “resident individual” if, within any period of 548 consecutive days, the individual: 1) is present in a foreign country for at least 450 days, 2) is not present in Maine for more than 90 days, 3) does not maintain a permanent place of abode in Maine at which the individual’s minor child or spouse is present for more than 90 days (unless the spouses are legally separated, and 4) is present in Maine for a number of days that does not exceed an amount that bears the same ratio to 90 as the number of days contained in such portion of the taxable year bears to 548.

2. Increases in Deductions and Additions of Deductions

A deduction for contributions to qualified tuition programs of up to $250 per designated beneficiary was added. (This deduction is subject to income limitations.)

For 2006, the tax credit for dependent care expenses is 25% of the federal credit, up from 21.5%.

For 2006, the student loan interest deduction conforms to the federal deduction (there is no longer an add-back of the federal deduction on interest paid after 60 months from the start of the repayment period).

For tax years beginning after 2005, there is no longer an add-back of contributions to health savings accounts.

3. Credit Changes

Effective January 1, 2006 through December 31, 2009, there is an income tax credit for businesses that use pollution reducing boiler systems or furnaces. The credit is equal to 1.5 cents per kilowatt-hour produced by the system.

For tax years beginning after 2005 and before 2010, there is an addition of a refundable credit to the federal rehabilitation credit claimed on the taxpayer’s return for national historic landmark developers. The credit is in lieu of the nonrefundable credit and is limited to $500,000 per year collectively for all eligible developers, which amount is prorated based on their share of qualified expenses.

The clean fuel credit is extended through 2008.

4. Elimination of Property Tax on Business Equipment

For business equipment put in service after April 2007, the property tax is eliminated.

5. Resale Certificate Threshold Lowered

The threshold for issuing annual resale certificates has been lowered from $10,000 in annual gross sales to $3,000 in annual gross sales.

 

Please contact Christine Worthen, cworthen@eatonpeabody.com, or Dorrance Sexton, dsexton@eatonpeabody.com for further information.

This paper is provided as general information, and is not a substitute for legal or other professional advice.