Incentives

Tax Incentives

TAX REIMBURSEMENTS

Maine offers a variety of tax reimbursement programs which can result in no effective personal property tax on machinery and equipment (BETR program), up to 75% reimbursement of Maine income tax withholdings from new employees (ETIF program), and partial real and property tax refunds from municipalities (TIF program).

BUSINESS EQUIPMENT PROPERTY TAX REIMBURSEMENT (BETR)

Maine recently passed legislation eliminating the tax on business equipment. The law exempts new equipment to be installed after April 1, 2007 from local personal property taxes. For equipment placed into service prior to April 1, 2000, the following program is available.

Eligible Businesses: Any business that pays local property taxes on qualified business property (excluding public utilities, radio paging services, mobile communications, cable television, satellite-based direct television broadcast, multi-channel, and multi-point television distribution services, certain energy facilities, most natural gas pipelines, and property used to produce or transmit energy primarily for sale).

Program Summary: The Business Equipment Tax Reimbursement (BETR) program reimburses, for up to 12 years (less any number of years for which a High-Technology Investment Tax Credit was claimed), 90% of all local property taxes paid on eligible business property. The filing period for BETR is August 1 to December 31 for tax payments made in the previous calendar year, starting with eligible personal property tax payments made in calendar year 2002. Reimbursements will be issued within 90 days of receipt of properly completed claims.

Law defines the definition of eligible business property, but generally it means personal property first placed in service in Maine after April 1, 1995. Eligible property includes certain property affixed or attached to a building or other real estate if it is used to further a particular trade or business on that site and so may include property, which would be classified as real property for other purposes. Office furniture, lamps and lighting fixtures purchased after April 1, 1996 are not eligible for reimbursement and are excluded from the program. Vehicles on which excise tax has been paid are also ineligible for reimbursement. (Please note that this credit cannot be taken in tandem with the High Technology Tax Credit.)

Program Example: Cote’s Cookie Company purchased a $100,000 dough-mixing machine on July 7, 2004. When the town assessed the new machinery on April 1, 2005, they valued the property at $95,000. Based on the town’s mil rate of 15, the company paid an equipment property tax of $1,425 on September 1, 2005 for the eligible equipment. The company then filed an application with Maine Revenue Service for reimbursement of the equipment property tax. The company received a 90% reimbursement of $1,282.50, which it paid in equipment property tax.

EMPLOYMENT TAX INCREMENT FINANCING (ETIF)

Eligible Businesses: Any business that hires a minimum of 5 net new employees within a two year period, where those employees are: 1) paid an income that exceeds the average per capita income in the county of employment; 2) provided access to group health insurance, and; 3) provided access to an ERISA-qualified retirement program. NOTE: The business must be able to provide written documentation that its expansion project will not go forward without ETIF. This step must occur before the expansion takes place.

Program Summary: ETIF is available to assist in the financing of business investment projects that create at least 5 net new, high quality jobs in Maine. An ETIF-approved business may be reimbursed 30, 50 or 75 percent of the state income tax withholdings from the net new payroll for up to ten years. (Qualifying jobs created in a labor market area where the unemployment rate is at or below the state average earn a 30 percent reimbursement, while those with a higher than average unemployment rate earns 50 percent. In areas where the unemployment rate exceeds 150 percent of the state average, the reimbursement is 75 percent.) In Pine Tree Development Zones, companies in the manufacturing, financial services or targeted technology sectors, are eligible for an enhanced reimbursement of 80%.

The amount of annual payment is based upon the actual number of qualified employees above the company's base level of employment. The company may not be reimbursed from ETIF for any period of time when employment, income and/or employee benefits fail to meet the minimum qualification criteria. (Please note that ETIF cannot be taken concurrently with the Jobs & Investment Tax Credit.)

Program Example: A business is considering creating 9 full-time jobs and investing $150,000 in a PenQuis Pine Tree Zone. The new jobs will receive $25,000 per year in earnings and company-paid benefits. All employees will have access to group health insurance and a retirement program. The company is looking at other states, and will base its location decision upon the projected return on investment. Piscataquis County’s per capita personal income for the calendar year is $23,392. All 9 of the new employees are considered “qualified” by virtue of their income and benefits, and the company is eligible to seek reimbursement at the 80% Pine Tree Zone level.

In the example above, assuming the company: pays $22,000 in annual earnings to each net new employee, has an average state income tax withholding rate of 4.5%, has employment levels and earnings that do not change, and maintains its “qualified business” status, the annual ETIF reimbursement would be $7,128 [($22,000 X 9 employees) X 4.5% X 80%]. Total program reimbursement for the ten-year term would be $71,280.

TAX INCREMENT FINANCING (TIF)

Eligible Businesses: A municipality may choose to provide "financing" to any business that is making a significant capital investment within its borders. The source of the financing is taxes paid on new, real and personal property.

Program Summary: TIF is a local financing tool that permits a municipality to use some or all of the new property taxes that result from an investment project within a designated district to assist in that project's expenses. The municipality may disburse the tax increment directly to the investing business to help pay project costs, use it to retire bonds it issues as part of the project, or retain it for allowable economic development purposes.

TIF districts may be designated for up to 30 years. Bonds may be issued for up to 20 years. The community designation of a TIF district requires proper public notice, a public hearing, and a majority vote of the municipal legislative body.

Program Example: A business plans to invest $4,000,000 to construct a state-of-the-art manufacturing facility on land presently valued at $200,000. The municipality's property tax mil rate is $25 per $1,000 of valuation, so the business will have a tax obligation of $105,000 per year once the investment is recorded on the tax rolls. Of this tax obligation, $100,000 is new, or "incremental," and therefore eligible to be included within a TIF development program. Two examples exist for financing this scenario: Credit Enhancement Agreement. Once a municipality votes to financially support a business under the TIF program, the business may enter into a binding contract with the community called a "credit enhancement agreement." If the municipality agrees to "capture" 50% of the increased value in the TIF district for a period of ten years and return the new tax revenues to the business mentioned above to assist in financing the new building, then the business would receive $50,000 in the first year of the agreement. If all things remain constant, the business would receive approximately $500,000 in financing over the term of the TIF district.

Municipal Bond. Additionally, the municipality may float a bond to pay this cost. It could do so by issuing a 10-year general obligation bond in the amount of $150,000. If annual debt service on the bond is $20,000, the municipality could "capture" another 20% of the increased value in the TIF district for a period of ten years and pay down the debt on the TIF bond.
The remaining 30% of the new tax revenues from the increased assessed value could be deposited in the general fund for use on regular municipal expenses.

TECHNOLOGY TAX CREDITS

Maine has several tax credit programs specifically designed to encourage the growth of technology companies in the state including the Research Expense Tax Credit, R&D Super Credit, High-Technology Investment Tax Credit, and Sales Tax exemptions for technology companies.

RESEARCH EXPENSE TAX CREDIT

Eligible Businesses:Any business that engages in research and development activities in Maine that meet the definitions in Section 41 of the Internal Revenue Code. Such expenses include certain in-house and contract research expenses if they relate to discovering information that is technological in nature and intended for use in developing a new or improved business component.

Program Summary: The credit is based on a percentage of the federal Credit for Increasing Research Activities. Limitations: the credit is limited to 5% of the excess qualified research expenses over the previous three-year average plus 7.5% of the basic research payments in IRC §41(e)(1)(A). The credit is further limited to 100% of the first $25,000 in tax liability plus 75% of the tax liability in excess of $25,000. The credit cannot be carried back, but can be carried forward for up to 15 years.

SUPER R&D TAX CREDIT

Eligible Businesses: Businesses that qualify for the research expense credit and whose qualified research expenses conducted in Maine for the taxable year exceed 150% of the average research expenses for the three taxable years prior to September 1997.

Program Summary: The credit is based on qualified research payments exceeding 150% of the average for the three-year period prior to the effective date of the credit. Limitations: the credit is limited to 50% of the tax otherwise due after all other credits. Further, the credit cannot reduce tax liability below the amount due the previous year after credits. The credit cannot be carried back, but can be carried forward for up to five years.

HIGH TECHNOLOGY INVESTMENT TAX CREDIT

Eligible Businesses: Business primarily engaged in high-tech activities; high-tech activities include the design, creation, and production of computer software, computer equipment, supporting communications components and other accessories that are directly associated with computer software equipment; it also includes the provision of Internet or advanced telecommunications services.

Program Summary: The credit amount is equal to the adjusted basis of eligible equipment placed in service in Maine less any lease payments received during the taxable year; the credit cannot reduce the tax liability to less than the preceding tax year's liability after the allowance of any credits, and it cannot reduce the tax liability in the current year below zero; unused portions of the credit may be carried forward five years; the credit cannot exceed $100,000 in any one year; income must be increased by any credit base amount claimed as a business expense. (This credit cannot be used in tandem with BETR.) (Please note that this credit cannot be used in tandem with the Business Equipment Tax Reimbursement.)

JOBS & INVESTMENT TAX CREDIT (JITC)

Employers can save as much as $500,000 per year for seven years by investing $5 million in personal property and creating at least 100 new jobs. Tax credits apply toward Maine income tax.

Eligible Businesses: Any business, other than a public utility, that invests at least $5 million in a taxable year in qualifying types of personal property in Maine and creates 100 new jobs over the ensuing two-year period. Jobs created between 8/1/98 and 10/1/01 must provide salaries greater than the average per capita income in the local labor market area and be covered by retirement and group health insurance programs.

Program Summary: The credit is based on the federal credit amount, which is based on investment in qualified property. Limitations: taxpayer must create at least 100 new jobs within two years and invest at least $5,000,000 in one year. Credit is limited to tax liability or $500,000, whichever is less. The credit cannot be carried back, but can be carried forward up to seven years. (Please note, the Jobs and Investment Tax Credit may not be taken concurrently with the Employment Tax Increment Financing Program.)

SALES TAX EXEMPTIONS

Maine state sales tax exemptions are available for manufacturing, R&D, custom computer programming, fuel & electricity, biotechnology and clean fuel vehicle sales.

MANUFACTURING

Eligible Businesses: Any manufacturing company.

Program Summary: Sales of machinery and equipment used by the purchaser directly and primarily in the production of tangible personal property for later sale or use is eligible for a sales tax exemption. In addition, items consumed or destroyed directly or primarily in production, and repair and replacement parts for qualified production equipment are exempt from sales tax. Also, any manufacturer is exempt from paying 95% of the sales tax on fuel and/or electricity used in the manufacturing facility.

Business Example: Giordano & Co. purchased a piece of string winding equipment for $50,000. In addition, the company also purchased $2,000,000 of inventory. The company is exempt from paying Maine’s 5% sales tax on the machinery and inventory -- a value of $102,500. During the month of July, Giordano & Co. also purchased $20,000 in electricity. The company is exempt from paying Maine’s 5% sales tax on $19,000 ($20,000 x 95%) of the electricity cost -- a $950 value. Instead the company will only need to pay $50 in sales tax (5% x $1,000).

RESEARCH AND DEVELOPMENT

Sales of machinery and equipment used by the purchaser directly and exclusively in research and development is eligible for a sales tax exemption.

CUSTOM COMPUTER PROGRAMMING

Any custom computer programming purchased by a business is exempt from sales tax. If a standard program is purchased, then customized, the cost of the standard program would be taxable and the customizing, if separately stated, would be nontaxable.

FUEL & ELECTRICITY FOR USE IN MANUFACTURING

Manufacturers are exempt from paying 95% of the sales tax on fuel and/or electricity used in the manufacturing operation.

BIOTECHNOLOGY

Sales of machinery, equipment, instruments and supplies used by the purchaser directly and primarily in a biotechnology application are eligible for a sales tax exemption.

PARTIAL CLEAN FUEL VEHICLE SALES EXEMPTION

For businesses that sell clean fuel vehicles to the general public, the exemption amount is based on a portion of the sale or lease price of a clean fuel vehicle.