Maine’s two largest publicly traded companies say they have benefited substantially from the year-old corporate federal income tax cut, but a third public company in the state says the tax cut actually will hurt its bottom line in the short term.

The corporate tax cut, passed by Congress in late 2017, also has boosted Maine state tax revenue by an estimated $30 million, according to a state tax official. The boost is likely the result of increased profits and a mandated repatriation of net income generated offshore, he said.

The Republican-led Congress approved the Tax Cuts and Jobs Act in December 2017, which overhauled the U.S. income tax code with changes for individuals and businesses, including a reduction in the corporate income tax rate from 35 percent to 21 percent.

Supporters of the tax cut said it was necessary to make U.S. companies more competitive in a global market where businesses in many other countries pay far less in corporate taxes. Critics noted that there is no mechanism in place to make up the estimated federal revenue loss of more than $4 trillion by 2040 from the corporate tax cut.

Jonathan Ayers, president and CEO of the largest Maine-based public company, Idexx Laboratories Inc. of Westbrook, said the tax cut helped his business significantly in 2018.

While the exact amount of savings to Idexx has yet to be determined, Ayers said the company already has made several new investments as a direct result of the tax cut. They include adding 300 jobs, over 100 of them in Maine, adding a new manufacturing line in Westbrook and boosting the company’s investment in research and development, he said.

“The tax reform was very positive for Idexx, because we compete on a global basis, and we export product that’s manufactured in Maine to all over the world,” Ayers said. “As a direct result of tax reform, we made several decisions.”

Wex Inc. of South Portland, Maine’s second-largest public company, will have a new downtown Portland headquarters. The company saw substantial savings from the tax cut.

Those decisions also included increasing the maximum company match for employee retirement fund investments from 4 percent of annual salary to 5 percent, he said. Idexx has about 5,500 employees, including 2,600 in Maine, and about 95 percent of them are enrolled in the company’s 401(k) benefits plan, Ayers said.

He noted that the increase in matching 401(k) benefits is an ongoing commitment and not just a one-time boost for employees.

Melissa Smith, president and CEO of Wex Inc. of South Portland, Maine’s second-largest public company, echoed Ayers’ sentiments about the tax cut making U.S. businesses more competitive internationally.

“What I like about the tax law change is that we compete in a very global environment, and if you think about things like the ability to compete, the amount that you’re paying in taxes has a material impact,” Smith said. “Particularly if you think about acquisitions on a global basis, if you’re trying to acquire a company and you’re in a lower-tax jurisdiction, that gives you a natural competitive advantage.”

Like Ayers, Smith said she couldn’t quantify the tax cut’s impact in terms of a dollar amount, but she said the savings have been substantial. Wex made a number of additions to its employee benefits package in 2018 and completed the bulk of its work on building a new headquarters in downtown Portland, but Smith said those actions were not a direct result of the tax cut.

In 2018, Wex extended employee medical benefits to include fertility and emergency care, created a nonprofit organization to help employees experiencing financial hardship, and added a Roth IRA option to its retirement benefits plan, she said.

“We feel like it’s more important (for) us to do the right thing on a regular basis, so we’ve been, over the last many years, expanding the benefits offering to our employees, and we did a number of those this year,” Smith said.

One public company in Maine did not benefit from the tax cut in 2018, according to its top executive.

Michael Brigham, president and CEO of Portland-based ImmuCell Corp., said the tax cut will have a detrimental effect on his business because it has been experiencing a net operating loss this year.

Michael Brigham, president and CEO of Portland-based ImmuCell Corp., says the tax cut will have a detrimental effect on his business because it has been experiencing a net operating loss this year.

Companies are allowed to carry forward prior-year net operating losses and deduct them from future corporate taxes. Brigham said the tax rate reduction will decrease the amount of that future deduction.

“We’re accumulating those operating losses at a lower rate,” he said. “But when we turn profitable, at least the expense will be lower. I guess you can’t have your cake and eat it, too.”

STATE RATE UNCHANGED

According to a tax policy brief by the Penn Wharton Budget Model at the University of Pennsylvania, the corporate tax reduction will result in a federal income tax revenue decrease of $1.435 trillion over the next decade, and $4.185 trillion by 2040.

But in Maine, it’s a different story. Despite efforts by Gov. Paul LePage to pass a similar reduction in the state’s corporate income tax rate, it was rejected by the Legislature, and therefore Maine’s corporate tax rate remained unchanged at just under 9 percent.

Michael Allen, associate commissioner for tax policy at the state Department of Administrative and Financial Services, said Maine actually expects a boost in corporate tax revenue this year for reasons including a provision in the new tax law that forces companies with foreign operations to repatriate their offshore profits and pay U.S. taxes on them.

While it isn’t yet certain, Allen estimates the corporate tax code changes will result in a one-time windfall of at least $30 million for Maine’s General Fund.

He said the state usually collects about $170 million a year in corporate income taxes, and that it expects to collect at least $200 million for 2018 based on estimated quarterly tax payments. In the coming year, the amount of revenue from corporate taxes should return to normal, Allen said.

Still, there are variables that could increase or decrease the amount Maine ultimately collects from corporations for 2018, he said. Companies pay estimated quarterly taxes, but the final amount owed can deviate significantly from those estimates.

“There have been some quarters where we’re seeing as much as a 25 or 30 percent increase (in corporate tax revenue) year over year,” Allen said. “We think it’s a combination of corporate profitability and the federal tax cut. … Once they file their 2018 tax return, they’ll reconcile what they’ve paid in with what they actually owe to the state.”

Allen said the department has been cautious in its most recent revenue forecast not to overestimate the increase that will result from the new tax law.

“We essentially didn’t do anything on the corporate side in that forecast, just because we’re very concerned that some of this revenue that we’ve been seeing over the course of the last 12 months may be overpayments that businesses are making to us,” he said.

J. Craig Anderson can be contacted at 791-6390 or at:

[email protected]

Twitter: jcraiganderson


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