SKOWHEGAN — The semiregular 80-hour weeks at the Skowhegan Tire Center feel especially long during the coronavirus pandemic.

While the company tries to stay afloat — offering extended hours during storms, for instance — the business was thrown a potential curveball earlier this week. Should the Skowhegan Tire Center have to pay state income taxes on the $110,400 loan it received from the federal Paycheck Protection Program, those long weeks may be colder than ever.

“It would mean probably closing the doors,” said Diana Savage, owner of Skowhegan Tire. “We’re having a rough enough time making it through COVID to have any more expenses.”

The owner of Skowhegan Tire on Waterville Road in Skowhegan said that having to pay Maine state taxes on the federal Paycheck Protection Program loan it received in 2020 could force it to close. Michael G. Seamans/Morning Sentinel

According to the Portland Press Herald, a recent budget proposal made by Gov. Janet Mills during a public hearing with the Maine State Legislature calls for businesses to pay state income taxes for funds received through the Paycheck Protection Program, commonly known as PPP. Federal income taxes are not owed on the loans. Maine businesses utilized more than 28,200 PPP loans totaling $2.3 billion.

During the public hearing in Augusta, Kirsten Figueroa, the state’s budget commissioner, said the state may see a revenue shortfall of $100 million should the state align its tax rules with the federal tax code approved by Congress in late December 2020. Businesses are exempt from federal income tax on the loans and can claim expenses the loans were used for.

“Effectively, the federal government is using the tax code to provide additional fiscal stimulus to PPP loan recipients,” Figueroa said. “But without additional funding to the states to pay for this effort, this is a conformity provision that is challenging state governments across the nation.”

In the governor’s effort to balance the state’s own budget, the tax benefits provided by the PPP loan could go to naught should Mills’ proposal go through unchanged. While it’s too early to determine what will happen, news of the proposal left central Maine business owners scared.

In a news release issued Wednesday afternoon, the governor called on the state’s departments to “solve the PPP issue” by exploring possibilities for federal funding that would enable the state to forego taxes on PPP funds as the federal government has.

“I want to work with the Legislature and others to do all we can to pursue solutions that will help small businesses through this time of extraordinary hardship.”

According to Yelp’s 2020 year-end report, fourth quarter data show an economic recovery for all types of businesses. Having to pay income taxes on the PPP loans could negate this. The Maine Small Business Development Centers teamed up with the University of Southern Maine for an August survey that reported 92% of businesses expect to survive through 2021. That number would most certainly go down if PPP funds are taxed as income.

Last Friday, the Mid-Maine Chamber of Commerce Board of Directors voted unanimously to support legislation that aligns federal and state tax codes, chamber CEO and President Kim Lindlof said, so that PPP would not be taxed.

“The bulk of the chamber’s membership is comprised of small business, and many of the businesses are hurting,” Lindlof said. “Taxing the assistance that was given to them is kind of counterintuitive, so we took this position in order to support our businesses.”

The reverberations of paying an income tax on PPP loans would be felt strongly. Skowhegan Tire Center has not experienced a long closure during the pandemic. While other businesses closed, Savage said her application for the second round of PPP loans was denied because her business stayed open. The business could not prove a 25% loss because of the PPP loan. Savage estimates she is down 20% even with the loan.

Pharmacists Bud Savage, left, and his son, Shane, seen last month at their newly relocated 2,000-square-foot Oakland Pharmacy at 43 Main St. in Oakland. The co-owners say they went almost a year without any front-end sales in their four locations, relying on drive-thru and delivery service. Their Fairfield and Winslow locations are still closed, and a state tax on federal assistance doesn’t make sense, they say. Rich Abrahamson/Morning Sentinel file Buy this Photo

All four locations of Savage’s Drug received PPP loans. Co-owner Shane Savage said the stores went almost a year without any front end sales, resulting in losses, while relying on drive-thru and delivery service for revenue. The stores at the new Oakland location and in Unity are open, but the stores in Fairfield and Winslow remain closed. Savage’s Drug employs between 35-40 people depending on the time of the year and did not lay off any employees during the pandemic.

“It doesn’t make a lot of sense to me to provide relief to all of these companies and then turn around and tax them on that relief,” Savage said. “This money was intended to keep employees employed, and to turn around and penalize them with a tax doesn’t make sense to me from a business standpoint.”

David Lagrange, owner of KMD Florist in Waterville, kept the five employees on staff. Not all are working full-time. Lagrange is in the process of applying for a second round of PPP loans. KMD Florist got $22,000 in the first round of PPP loans.

Rita LaCroix, owner of Rita’s House of Pizza in Winslow, seen in May 2020 at the order window alongside a picture of her son, Zack, right. LaCroix said restaurants like hers are struggling and have been hit the hardest during the pandemic, “and it feels like we kept getting hit from all sides.” Michael G. Seamans/Morning Sentinel file Buy this Photo

“Any extra tax is going to have an effect on a business, especially in COVID,” Lagrange said. “Anything puts stress on the business.”

Rita’s House of Pizza in Winslow laid off all employees for about a month at the outset of the pandemic. Rita LaCroix and her son, Zack Menoudarakos, ran the business before bringing employees back because of the PPP loan.

“I think restaurants are struggling,” LaCroix said. “We’ve been hit the hardest, and it feels like we kept getting hit from all sides.”

Rita’s House of Pizza currently employs 11. Some employees were afraid to come back even with the loan, and some made more money staying home on unemployment. Lacroix, who owns Unity House of Pizza and Rita’s Catering, received PPP loans for those businesses as well. Already forced to close at 9 p.m. each night due to the state’s mandated curfew, another financial negative could do damage.

“You get a little help from the government, and it seems like there are so many hoops to jump through to get the money, and now that you get the money, you have to pay it back,” LaCroix said. “It’s like bail out money that you have to pay taxes on even when you don’t have the money to begin with.”

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