AUGUSTA — The Maine Senate voted 24-10 to pass a supplemental state budget bill that would exempt about 28,000 businesses from paying state taxes on federal Paycheck Protection Program loans.

Senate Secretary Darek Grant, left, and Senate President Troy Jackson, D-Allagash, work on the podium during Wednesday’s session at the Augusta Civic Center. Joe Phelan/Kennebec Journal Buy this Photo

Two Republicans joined the Democratic majority in passing the measure after a provision to restore some funding for a homeless veterans coordinator position within the Bureau of Veterans Services was added back into the bill.

That addition also ensures federal funding for Maine veteran cemeteries will remain earmarked for that use. The additions were needed to sway Republican Sens. Brad Farrin of Norridgewock and Rick Bennett of Oxford and give the bill the two-thirds majority it needed to clear the upper chamber.

The measure with the new amendments will face a stiffer challenge Thursday in the House of Representatives, where Democrats hold 80 of the 151 seats and will need at least 17 Republicans to vote with them to gain two-thirds support and move the bill to Gov. Janet Mills’ desk.

Debate on the tax conformity provision of the supplemental budget comes as tax filing deadlines loom. The state filing deadline for corporations is Monday and the income tax-filing deadline is April 15.

The full Legislature convened Wednesday for only its second set of COVID-19-restricted floor sessions since lawmakers were sworn in two months ago.

The budget measure also exempts the first $10,200 of unemployment benefits from state income taxes, but a partisan split saw Republicans withholding support for the bill as they demanded another $32 million in tax benefits, most of them obscure, for businesses that mirror federal tax cuts, some installed before the pandemic.

“At this point we struck a deal to fund veterans, we struck a deal before to fund the entire PPP loans, and in addition to that we got 160,000 Mainers covered under this unemployment piece,” Senate President Troy Jackson said.

Newly elected Sen. Craig Hickman, D-Winthrop, at right, listens during Wednesday’s session at the Augusta Civic Center. Hickman, who previously served in the House, won a special election for Senate District 14 the day before, becoming the first Black man to be elected to both chambers of the Maine Legislature. Joe Phelan/Kennebec Journal Buy this Photo

He said Republicans still resisting the bill will have a lot to answer for.

“So veterans, businesses, workers and they are going to sacrifice it all for three-martini lunches and they are going to have to face their constituents here on out on a deal that is good,” Jackson said. “It is what they wanted, we delivered and we gave them exactly what they wanted and then they added this other thing that’s ridiculous.”

Sen. Cathy Breen, D-Falmouth, the Senate chair of the Legislature’s budget-writing Appropriations and Financial Affairs Committee, said the tax benefit on unemployment payments was an important piece for Democrats.

“People on unemployment are not doing well,” she said. “It seems like a fairness issue. If we are going to have this tax benefit for this big group, there’s this other huge group that’s frankly struggling, so let’s try to do a tax benefit for them, too.

“This supplemental budget proposal is something every person in this chamber should be able to get behind.”

Breen and other members of the committee, including the House Chair Rep. Teresa Pierce, D-Falmouth, said the concession on the veterans issue, pegged at about $113,000, was an easy one to make and one every member of the Legislature’s Veterans and Legal Affairs Committee supported, including all the committee’s Republican members.

Farrin, a Air Force veteran and a member of that committee, sponsored the veterans amendment in the Senate and noted that while he agreed with his Republican colleagues on their other tax concerns, restoring the homeless coordinator for veterans was his “line in the sand.”

Breen said the committee has held weeks of hearings and that Democrats have moved significantly to compromise on the PPP exemptions.

An initial proposal by Mills, a Democrat, provided tax relief on up to $1 million in PPP funds. Any funds beyond $1 million would have been subject to state corporate income tax. The governor’s proposal covered about 98 percent of PPP funds that flowed to Maine. Last week Democrats essentially eliminated the $1 million threshold and exempted all PPP loan funds from the state income tax, tacking another $100 million to the cost of the bill.

But Senate Republican leaders insisted they have been demanding full conformity with the federal tax code, including extending a state benefit to corporations on foreign derived intangible income, which comes from exporting products that are tied to intangible assets, such as patents, trademarks, and copyrights, held in the United States.

Senate Minority Leader Jeff Timberlake, R-Turner, said full conformity was what his all his caucus would accept. He said Republicans were being criticized for moving the goal posts on the bill but hadn’t.

“Our goal posts was set from Day 1, that’s total tax conformity and that hasn’t changed today,” Timberlake said. Without the inclusion taxes were being raised on a group of about 200 businesses. “I’ve never been in favor of raising taxes. I’m always in favor of lowering taxes,” Timberlake said.

Assistant Minority Leader Matthew Pouliot, R-Augusta, also said the resistance from Republicans wasn’t just on the issue of foreign derived intangible income, which only accounted for about $8.4 million of the $32 million additional benefits Republicans wanted.

Timberlake and Pouliot’s arguments were countered by Sen. Nate Libby, D-Lewiston, who said research from the Maine Revenue Service showed only about 10 Maine-based companies would benefit from the foreign derived intangible income provision that Republicans wanted.

But during a floor debate Bennett got no response when he asked his colleagues to explain which businesses in Maine benefited from the additional tax provisions Republicans were demanding.

The supplemental budget was approved by the budget committee in a party-line vote last week.

Maine is expected to see another $6 billion in aid based on the $1.9 trillion American Rescue Plan, which was approved by Congress on Wednesday and President Biden is expected to sign this week.

Republicans had also been pushing Democrats to approve a measure that would require any federal funding that’s spent by state government be approved by a two-thirds vote of the Legislature, but that demand seemed to fall by the wayside late Wednesday.

While much of that funding will flow directly to Maine citizens in the form of $1,400 cash payments or extended $300 unemployment benefits, state and local government entities are expected to see between $1.2 billion and $1.7 billion in new federal aid.

The lawmakers are meeting at the Augusta Civic Center – a bigger venue that allows social distancing for lawmakers to prevent spreading the COVID-19 virus.

House lawmakers also debated a measure, offered by Republicans on Wednesday, that would end that state of emergency that has been in place for nearly one year and rescind some of Mills’ orders related to the pandemic. The effort was defeated on a party-line vote in the House and would face a vote in the Senate, likely on Thursday.

House Speaker Ryan Fecteau, D-Biddeford, said late Wednesday the House would start its day Thursday on the supplemental budget bill.

Fecteau said any federal funding coming Maine’s way would still likely need two-thirds support if it was going to be directed by the Legislature for emergency use.

He said Republicans who supported the veterans funding in committee now may be willing to support the full supplemental budget.

“It’s just a matter of how important it is to Republicans,” Fecteau said. “We’ve agreed on almost every single item in the (bill) except for the $32 million that they want to spend on all sorts of tax incentives that go back to 2018.”

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CORRECTION: This story was updated at 5 p.m. on March 11, 2021, to correct the details of Gov. Mills’ initial proposal and changes made by Democrats. 

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