HP1182, LD 1647, item 1, An Act To Provide Tax Fairness to Maine's Middle Class and Working Families

An Act To Provide Tax Fairness to Maine's Middle Class and Working Families

Be it enacted by the People of the State of Maine as follows:

Sec. 1. 36 MRSA §200, sub-§1, ¶A, as enacted by PL 1997, c. 744, §1, is amended to read:

A. Part 1 of the report must describe the overall incidence of all state, local and county taxes. The report must present information on the distribution of the tax burden:

(1) For the overall income distribution, using a measure of system-wide incidence that appropriately measures equality and inequality;

(2) By income classes, including, at a minimum, deciles of the income distribution; and

(3) By other appropriate taxpayer characteristics.

The report must include a calculation of the average effective tax rate on state and local taxes paid by the top 1% of tax families and the bottom 99% of tax families. For purposes of this paragraph, "average effective tax rate on state and local taxes paid" and "tax family" have the same meaning as in section 5111-C, subsection 1.

Sec. 2. 36 MRSA §683, sub-§1-B, as enacted by PL 2015, c. 267, Pt. J, §1, is amended to read:

1-B. Additional exemption. A homestead eligible for an exemption under subsection 1 is eligible for an additional exemption of $5,000 of the just value of the homestead for property tax years beginning on April 1, 2016 and of ; $10,000 of the just value of the homestead for property tax years beginning on or after April 1, 2017 , April 1, 2018 and April 1, 2019; and $15,000 of the just value of the homestead for property tax years beginning on or after April 1, 2020.

Sec. 3. 36 MRSA §5111-C is enacted to read:

§ 5111-C. Tax equalization assessment

1. Definitions. As used in this section, unless the context otherwise indicates, the following terms have the following meanings.

A. "Average effective tax rate on state and local taxes paid" means a fraction that is based on statewide tax family data for the taxable year as calculated pursuant to this paragraph.

(1) The numerator consists of the sum of the following calculations performed for each income class:

(a) The sum of the amounts specified in subdivisions (i), (ii) and (iii), multiplied by a fraction the numerator of which is the number of tax families in the income class and the denominator of which is the expanded income of the income class. The amounts summed are:

(i) The income tax liability;

(ii) Property taxes accrued on a homestead; and

(iii) Sales taxes paid.

(2) The denominator consists of the total taxable families for all income classes.

As used in this paragraph, "income class" means a decile of tax families, except that for tax families above the 90th percentile there are 3 income classes defined as the following: the 90th to 95th percentile; the 95th to 99th percentile; and the 99th to 100th percentile.

B. "Expanded income" means total gross income required to be reported on United States Internal Revenue Service Form 1040 for the taxable year, plus tax-exempt interest earned during the taxable year and, to the extent included in the calculation of federal gross income, the absolute value of the amount of trade or business loss, net operating loss, capital loss, farm loss and partnership or S corporation loss.

C. "Homestead" means any residential property, including cooperative property as defined in section 681, subsection 1-B, in this State assessed as real property owned by a tax family or held in a revocable living trust for a tax family and occupied as a permanent residence or owned by a cooperative housing corporation and occupied as a permanent residence by a tax family who is a qualifying shareholder. "Homestead" does not include any real property used solely for commercial purposes.

D. "Income tax liability" means the total amount of income tax that is estimated to be due for a tax family for a taxable year, exclusive of a withholder's liability for taxes withheld, less any allowable credits for that taxable year. "Income tax liability" does not include the assessment under subsection 2.

E. "Individual effective tax rate on state and local taxes paid" means a fraction the numerator of which is the sum, for the taxable year, of a tax family's income tax paid to other jurisdictions, income tax liability, property taxes accrued on a tax family's homestead and sales taxes paid and the denominator of which is the tax family's expanded income for the taxable year.

F. "Permanent residence" means that place where a tax family has a true, fixed and permanent home and principal establishment to which a tax family, whenever absent, has the intention of returning. A tax family may have only one permanent residence at a time and, once a permanent residence is established, that permanent residence is presumed to continue until circumstances indicate otherwise.

G. "Sales taxes paid" means Maine sales and use tax reported as an itemized deduction for federal income tax purposes or, if not included as an itemized deduction, the amount as calculated by the federal optional state sales tax tables.

H. "Tax equalization assessment" is an amount, which may not be less than zero, equal to the difference in the average effective tax rate on state and local taxes paid and a tax family's individual effective tax rate on state and local taxes paid multiplied by a tax family's expanded income.

I. "Tax family" means an individual or a grouping of individuals based on tax filing status.

2. Assessment. For tax years beginning on or after January 1, 2020, a tax family must pay a tax equalization assessment if, for the tax year, a tax family has:

A. An individual effective tax rate on state and local taxes paid that is less than the average effective tax rate on state and local taxes paid by the bottom 99% of tax families as calculated in the most recent report submitted under section 200, subsection 1; and

B. Expanded income of $250,000 or more for a tax family filing as a single individual or a married person filing a separate return, $325,000 or more for a tax family filing as a single individual or legally separated individual who qualifies as a head of household or $400,000 or more for a tax family filing a married joint return or a tax family who is a surviving spouse permitted to file a joint return.

Sec. 4. 36 MRSA §5219-S, sub-§§1 to 3, as amended by PL 2009, c. 213, Pt. BBBB, §16, are further amended to read:

1. Resident taxpayer. A resident individual is allowed a credit against the tax otherwise due under this Part in the amount of 5% of the federal earned income credit for the same taxable year, except that for tax years beginning in 2009 and 2010 on or after January 1, 2020, the applicable percentage is 4% 10%.

2. Nonresident taxpayer. A nonresident individual is allowed a credit against the tax otherwise due under this Part in the amount of 5% of the federal earned income credit for the same taxable year, except that for tax years beginning in 2009 and 2010 on or after January 1, 2020, the applicable percentage is 4% 10%, multiplied by the ratio of the individual's Maine adjusted gross income, as defined in section 5102, subsection 1-C, paragraph B, to the individual's entire federal adjusted gross income, as modified by section 5122.

3. Part-year resident taxpayer. An individual who files a return as a part-year resident in accordance with section 5224-A is allowed a credit against the tax otherwise due under this Part in the amount of 5% of the federal earned income credit for the same taxable year, except that for tax years beginning in 2009 and 2010 on or after January 1, 2020, the applicable percentage is 4% 10%, multiplied by a ratio, the numerator of which is the individual's Maine adjusted gross income as defined in section 5102, subsection 1-C, paragraph A for that portion of the taxable year during which the individual was a resident plus the individual's Maine adjusted gross income as defined in section 5102, subsection 1-C, paragraph B for that portion of the taxable year during which the individual was a nonresident and the denominator of which is the individual's entire federal adjusted gross income, as modified by section 5122.

Sec. 5. 36 MRSA §5219-KK, sub-§2-A, as enacted by PL 2017, c. 474, Pt. B, §16, is amended to read:

2-A. Credit in 2018 and after. For tax years beginning on or after January 1, 2018 and January 1, 2019, a resident individual is allowed a credit against the taxes imposed under this Part equal to the amount by which the benefit base for the resident individual exceeds 6% of the resident individual's income. For tax years beginning on or after January 1, 2020, a resident individual is allowed a credit against the taxes imposed under this Part equal to the amount by which the benefit base for the resident individual exceeds 5% of the resident individual's income. The credit may not exceed $750 for resident individuals under 65 years of age as of the last day of the taxable year or $1,200 for resident individuals 65 years of age and older as of the last day of the taxable year. In the case of married individuals filing a joint return, only one spouse is required to be 65 years of age or older to qualify for the $1,200 credit limitation. Married taxpayers filing separate returns do not qualify for the credit under this section.

summary

This bill, for tax years beginning on or after January 1, 2020, requires payment of a tax equalization assessment if a tax family has an expanded income of at least $250,000 for a tax family filing as a single individual, $325,000 for a tax family filing as a head of a household or $400,000 for a tax family filing a married joint return or filing a joint return as a surviving spouse, and an effective tax rate that is less than the average effective tax rate on state and local taxes paid by the bottom 99% of tax families. The tax equalization assessment is an amount equal to the difference in the average effective tax rate on state and local taxes paid, calculated by decile, and a tax family's individual effective tax rate on state and local taxes paid, the sum of which is multiplied by a tax family's expanded income.

This bill also, for property tax years beginning on or after April 1, 2020, increases the total amount of the Maine resident homestead property tax exemption by $5,000 to $25,000 of the just value of the homestead. Finally, this bill increases the earned income tax credit from 5% of the federal earned income tax credit to 10% of the federal earned income tax credit and reduces the threshold amount from 6% to 5% to qualify for the property tax fairness credit.

HP1182 LD 1647	Session - 129th Maine Legislature		LR 2135 Item 1
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