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Gov. Paul LePage's supplemental budget plan, which was signed into law on May 16, will help reduce the income tax burden for retirees and certain members of the military beginning with the 2014 tax year (see Ch. 657 (S.P. 600), Laws 2012).


For retirees, the limit on the personal income tax deduction for certain retirement benefits is raised from $6,000 to $10,000 (reduced by the total amount of the taxpayer's Social Security benefits and federal railroad retirement benefits). The deduction is also expanded to include all federally taxable pension income, annuity income, and IRA distributions, except pick-up contributions for which a deduction has been allowed.


The new law also creates a personal income tax exemption for active duty military pay earned outside of Maine for service performed pursuant to written military orders. This includes compensation received as a result of service in the active or reserve components of the U.S. Army, Navy, Air Force, Marines or Coast Guard, including all military duty performed as a member of the state military forces.


Other tax provisions in the supplemental budget bill include:


New Markets Tax Credit – The maximum amount of capital or equity investment in, or loaned to, a qualified active low-income community business is increased from $10 million to $40 million if the business is a manufacturing or value-added production enterprise that projects to create or retain more than 200 jobs.


Sales Tax on Wood Harvesting Equipment – The sales tax exemption for depreciable machinery or equipment used in certain types of production is expanded to include commercial wood harvesting.


Use Tax Compliance Program – Taxpayers may pay use tax liabilities that have not been assessed beginning September 1, 2012, and ending November 30, 2012. The program applies to use tax liabilities incurred during a look-back period extending from 2006 to 2011.


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