This year, Congress made a big change to how massive corporations — those with profits over $1 billion — are taxed by establishing a “real profits tax” (or “corporate alternative minimum tax”). Put simply, “real profit” is just what it sounds like — the actual profit a company reports.
Wealthy corporations often tell shareholders they have huge profits while telling tax collectors a very different story and using complex loopholes and accounting schemes to avoid paying what they owe. The current tax rate on large corporations is 21 percent at the federal level and about 9 percent in Maine, but research has shown that many large corporations pay $0 in taxes.1 Now Maine has an opportunity to align with federal law and ensure big corporate tax dodgers pay their share of state taxes.
The purpose of the federal real profits tax is to promote greater transparency and consistency in how big corporations report profits and ensure they pay their fair share in taxes. It requires corporations to pay 15 percent of what they report in profits to shareholders, which, while only two-thirds of the current corporate tax rate, is significantly more than what many pay now due to to complex accounting and tax loopholes that lower or zero out liability. This means corporations won’t be able to hide their profits and avoid paying federal taxes.
Maine should follow suit with the federal government and block big corporate tax dodgers from getting out of paying what they owe in the state. By incorporating this change into Maine tax laws, legislators can ensure these massive corporations pay their fair share, just like hardworking Mainers and small businesses in our communities.
Congress estimates about 150 taxpayers will be subject to the federal real profits tax each year.2 Maine is not home to any of these businesses, but many of them profit from doing business in the state and rely on Maine’s resources and infrastructure to do so.
Maine has conformed with a federal corporate minimum tax in the past3 and should again align with the federal government and put a real profits tax in place. Ensuring wealthy corporations pay their share in taxes is a matter of fairness for other Maine taxpayers that will create a more level playing field and give Maine millions more dollars to invest in urgent state needs and priorities.
Notes:
[1] Institute on Taxation and Economic Policy, “Corporate Tax Avoidance Under the Tax Cuts and Jobs Act.” 29 July 2021.
Economic Policy Institute. “State corporate income tax revenues have eroded sharply in recent decades.” 14 April 2022.
[2] Joint Committee on Taxation letter to Senate Committee on Finance, Aug 1 2022.
[3] The prior corporate minimum tax was repealed in 2018 by the Tax Cuts and Jobs Act.
