An Act To Create and Sustain Jobs through Development of Cooperatives and Employee-owned Businesses
Maine Legislature, Session 128, LD 1338
Committee: Taxation
Sponsors: GROHMAN, CHAPMAN, CUSHING, HICKMAN, WARD, CARPENTER
Amends: 36 MRSA §5122, 36 MRSA §5200-A, 36 MRSA §5206-D

Legislative Document
No. 1338
H.P. 932
House of Representatives, April 6, 2017
An Act To Create and Sustain Jobs through Development of 
Cooperatives and Employee-owned Businesses
Reference to the Committee on Taxation suggested and ordered printed.
ROBERT B. HUNT
Clerk
Presented by Representative GROHMAN of Biddeford.
Cosponsored by Representative CHAPMAN of Brooksville, Senator CUSHING of Penobscot 
and Representatives: CASÁS of Rockport, HICKMAN of Winthrop, WARD of Dedham, 
Senator: CARPENTER of Aroostook.
Be it enacted by the People of the State of Maine as follows: 
Sec. 1.  36 MRSA §5122, sub-§2, ¶¶PP and QQ are enacted to read: 
PP.  For taxable years beginning on or after January 1, 2017, to the extent included in 
federal adjusted gross income and to the extent otherwise subject to Maine income 
tax, an amount equal to any gain recognized on the sale by the taxpayer of an 
ownership interest in a qualified business if the business was transferred to: 
(1)  An employee stock ownership plan as defined in the Code, Section 
4975(e)(7); 
(2)  An S corporation of the State owned by an employee stock ownership plan; 
(3)  An eligible worker-owned cooperative as defined in the Code, Section 
1042(c)(2); 
(4)  A consumer cooperative organized under Title 13, chapter 85, subchapter 1; 
or 
(5)  If the business provides housing, a consumer cooperative or a cooperative 
affordable housing corporation organized under Title 13, chapter 85, subchapter 
1-A. 
For purposes of this paragraph, "qualified business" means a business whose 
securities are not publicly traded on any stock exchange and that is organized in the 
State or whose principal place of business is within the State including a corporation, 
an S corporation, a limited liability company, a limited liability partnership, a sole 
proprietorship and all private entities related by common ownership or control. 
QQ.  For taxable years beginning on or after January 1, 2017, to the extent included 
in federal adjusted gross income and to the extent otherwise subject to Maine income 
tax, an amount equal to the interest received during the taxable year by the taxpayer 
with respect to a qualified business acquisition loan.  For purposes of this paragraph: 
(1)  "Qualified business" means a business whose securities are not publicly 
traded on any stock exchange and that is organized in the State or whose 
principal place of business is within the State including a corporation, an S 
corporation, a limited liability company, a limited liability partnership, a sole 
proprietorship and all private entities related by common ownership or control; 
and 
(2)  "Qualified business acquisition loan," including a loan or part of a series of 
loans, means: 
(a)  A loan of which at least 90% of the proceeds are applied to the 
acquisition of majority ownership of a qualified business not owned by an 
entity under subdivisions (i) to (v) and that is given to: 
(i)  An employee stock ownership plan as defined in the Code, Section 
4975(e)(7); 
(ii)  An S corporation of the State owned by an employee stock 
ownership plan; 
(iii)  An eligible worker-owned cooperative as defined in the Code, 
Section 1042(c)(2); 
(iv)  A consumer cooperative organized under Title 13, chapter 85, 
subchapter 1; or 
(v)  If the business provides housing, a consumer cooperative or a 
cooperative affordable housing corporation organized under Title 13, 
chapter 85, subchapter 1-A;  
(b)  A loan to a corporation that sponsors an employee stock ownership plan 
if all proceeds of the loan are loaned to the employee stock ownership plan to 
acquire for the plan all outstanding employer securities in a qualified 
business and the plan's repayment terms are substantially similar to the 
corporation's repayment terms; or 
(c)  A loan used to refinance a qualified business acquisition loan. 
Sec. 2.  36 MRSA §5200-A, sub-§2, ¶¶BB and CC are enacted to read: 
BB.  For taxable years beginning on or after January 1, 2017, to the extent included in 
federal adjusted gross income and to the extent otherwise subject to Maine income 
tax, an amount equal to any gain recognized on the sale by the taxpayer of an 
ownership interest in a qualified business if the business was transferred to: 
(1)  An employee stock ownership plan as defined in the Code, Section 
4975(e)(7); 
(2)  An S corporation of the State owned by an employee stock ownership plan; 
(3)  An eligible worker-owned cooperative as defined in the Code, Section 
1042(c)(2); 
(4)  A consumer cooperative organized under Title 13, chapter 85, subchapter 1; 
or 
(5)  If the business provides housing, a consumer cooperative or a cooperative 
affordable housing corporation organized under Title 13, chapter 85, subchapter 
1-A. 
For purposes of this paragraph, "qualified business" means a business whose 
securities are not publicly traded on any stock exchange and that is organized in the 
State or whose principal place of business is within the State including a corporation, 
an S corporation, a limited liability company, a limited liability partnership, a sole 
proprietorship and all private entities related by common ownership or control. 
CC.  For taxable years beginning on or after January 1, 2017, to the extent included in 
federal adjusted gross income and to the extent otherwise subject to Maine income 
tax, an amount equal to the interest received during the taxable year by the taxpayer 
with respect to a qualified business acquisition loan.  For purposes of this paragraph: 
(1)  "Qualified business" means a business whose securities are not publicly 
traded on any stock exchange and that is organized in the State or whose 
principal place of business is within the State including a corporation, an S 
corporation, a limited liability company, a limited liability partnership, a sole 
proprietorship and all private entities related by common ownership or control; 
and 
(2)  "Qualified business acquisition loan," including a loan or part of a series of 
loans, means: 
(a)  A loan of which at least 90% of the proceeds are applied to the 
acquisition of majority ownership of a qualified business not owned by an 
entity under subdivisions (i) to (v) and that is given to: 
(i)  An employee stock ownership plan as defined in the Code, Section 
4975(e)(7); 
(ii)  An S corporation of the State owned by an employee stock 
ownership plan; 
(iii)  An eligible worker-owned cooperative as defined in the Code, 
Section 1042(c)(2); 
(iv)  A consumer cooperative organized under Title 13, chapter 85, 
subchapter 1; or 
(v)  If the business provides housing, a consumer cooperative or a 
cooperative affordable housing corporation organized under Title 13, 
chapter 85, subchapter 1-A; 
(b)  A loan to a corporation that sponsors an employee stock ownership plan 
if all proceeds of the loan are loaned to the employee stock ownership plan to 
acquire for the plan all outstanding employer securities in a qualified 
business and the plan's repayment terms are substantially similar to the 
corporation's repayment terms; or 
(c)  A loan used to refinance a qualified business acquisition loan. 
Sec. 3.  36 MRSA §5206-D, sub-§13, as amended by PL 1999, c. 414, §43 and 
affected by §57, is further amended to read: 
13.  Maine net income.  "Maine net income" means, for any taxable year, a financial 
institution's net income or loss per books required to be reported pursuant to the laws of 
the United States on Internal Revenue Service Form 1120, 1120S, 1065 or any other 
Internal Revenue Service form used to report net income or loss per books or, in the case 
of an entity with a single owner that may be disregarded as an entity separate from its 
owner pursuant to Internal Revenue Service regulations, the financial institution's net 
income or loss per books determined as if the entity were required to file Internal 
Revenue Service Form 1065, adjusted in accordance with section 5200-A, subsection 2, 
paragraph CC, and apportioned to this State under section 5206-E.  In the case of a 
financial institution that is a qualified subchapter S subsidiary as defined by the Code, 
Section 1361, the financial institution's "Maine net income" means a financial institution's 
net income or loss per books determined as if the entity were required to file Internal 
Revenue Service Form 1120S and apportioned to this State under section 5206-E. 
To the extent that a financial institution derives income from a unitary business carried on 
by 2 or more members of an affiliated group, "Maine net income" is determined by 
apportioning, in accordance with section 5206-E, that part of the net income of the entire 
group that derives from the unitary business. 
Sec. 4.  Retroactivity.  That section of this Act that amends the Maine Revised 
Statutes, Title 36, section 5206-D, subsection 13 applies retroactively to January 1, 2017. 
SUMMARY 
This bill supports employee-owned businesses and cooperatives in the following 
ways. 
1.  It excludes from Maine income tax the amount of gain recognized by a business 
owner in transferring the business to an employee stock ownership plan, eligible worker-
owned cooperative, consumer cooperative or affordable housing cooperative. 
2.  It excludes from Maine income tax interest from loans that finance transfers of 
ownership from a business to an employee stock ownership plan, eligible worker-owned 
cooperative, consumer cooperative or affordable housing cooperative.