An Act to Support Maine Businesses Through a Child Care Tax Credit and a Pass-through Entity Tax
Maine Legislature, Session 131, LD 1891
Committee: Taxation
Sponsors: TERRY, JACKSON, CLOUTIER, DUCHARME, EATON, MILLETT, MILLIKEN, PERRY, SACHS
Amends: 36 MRSA §5190, 36 MRSA §5217-G

Legislative Document
No. 1891
H.P. 1212
House of Representatives, May 4, 2023
An Act to Support Maine Businesses Through a Child Care Tax 
Credit and a Pass-through Entity Tax
Reference to the Committee on Taxation suggested and ordered printed.
ROBERT B. HUNT
Clerk
Presented by Representative TERRY of Gorham.
Cosponsored by President JACKSON of Aroostook and
Representatives: CLOUTIER of Lewiston, DUCHARME of Madison, EATON of Deer Isle, 
MILLETT of Waterford, MILLIKEN of Blue Hill, PERRY of Bangor, SACHS of Freeport.
Be it enacted by the People of the State of Maine as follows:
PART A
Sec. A-1.  36 MRSA c. 814-A is enacted to read:
CHAPTER 814-A
PASS-THROUGH ENTITY TAX
§5186.  Definitions
As used in this chapter, unless the context otherwise indicates, the following terms 
have the following meanings.
1. Affected business entity.  "Affected business entity" means a partnership or an S 
corporation, but does not include a publicly traded partnership, as defined in the Code, 
Section 7704(b), that has agreed to file an annual return pursuant to section 5187 reporting 
the name, address, social security number or federal employer identification number and 
such other information required by the assessor of each member whose distributive share 
of partnership income derived from or connected with sources within this State is more 
than $500.
2.  Electing pass-through entity.  "Electing pass-through entity" means a pass-through 
entity that elects to pay taxes pursuant to section 5187.
3.  Member.  "Member" means:
A. A shareholder of an S corporation;
B. A partner in:
(1) A general partnership;
(2) A limited partnership; or
(3) A limited liability partnership; or
C.  A member of a limited liability company that is treated as a partnership or an S 
corporation for federal income tax purposes.
4.  Partnership.  "Partnership" has the same meaning as in the Code, Section 
7701(a)(2) and regulations adopted thereunder. "Partnership" includes a limited liability 
company that is treated as a partnership for federal income tax purposes.
5.  Pass-through entity.  "Pass-through entity" has the same meaning as in section 
5195, subsection 18.
6.  S corporation.  "S corporation" means a corporation or a limited liability company 
that is treated as an S corporation for federal income tax purposes.
7.  Tax year.  "Tax year" means the tax year of an affected business entity for federal 
income tax purposes.
§5187.  Pass-through entity taxation election
1.  Election.  A partnership or S corporation may elect to become an electing pass-
through entity in a tax year.  A separate election must be made for each tax year.
2.  Imposition and calculation of tax.  Notwithstanding any provision of law to the 
contrary, a tax is imposed on an electing pass-through entity. The tax is the sum of each 
member's distributive share of Maine taxable income as calculated under this Part, 
multiplied by the highest rate of tax applicable to the individual under section 5111.  
3.  Carry-forward.  If the tax calculated pursuant to subsection 2 results in a net loss 
for the electing pass-through entity, the net loss may not be carried forward to subsequent 
tax years.
4.  Filing of return.  A nonresident individual who is a member of an electing pass-
through entity may not be required to file an income tax return pursuant to this chapter for 
a tax year if the member's only source of Maine income for that tax year is from an electing 
pass-through entity and the electing pass-through entity files and pays the tax due under 
this chapter.
5.  Report of pro rata share.  Each electing pass-through entity shall report to each of 
its members, for each tax year, the member's pro rata share of the tax imposed pursuant to 
this chapter.  
6.  Report of credit.  A subsidiary pass-through entity shall report to a parent electing 
pass-through entity the amount of the credit the subsidiary allocates to the parent electing 
pass-through entity. 
7.  Treatment of indirect credit.  A parent electing pass-through entity cannot claim 
the credit against the pass-through entity tax reported on its own return but shall flow 
through the indirect credit to its members.
8.  Amount of credit.  Each member of an electing pass-through entity is entitled to a 
credit equal to 90% of the member's share of the tax paid pursuant to this chapter.  If the 
amount of the credit authorized by this subsection exceeds the member's tax liability 
imposed pursuant to this chapter, the excess amount is refundable to the member.  A 
member claiming a credit pursuant to this subsection is not entitled to deduct from that 
member's Maine taxable income those amounts of Maine income taxes paid by the member 
on that member's distributive share of income from the electing pass-through entity.  
9.  Effect of taxes paid in and credit from other jurisdictions.  Each member that is 
subject to the tax imposed by this chapter as a resident or part-year resident of the State is 
entitled to a credit for the direct member's or indirect member's pro rata share of taxes paid 
to another state or to the District of Columbia on income of any partnership or S corporation 
of which the person is a member if the taxes paid to another state or to the District of 
Columbia result from a tax that the director of taxation for that state or the District of 
Columbia determines is substantially similar to the tax imposed pursuant to this chapter.  
A credit must be calculated in a form and manner prescribed by that director of taxation 
consistent with the provisions of this section.  If the amount of the credit authorized by this 
subsection exceeds the member's tax liability for the tax imposed pursuant to this chapter, 
the excess amount is not refundable and may not carry forward.  
10.  Timing. Each affected business entity that is required to file a return under this 
chapter shall pay, on or before the 15th day of the 3rd month following the close of each 
tax year, to the assessor the tax as determined under this chapter.
§5188.  Rules
The bureau may adopt rules to implement this chapter.  Rules adopted pursuant to this 
section are routine technical rules pursuant to Title 5, chapter 375, subchapter 2-A.
Sec. A-2.  36 MRSA §5190, as amended by PL 2019, c. 380, §1, is further amended 
to read:
§5190.  Entity not taxable
A partnership is not subject to the tax imposed by this Part except as provided in chapter 
814-A. Persons carrying on business as partners are liable for the tax imposed by this Part 
only in their separate or individual capacities.  This section does not apply to the taxes 
imposed by chapters 819 and 827 or the tax imposed on partnership audit adjustments 
pursuant to subchapter 2.
PART B
Sec. B-1.  36 MRSA §5217-G is enacted to read:
§5217-G.  Business-supported child care tax credit
1.  Definitions.  As used in this section, unless the context otherwise indicates, the 
following terms have the following meanings.
A.  "Employing unit" has the same meaning as in Title 26, section 1043.
B.  "Providing child care services" means:
(1) Expending funds to build, furnish, license, staff, operate or subsidize a child 
care facility, as defined in Title 22, section 8301, subsection 1-A, paragraph B, to 
provide early child care and education services to children of employees of the 
employing unit at no profit to the employing unit;
(2) Expending funds to contract with a child care facility licensed by or registered 
with the department to provide early child care and education services to children 
of the employees of the employing unit;
(3)  The provision of child care resource and referral services to employees; or
(4)  Payments by the employing unit to an employee for purposes of paying for 
early child care and education services for children of the employee under a 
dependent care assistance plan.
2.  Credit allowed.  For tax years beginning on or after January 1, 2023, a taxpayer 
constituting an employing unit is allowed a credit against the tax imposed by this Part for 
each tax year equal to the lower of:
A.  Ten thousand dollars; and
B.  One thousand dollars for each child of an employee of the taxpayer for whom the 
taxpayer provides child care services.
3.  Carryover.  The amount of the credit that may be used by a taxpayer for a tax year 
may not exceed the amount of tax otherwise due under this Part.  Any unused credit may 
be carried over to the following year or years for a period not to exceed 15 years.  The 
credit allowed under this section may not be carried back.
SUMMARY
Part A of this bill establishes a pass-through entity tax on the income of partners and 
shareholders of S corporations to permit certain entities to elect to pay Maine income tax 
at the entity level.  The effect of this is to allow a taxpayer who elects to become a pass-
through entity to deduct Maine income taxes paid on the taxpayer's federal income tax 
return.
Part B of this bill establishes a business-supported child care tax credit to provide to an 
employer that provides early child care and education services to children of its employees, 
either by expending funds to build, furnish, license, staff, operate or subsidize a child care 
facility licensed by the Department of Health and Human Services or to contract with a 
child care facility licensed by or registered with the department.  The credit is equal to the 
lower of $10,000 or $1,000 per child of an employee for whom the employer provides early 
child care and education services.