An Act To Reestablish Fairness in Corporate Taxation by Taxing Real Estate Investment Trusts
Emergency preamble. Whereas, acts and resolves of the Legislature do not become effective until 90 days after adjournment unless enacted as emergencies; and
Whereas, real estate investment trusts have become increasingly more prevalent in Maine; and
Whereas, capital gains by these real estate investment trusts are not taxed at the entity level in Maine; and
Whereas, this legislation would tax real estate investment trusts at the corporate rate; and
Whereas, due to the change in taxing policy proposed by this legislation, time is needed to provide notice to members of real estate investment trusts to prepare and plan for the change; and
Whereas, in the judgment of the Legislature, these facts create an emergency within the meaning of the Constitution of Maine and require the following legislation as immediately necessary for the preservation of the public peace, health and safety; now, therefore,
Sec. 1. 5 MRSA §6203, sub-§1, as amended by PL 1993, c. 728, §4, is further amended to read:
Sec. 2. 36 MRSA §5102, sub-§3-A is enacted to read:
Sec. 3. 36 MRSA §5122, sub-§1, ¶X, as amended by PL 2007, c. 437, §16, is further amended to read:
Sec. 4. 36 MRSA §5122, sub-§1, ¶Y, as enacted by PL 2007, c. 437, §17 and affected by §22, is amended to read:
Sec. 5. 36 MRSA §5122, sub-§1, ¶Z is enacted to read:
Sec. 6. 36 MRSA §5122, sub-§2, ¶Y, as enacted by PL 2007, c. 466, Pt. A, §68 and affected by §70, is amended to read:
Sec. 7. 36 MRSA §5122, sub-§2, ¶Z, as enacted by PL 2007, c. 466, Pt. A, §69, is amended to read:
Sec. 8. 36 MRSA §5122, sub-§2, ¶AA is enacted to read:
(1) Any dividends or other distributions with respect to a taxpayer's ownership interest in a real estate investment trust; and
(2) Any gain recognized on the disposition by the taxpayer of an ownership interest in a real estate investment trust.
Sec. 9. 36 MRSA §5200-A, sub-§1, ¶P, as amended by PL 2005, c. 12, Pt. P, §8, is further amended to read:
Sec. 10. 36 MRSA §5200-A, sub-§1, ¶S, as enacted by PL 2005, c. 12, Pt. P, §9 and affected by §10, is amended to read:
Sec. 11. 36 MRSA §5200-A, sub-§1, ¶T is enacted to read:
Sec. 12. 36 MRSA §5200-A, sub-§2, ¶P, as amended by PL 2005, c. 644, §9, is further amended to read:
(1) As used in this paragraph, unless the context otherwise indicates, the following terms have the following meanings.
(a) "Commercial harvesting" or "commercially harvested" means the harvesting of forest products that have commercial value.
(b) "Eligible timberlands" means land of at least 10 acres located in the State and used primarily for the growth of trees to be commercially harvested. Land that would otherwise be included within this definition may not be excluded because of:
(i) Use of the land for multiple public recreation activities;
(ii) Statutory or governmental restrictions that prevent commercial harvesting of trees or require a primary use of the land other than commercial harvesting;
(iii) Deed restrictions, restrictive covenants or organizational charters that prevent commercial harvesting of trees or require a primary use of land other than commercial harvesting and that were effective prior to January 1, 1982; or
(iv) Past or present multiple use for mineral exploration.
(c) "Forest products that have commercial value" means logs, pulpwood, veneer, bolt wood, wood chips, stud wood, poles, pilings, biomass, fuel wood, Christmas trees, maple syrup, nursery products used for ornamental purposes, wreaths, bough material or cones or other seed products.
(d) "Sustainably managed" means:
(i) A forest management and harvest plan, as defined in section 573, subsection 3-A, has been prepared for the eligible timberlands and has been in effect for the entire time period used to compute the amount of the subtraction modification under this paragraph; and
(ii) The taxpayer has received a written statement from a licensed forester certifying that, as of the time of the sale, the eligible timberlands have been managed in accordance with the plan under subdivision (i) during that period.
(2) To the extent included in the taxpayer's taxable income under the laws of the United States, the taxable income of the taxpayer under the laws of the United States must be decreased by:
(a) For eligible timberlands held by the taxpayer for at least a 10-year period beginning on or after January 1, 2005 but less than an 11-year period beginning on or after January 1, 2005, 1/15 of the gain recognized on the sale of the eligible timberlands;
(b) For eligible timberlands held by the taxpayer for at least an 11-year period beginning on or after January 1, 2005 but less than a 12-year period beginning on or after January 1, 2005, 2/15 of the gain recognized on the sale of the eligible timberlands;
(c) For eligible timberlands held by the taxpayer for at least a 12-year period beginning on or after January 1, 2005 but less than a 13-year period beginning on or after January 1, 2005, 1/5 of the gain recognized on the sale of the eligible timberlands;
(d) For eligible timberlands held by the taxpayer for at least a 13-year period beginning on or after January 1, 2005 but less than a 14-year period beginning on or after January 1, 2005, 4/15 of the gain recognized on the sale of the eligible timberlands;
(e) For eligible timberlands held by the taxpayer for at least a 14-year period beginning on or after January 1, 2005 but less than a 15-year period beginning on or after January 1, 2005, 1/3 of the gain recognized on the sale of the eligible timberlands;
(f) For eligible timberlands held by the taxpayer for at least a 15-year period beginning on or after January 1, 2005 but less than a 16-year period beginning on or after January 1, 2005, 2/5 of the gain recognized on the sale of the eligible timberlands;
(g) For eligible timberlands held by the taxpayer for at least a 16-year period beginning on or after January 1, 2005 but less than a 17-year period beginning on or after January 1, 2005, 7/15 of the gain recognized on the sale of the eligible timberlands;
(h) For eligible timberlands held by the taxpayer for at least a 17-year period beginning on or after January 1, 2005 but less than an 18-year period beginning on or after January 1, 2005, 8/15 of the gain recognized on the sale of the eligible timberlands;
(i) For eligible timberlands held by the taxpayer for at least an 18-year period beginning on or after January 1, 2005 but less than a 19-year period beginning on or after January 1, 2005, 3/5 of the gain recognized on the sale of the eligible timberlands;
(j) For eligible timberlands held by the taxpayer for at least a 19-year period beginning on or after January 1, 2005 but less than a 20-year period beginning on or after January 1, 2005, 2/3 of the gain recognized on the sale of the eligible timberlands;
(k) For eligible timberlands held by the taxpayer for at least a 20-year period beginning on or after January 1, 2005 but less than a 21-year period beginning on or after January 1, 2005, 11/15 of the gain recognized on the sale of the eligible timberlands;
(l) For eligible timberlands held by the taxpayer for at least a 21-year period beginning on or after January 1, 2005 but less than a 22-year period beginning on or after January 1, 2005, 4/5 of the gain recognized on the sale of the eligible timberlands;
(m) For eligible timberlands held by the taxpayer for at least a 22-year period beginning on or after January 1, 2005 but less than a 23-year period beginning on or after January 1, 2005, 13/15 of the gain recognized on the sale of the eligible timberlands;
(n) For eligible timberlands held by the taxpayer for at least a 23-year period beginning on or after January 1, 2005 but less than a 24-year period beginning on or after January 1, 2005, 14/15 of the gain recognized on the sale of the eligible timberlands; or
(o) For eligible timberlands held by the taxpayer for at least a 24-year period beginning on or after January 1, 2005, all of the gain recognized on the sale of the eligible timberlands.
(3) Taxpayers claiming this credit must attach a sworn statement from a forester licensed pursuant to Title 32, chapter 76 that the timberlands for which the credit is claimed have been managed sustainably. For the purposes of this subparagraph, "sustainably" means that the timberlands for which the credit is claimed have been managed to protect soil productivity and to maintain or improve stand productivity and timber quality; known occurrences of threatened or endangered species and rare or exemplary natural communities; significant wildlife habitat and essential wildlife habitat; and water quality, wetlands and riparian zones.
Upon request of the State Tax Assessor, the Director of the Bureau of Forestry within the Department of Conservation may provide assistance in determining whether timberlands for which the credit is claimed have been managed sustainably. When assistance is requested under this subparagraph, the director or the director's designee may enter and examine the timberlands for the purpose of determining whether the timberlands have been managed sustainably.
In the case of timberlands owned by an entity that is treated as a pass-through entity for income tax purposes, the land must be treated as eligible timberland if ownership and use of the land by the pass-through entity satisfies the requirements of this paragraph. If the owner of the eligible timberlands is an S corporation, the taxpayer must subtract the owner's pro rata share of the gain. If the owner of the timberlands is a partnership or limited liability company taxed as a partnership, the taxpayer must subtract the taxpayer's distributive share of the gain, subject to the percentage limitations provided in this paragraph.
This modification may not reduce Maine taxable income to less than zero. To the extent this modification results in Maine taxable income that is less than zero for the taxable year, the excess negative modification amount may be carried forward and applied as a subtraction modification for up to 10 taxable years. The entire amount of the excess negative modification must be carried to the earliest of the taxable years to which, by reason of this subsection, the negative modification may be carried and then to each of the other taxable years to the extent the unused negative modification is not used for a prior taxable year. Earlier carry-forward modifications must be used before newer modifications generated in later years; and
Sec. 13. 36 MRSA §5200-A, sub-§2, ¶Q, as enacted by PL 2005, c. 644, §10, is amended to read:
Sec. 14. 36 MRSA §5200-A, sub-§2, ¶R is enacted to read:
(1) Any dividends or other distributions with respect to a taxpayer's ownership interest in a real estate investment trust; and
(2) Any gain recognized on the disposition by the taxpayer of an ownership interest in a real estate investment trust.
Sec. 15. 36 MRSA c. 820 is enacted to read:
CHAPTER 820
REAL ESTATE INVESTMENT TRUSTS
§ 5208. Tax on real estate investment trusts
(1) Real estate;
(2) Buildings; and
(3) Motor vehicles.
| If the income is: | The tax is: |
| Not over $25,000 | 3.5% of the income |
| Greater than $25,000 but not over $75,000 | $875 plus 7.93% of the excess over $25,000 |
| Greater than $75,000 but not over $250,000 | $4,840 plus 8.33% of the excess over $75,000 |
| Greater than $250,000 | $19,418 plus 8.93% of the excess over $250,000 |
(1) May not carry forward or carry back the loss; and
(2) Is not entitled to a refund of any portion of the loss.
The credit is limited in amount to the tax liability imposed in subsection 2. The credit may not be used to offset or reduce the Maine tax liability of any other affiliated entity. The credit may not be carried forward or carried back.
Sec. 16. Application. This Act applies to tax years beginning on or after January 1, 2008.
Emergency clause. In view of the emergency cited in the preamble, this legislation takes effect when approved.
SUMMARY
Under current law, real estate investment trusts, or "REITs," which are a type of corporation that invests in real estate, are not taxed at the corporate or entity level, although distributions from the REIT are taxable income to participants in the REIT.
This bill taxes REITs at the corporate level at the same rate as other corporations are taxed in Maine. Revenue generated by this tax is dedicated to the Land for Maine's Future Fund. The bill also amends current law to require an individual to modify that individual's taxable income based on any items of loss or gain by the REIT that are passed through the REIT to the individual.