The Maine Super Credit for Substantially Increased Research and Development: A Comprehensive Analysis of the Super Credit Base Amount and 36 M.R.S. § 5219-L

The Super Credit Base Amount is a fixed historical benchmark representing 150% of a taxpayer’s average qualified research expenses incurred in Maine during the three years preceding June 12, 1997. It functions as the mandatory spending threshold that a business must exceed to qualify for the additional tax credit previously offered under Maine Revised Statutes Title 36, Section 5219-L.1

Architectural Foundations of the Maine R&D Incentive Framework

The tax policy of the State of Maine has long been characterized by a strategic focus on fostering an environment conducive to technological innovation and high-value job creation. Central to this mission was the development of a tiered incentive structure designed to reward not just the maintenance of research and development (R&D) activities, but the aggressive expansion of those activities within state borders. This framework was primarily comprised of two distinct but related tax credits: the Research Expense Tax Credit, codified under 36 M.R.S. § 5219-K, and the more robust Super Credit for Substantially Increased Research and Development, codified under 36 M.R.S. § 5219-L.1

To appreciate the significance of the Super Credit Base Amount, one must first locate it within the broader legal and economic context of Maine’s transition from a legacy industrial economy toward one rooted in biotechnology, aerospace, and precision manufacturing. The Super Credit was enacted in 1997 as a mechanism to provide a “super-sized” version of the existing R&D credit for firms that were making transformative investments in the state.6 While the standard credit offered a modest offset for incremental growth, the Super Credit was intended for companies whose R&D footprint was radically expanding compared to their mid-1990s baseline.2

Although the generation of new Super Credits was discontinued for tax years beginning on or after January 1, 2014, the concept of the Super Credit Base Amount remains vital for contemporary tax administration. This is due to the extensive carryforward provisions that allow qualifying taxpayers to utilize unused credits for up to ten years following the year the credit was generated. Consequently, for large corporate taxpayers in Maine, the historical Super Credit Base Amount continues to dictate the pace and extent of tax liability offsets well into the 2020s.1

The Legal Definition of the Super Credit Base Amount

The term “Super Credit Base Amount” is not merely a descriptive phrase but a precisely defined statutory formula. Under 36 M.R.S. § 5219-L, the base amount serves as the “floor” from which a substantial expansion is measured. The statute defines this amount as the average amount spent on qualified research expenses by the taxpayer in the three taxable years immediately preceding the effective date of the section—which was June 12, 1997—increased by 50%.1

The Mathematical Formula

The calculation of this base amount is a mandatory first step for any taxpayer seeking to claim the benefits of § 5219-L. For a typical calendar-year filer, the three-year average is derived from the expenses incurred in 1994, 1995, and 1996. The formula is expressed using LaTeX notation for precision:

$$B_{super} = 1.5 \times \left( \frac{QRE_{1994} + QRE_{1995} + QRE_{1996}}{3} \right)$$

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In this equation, $B_{super}$ represents the Super Credit Base Amount, and $QRE_{n}$ represents the qualified research expenses for each respective year. The 1.5 multiplier (representing the 50% increase) is the “substantiality” hurdle. It implies that a company is not rewarded for merely maintaining its 1990s levels of research; it must first overcome a 50% “growth tax” before every dollar of subsequent expenditure qualifies for the Super Credit.1

Comparison of R&D Credit Bases

Maine’s R&D tax code utilizes different “base” concepts depending on the specific credit being claimed. Understanding these differences is essential for accurate corporate tax planning.

The table highlights the aggressive nature of the Super Credit. While the standard credit rewards steady year-over-year improvement with a 5% benefit, the Super Credit allowed a taxpayer to take the entirety of their expenses exceeding the historical base and apply it as a credit, subject to the overall 50% tax liability limitation.1

Qualified Research Expenses: The Content of the Base

The calculation of the Super Credit Base Amount is only as accurate as the underlying “Qualified Research Expenses” (QREs) used in the 1994-1996 average. Maine law explicitly ties the definition of QREs to Section 41 of the Internal Revenue Code (IRC), but with a significant geographical restriction: the research must be conducted specifically in Maine.1

Maine-Specific Qualification Criteria

For an expense to be included in either the historical base or the current year’s credit calculation, it must meet the federal “Four-Part Test” while maintaining a Maine nexus.

1. Technological in Nature: The research must fundamentally rely on principles of physical science, biological science, engineering, or computer science. Activities that rely on social sciences, arts, or humanities do not qualify.14
2. Permitted Purpose: The objective of the research must be to create a new business component or improve the functionality, performance, reliability, or quality of an existing one.4
3. Elimination of Uncertainty: The taxpayer must demonstrate that they intended to discover information that would eliminate technical uncertainty regarding the capability, method, or appropriate design of a product or process.4
4. Process of Experimentation: This involves the evaluation of one or more alternatives through a systematic process, such as modeling, simulation, or systematic trial and error.4

Eligible Expenditure Categories

The Maine Revenue Services (MRS) follows federal guidelines in categorizing which costs can be summed to form the QRE total.

• In-House Research Wages: This includes the portion of compensation paid to employees for “qualified services,” which encompasses performing research, supervising research, or supporting research directly. For many Maine firms, this is the largest component of the credit.4
• Research Supplies: Tangible property consumed or used in the research process. This excludes land or improvements to land and depreciable property.4
• Contract Research Expenses: 65% of the amounts paid to third parties for research conducted on the taxpayer’s behalf, provided that research is performed in Maine. Many firms partner with the University of Maine system or private research institutes to satisfy this requirement.4

Guidance from the Maine Revenue Services (MRS)

The Maine Revenue Services provides administrative oversight and technical guidance for the application of § 5219-L. While the credit has sunsetted, the MRS mission of fair and professional administration requires the maintenance of historical instructions and worksheets to process carryforward claims.1

The Instructional Worksheet Mechanism

The MRS facilitates the calculation of the Super Credit through a structured 10-step worksheet. This document translates the complex statutory language into a logical operational flow for tax preparers. The 2013 version of this worksheet is particularly important as it represents the final year of credit generation.3

1. Current QRE Identification: The taxpayer must first determine the total Maine-based QREs for the current tax year, typically mirrored from Federal Form 6765.3
2. Base Amount Application: The pre-determined Super Credit Base Amount is subtracted from the current QREs. If the current expenses do not exceed the base, the current-year credit is zero.3
3. Carryforward Integration: Any unused credits from the previous ten taxable years are added to the potential new credit.2
4. Tax Liability Limitation: The credit is then subjected to the “50% rule,” meaning the total applied credit cannot exceed half of the taxpayer’s tax liability after all other non-R&D credits have been taken.1
5. Prior-Year Floor Rule: A unique feature of Maine’s law is the “maintenance of effort” provision. The credit cannot be used to reduce the current year’s tax liability to an amount less than the tax paid in the preceding year (after credits).1

Administrative Rulings and Compliance

Taxpayers are cautioned that while MRS instructional bulletins provide valuable guidance, they do not carry the same legal weight as formal rules or statutes. However, the MRS indicates that “justifiable reliance” on a bulletin will be considered in mitigating penalties for underpayment.18

For the Super Credit, the MRS emphasizes the necessity of maintaining a clear audit trail. This includes not only the financial records of the 1994-1996 period but also contemporaneous documentation of the research activities being conducted. In the event of an audit, the State Tax Assessor has the authority to request project records, lab notes, and photographs of prototypes to verify that the research actually occurred in Maine and met the federal definitions.4

Detailed Computational Example: Precision Maine Aerospace

To illustrate the interplay between the Super Credit Base Amount and the statutory limitations, consider the case of “Precision Maine Aerospace” (PMA), a fictitious manufacturer with a long history of Maine-based innovation.

Step 1: Establishing the Historical Base

PMA must first look back to its mid-1990s expenditure to set its permanent Super Credit Base Amount.

PMA’s Super Credit Base Amount is fixed at $1,800,000. Every year, PMA must spend at least this amount in Maine-based R&D before it can generate any Super Credit.3

Step 2: Current Year Credit Generation (2013)

In 2013, the final year for generation, PMA spent $3,000,000 on qualified research into advanced composite materials in its Brunswick facility.

• Current Maine QREs: $3,000,000
• Excess over Base: $3,000,000 – $1,800,000 = $1,200,000
• Credit Generated: $1,200,000.1

Step 3: Applying Limitations

PMA’s tax profile for 2013 and 2012 is as follows:

• 2013 Tax Liability (after other credits): $500,000
• 2012 Tax Liability (after all credits): $200,000

PMA must now apply the two statutory caps:

1. 50% Tax Cap: $500,000 x 0.50 = $250,000
2. Prior-Year Floor Cap: $500,000 – $200,000 = $300,000

Following the rule of the smallest limitation, PMA can only use $250,000 of its generated credit in 2013. The remaining $950,000 ($1,200,000 – $250,000) enters the ten-year carryforward pool.3

Combined Returns and Unitary Business Sharing

The application of § 5219-L becomes significantly more complex in the context of corporate groups filing combined returns. Under Maine law, the Super Credit follows specific intra-group sharing protocols designed to prevent the “trapping” of credits in subsidiaries that lack sufficient tax liability.1

The Sequence of Application

When a unitary business group files a combined return, the Super Credit must be applied in a specific order:

1. Entity-Level Application: A credit generated by a specific member corporation must first be used to offset the tax due attributable to that member’s own operations.1
2. Group-Level Sharing: If the generating member has a surplus credit (beyond what it can use under the 50% cap), it may apply that excess to the tax due of other group members. This sharing is only permitted to the extent that the “receiving” member has unused capacity under the same statutory limitations.1
3. Carryover Management: Unused credits remain with the individual corporation that generated them. If a subsidiary is sold or spun off, its unexpired Super Credit carryforwards generally follow the entity to its new ownership, assuming the business remains in Maine.1

Combined Group Limitation Table

In this scenario, Sub A can “pass” its $900,000 surplus to Sub B and Sub C, allowing the group to maximize its R&D incentive across its entire Maine footprint.1

Economic Evaluation and the OPEGA Findings

In 2021, the Office of Program Evaluation and Government Accountability (OPEGA) conducted a comprehensive review of Maine’s R&D tax expenditures. While the focus was primarily on the surviving § 5219-K credit, the report offered critical second-order insights into why the Super Credit was structured as it was and why it ultimately sunsetted.7

The Innovation Driver Argument

OPEGA noted that research generally supports the idea that innovation is a primary driver of long-term economic growth. By providing the Super Credit, Maine aimed to lower the financial risk associated with massive R&D expansions.7 However, the evaluation also revealed that despite the availability of these credits, Maine has historically performed poorly compared to other states in measures of R&D intensity, such as the percentage of state GDP dedicated to research or the density of a highly skilled R&D workforce.7

Data Scarcity and Policy Adjustments

One of the most significant challenges identified by OPEGA was the lack of readily available data to track the specific outcomes of the credits. Because the Maine Revenue Services is only responsible for tax administration and not economic development monitoring, there was no centralized database tracking whether companies receiving the Super Credit were actually creating the “high-quality jobs” that the legislature intended.6

This lack of empirical proof of “success” contributed to the political environment that allowed the Super Credit to sunset in 2014. Critics argued that the fixed 1997 baseline was becoming a “legacy giveaway” for companies that had expanded decades ago but were no longer driving fresh innovation. Newer firms, meanwhile, were unable to benefit from the historical nature of the Super Credit Base Amount.7

The Road to Sunset: Public Law 2013, Chapter 502

The legislative decision to repeal the Super Credit was formalized in the 126th Legislature through Public Law 2013, c. 502, Part J. This bill effectively ended the generation phase of the credit while preserving the “tail” of carryforwards.1

Rationale for Repeal

The repeal was driven by several convergent factors:

1. Fiscal Stability: The Super Credit was a volatile tax expenditure. As large firms reached their expansion goals, the credit claims could swing significantly from year to year, complicating state budget projections.20
2. Equity Concerns: The fixed base amount gave a distinct advantage to older, established firms. A newer company with a zero-dollar base in 1997 would theoretically qualify more easily, but the statute was often interpreted as requiring the taxpayer to have been in existence and spending in Maine during the base period.1
3. Modernization: The state shifted its focus toward the Maine Capital Investment Credit (§ 5219-GG), which provided a broader incentive for all types of capital investment, not just pure R&D.22

The Ten-Year Carryforward Transition

Crucially, the repeal included a 10-year carryover provision. For the final year of the credit (2013), the carryforward period extends to tax years beginning before January 1, 2024. This created a long “glide path” for businesses to burn off their earned credits.1

However, the carryforward rules introduced a new, more restrictive limitation: while generated credits could offset 50% of tax liability, carryforward credits applied in any single year were limited to just 25% of the tax due.1 This change essentially doubled the time required for a company to fully utilize its legacy Super Credit attributes, ensuring the state would not face a sudden revenue cliff as large firms applied their final balances.10

Restoration Efforts: The Case of LD 977

The business community in Maine did not allow the Super Credit to vanish without a fight. In the 129th Legislature (2019-2020), a major effort was launched to “restore” the credit through Legislative Document (LD) 977.10

The Proposed “Restored” Super Credit

LD 977, titled “An Act To Restore the Super Credit for Substantially Increased Research and Development,” sought to bring back the incentive with modern updates.

• Resetting the Base Amount: The bill proposed that for tax years beginning in 2019 or after, the “Super Credit Base Amount” would be recalculated. It would be the greater of the average QREs over the three years immediately preceding the current tax year, or the average over the three years preceding the bill’s effective date.10
• Performance Measures: Learning from the OPEGA evaluation, the bill included strict reporting requirements. Recipients would have been required to disclose the number of full-time employees added, their income levels, and the geographic distribution of their investments.10
• Public Policy Objectives: The bill explicitly defined its goals as creating high-quality jobs and improving the overall economy by expanding the number of businesses conducting R&D in the state.10

Legislative Disposition

Despite being reported out of the Taxation Committee with an “Ought to Pass as Amended” (OTP-AM) recommendation, LD 977 ultimately “Died Upon Conclusion” in November 2020. The onset of the COVID-19 pandemic and the resulting fiscal uncertainty deprioritized the restoration of large-scale corporate tax credits in favor of immediate relief measures.23

Strategic Considerations for Tax Professionals

For firms still managing Super Credit carryforwards or preparing for the eventual expiration of these attributes, several strategic considerations remain paramount.

Record Retention for Historical Bases

Because the credit is based on a 1994-1996 average, the “Super Credit Base Amount” is a historical fact that must be provable decades later. MRS auditors may challenge the original calculation of the base if a company attempts to use a carryforward in 2023. This requires the preservation of 30-year-old financial records, which can be a significant administrative burden for older Maine companies.4

Interaction with § 5219-K

Taxpayers must remember that the Super Credit is an “additional” credit. It is calculated after the standard 5% R&D credit has been determined. However, the order of application matters. Because § 5219-K has a 15-year carryforward and § 5219-L has only a 10-year carryforward, tax preparers should generally prioritize the use of the Super Credit (the shorter window) to minimize the risk of expiration.9

Unitary Group Optimization

As discussed, the ability to share credits within a combined group is a powerful tool. In the final years of the carryforward period, a group should look to steer taxable income toward those entities that “own” the Super Credit carryforwards, or use the sharing provisions of § 5219-L(5) to ensure that no part of the credit expires unused.1

Historical Tax Expenditure Statistics

The fiscal impact of the Super Credit was a point of constant debate in the Maine State House. Data from historical tax expenditure reports shows the scale of the benefit and the concentration of its recipients.20

Estimated General Fund Revenue Loss

The statistics show a dramatic ramp-up in the utilization of the Super Credit between the early 2000s and the early 2010s. By 2013, the Super Credit was costing the state more than double the standard R&D credit, despite being used by a far smaller number of taxpayers. This concentration of benefit among a few large firms was a significant factor in the eventual policy shift away from the credit.20

Comparing Maine to Regional Peer States

Maine’s decision to anchor its credit to a historical base was a distinctive policy choice that set it apart from its New England neighbors.

• Massachusetts: Offers a credit equal to 10% of the excess of QREs over a base amount. However, Massachusetts uses a complex “fixed-base percentage” of gross receipts, more closely aligned with the federal calculation method.11
• Rhode Island: Provides a very high rate (up to 22.5%) for the first $25,000 of credit but uses a simpler rolling average for its base, making it more accessible to small startups but less powerful for massive industrial expansions.4
• Connecticut: Utilizes a scaling rate (1.0% to 6.0%) based on total spend, allowing smaller firms to “sell” their unused credits back to the state for cash—a feature Maine has never adopted for its R&D credits.11

Maine’s § 5219-L was unique because it rewarded “history-breaking” growth. If a firm could prove it was doing ten times more research in 2010 than it was in 1995, the Super Credit provided an almost unmatched level of tax relief among the New England states.7

Conclusion: The Legacy of Section 5219-L

The Super Credit Base Amount represents a specific moment in time when the State of Maine decided to place a large bet on its existing industrial base, hoping to transform legacy manufacturers into high-tech innovators. For nearly twenty years, § 5219-L served as the “gold standard” for R&D incentives in the state, driving millions of dollars of investment into Brunswick, Augusta, Portland, and beyond.1

While the credit has sunsetted, its architectural DNA remains present in the ongoing management of carryforwards and in the design of successor credits like the Maine Capital Investment Credit. The Super Credit Base Amount remains a cautionary tale of the complexities inherent in historical-based tax incentives: while they provide massive power to established growers, they eventually become detached from the needs of the next generation of businesses.2

As the final carryforward years arrive, the “meaning” of the Super Credit Base Amount is found not just in the math of 1994-1996, but in the enduring lesson that tax policy must evolve alongside the industries it intends to support. For the businesses that leveraged it, the Super Credit was a vital engine of growth; for the state, it remains a landmark in the ongoing quest to define and support Maine’s innovation economy.1

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