The Maine Super Credit for Substantially Increased Research and Development: A Comprehensive Analysis of 36 M.R.S. § 5219-L
The Maine Super Credit for Substantially Increased Research and Development was an additional income tax credit designed to incentivize companies to expand their research footprint in the state significantly beyond their mid-1990s historical baselines. While the credit was repealed for tax years beginning on or after January 1, 2014, its complex carryforward provisions remain a vital consideration for businesses managing legacy tax assets and navigating Maine’s rigorous compliance requirements.
The legal landscape of Maine’s research and development (R&D) incentives is characterized by a two-tiered system that historically sought to balance broad support for innovation with targeted rewards for aggressive corporate expansion. At the foundation of this system lies the standard Research Expense Tax Credit, codified under 36 M.R.S. § 5219-K, which remains a permanent fixture of the state’s tax code.1 Building upon this foundation, the Super Credit for Substantially Increased Research and Development, established under 36 M.R.S. § 5219-L, served as a “supercharged” incentive for those entities whose qualifying expenditures surpassed a fixed historical benchmark.1 This analysis provides an exhaustive review of the Super Credit’s statutory framework, its integration with Maine Revenue Services (MRS) guidance, the mechanics of its repeal, and the enduring relevance of its carryforward limitations in the current fiscal environment.
The Statutory Architecture of Maine’s R&D Incentive Programs
To appreciate the nuances of the Super Credit, one must first locate it within the broader tapestry of Maine’s economic development statutes. The Maine Legislature enacted the primary Research Expense Tax Credit in 1995 to reduce the financial risk associated with private-sector investment in innovation.2 Recognizing that a 5% credit on incremental increases might not be sufficient to attract massive industrial shifts, the Legislature introduced the Super Credit in 1997.3 The interplay between § 5219-K and § 5219-L created a strategic environment where a taxpayer could potentially claim both credits simultaneously, provided they met the increasingly stringent requirements of the latter.1
The Super Credit was explicitly defined as an “additional credit”.4 This means that eligibility for § 5219-L was contingent upon first qualifying for the credit allowed under § 5219-K.4 If a taxpayer’s research activities did not meet the fundamental definitions of qualified research under the federal Internal Revenue Code (IRC) Section 41, or if those activities were conducted outside the State of Maine, both credits remained inaccessible.1
Federal Conformity and Geographic Restrictions
Maine’s tax code is largely conformant with the federal IRC, and the R&D credits are no exception. The term “qualified research expenses” (QRE) as used in § 5219-L is explicitly anchored to the definition provided in IRC § 41.1 This conformity ensures that Maine taxpayers use familiar federal standards for determining which costs—such as wages, supplies, and contract research—are eligible for the credit.3 However, Maine imposes a strict “in-state” requirement: the expenses must be for research conducted specifically within the borders of Maine.1
The standard for qualified research generally follows the federal “Four-Part Test,” which requires that the research be for a permitted purpose, seek to eliminate technical uncertainty, involve a process of experimentation, and be technological in nature.1 In the narrative of Maine’s economic evolution, this technological focus was intended to pivot the state from a traditional resource-based economy toward high-growth sectors like biotechnology, aerospace, and advanced manufacturing.1
Defining the Super Credit Base Amount
The primary differentiator between the standard credit and the Super Credit is the “base amount.” While § 5219-K uses a rolling three-year average of QREs to calculate an incremental benefit, § 5219-L utilized a fixed historical baseline that essentially “froze” the threshold for the life of the program.1
| Base Component | Statutory Definition and Calculation |
| Historical Period | The average annual QREs spent in Maine during the three taxable years immediately preceding the effective date of June 12, 1997.4 |
| Inflation/Growth Factor | The historical average is increased by 50% to establish the “super credit base amount”.1 |
| Operational Goal | To reward only those companies that sustained research spending at levels 150% higher than their mid-1990s footprint.11 |
For a corporation that was active in Maine during the mid-1990s, the calculation of this base was a foundational exercise in tax compliance. If a firm spent an average of $1,000,000 annually on R&D from 1994 to 1996, their super credit base amount was set at $1,500,000.11 Consequently, the firm would only earn a Super Credit in subsequent years when their Maine-based QREs exceeded $1,500,000.1 For entities established after 1997, the base was effectively zero (or determined by their first three years of operation), making the credit highly attractive to new high-tech startups entering the state during the early 2000s.1
Mechanics of Credit Generation and Limitations
Prior to its repeal, the Super Credit allowed for a dollar-for-dollar reduction of tax liability for expenses exceeding the super base, provided the taxpayer also claimed the § 5219-K credit.1 However, the actual utilization of this credit was governed by some of the most restrictive “limitations on usage” found in the Maine Revised Statutes.4
The 50% Tax Due Limitation
In its active years, the Super Credit was limited to 50% of the taxpayer’s tax due for the year, calculated after all other available credits (except the Super Credit itself) had been applied.4 This statutory ceiling ensured that no corporation could use the Super Credit to completely eliminate its income tax liability in a given year. The Legislature intended for even the most innovative firms to contribute at least half of their adjusted tax burden to the General Fund.2
The Previous Year Liability Floor
Perhaps the most unique and technically challenging aspect of § 5219-L was the “floor” provision. The statute stipulated that the credit could not be used to reduce the taxpayer’s tax liability to less than the amount of the taxpayer’s tax due in the preceding taxable year, again calculated after the allowance of other credits.4 This created a “revenue stability” mechanism for the state. If a company’s tax liability was $100,000 in Year 1 and $150,000 in Year 2, they could only use $50,000 of Super Credits in Year 2, regardless of how many millions they might have earned through their R&D spending.12
This floor effectively penalized companies for experiencing a decrease in their pre-credit tax liability. In a recessionary environment where a company’s profits (and thus tax liability) might fall, the “floor” would often prevent them from using any of their Super Credit carryforwards, precisely at the time they might need the liquidity most.12
Combined Returns and Corporate Groups
The Super Credit contains specific provisions for corporations filing combined returns as part of a unitary business group. The law follows an “entity-specific” approach for the generation and initial application of the credit.4
- Generation: The credit is generated by the individual member corporation that performs the research.4
- Primary Application: The credit must first be applied against the portion of the combined tax due that is attributable to the specific company that generated it.4
- Secondary Sharing: If the generating corporation has “excess” credit (meaning its credit exceeds its own tax liability or is limited by the 50% cap), it can apply that excess against the tax liability of other group members.4
- Collective Limitations: The sharing of the credit is still subject to the “floor” limitation of subsection 4, applied at the level of the individual group member receiving the credit.4
- Retention: Unused and unexpired credits continue to be carried forward by the individual corporation that generated them, maintaining their identity even if the composition of the combined group changes.4
The Repeal of § 5219-L: Fiscal and Policy Rationales
The repeal of the Super Credit, effective for tax years beginning on or after January 1, 2014, was a watershed moment in Maine’s tax policy history. Codified in PL 2013, c. 502, Pt. J, the repeal was driven by both fiscal necessity and an evolving understanding of the credit’s effectiveness.2
OPEGA’s Evaluation and the Data Gap
The Office of Program Evaluation and Government Accountability (OPEGA) has conducted several rigorous reviews of the R&D credit landscape. One of the recurring themes in these evaluations is the difficulty of quantifying the specific economic impact of the Super Credit.2 While research generally supports the idea that innovation is an economic driver, the lack of readily available data on the precise number of jobs created specifically by the Super Credit vs. the standard credit led some policymakers to question whether the extra layer of incentive was providing a sufficient “return on investment”.2
Furthermore, OPEGA found that Maine’s overall R&D performance remained poor relative to national averages, even with the Super Credit in place for over 15 years.2 This suggested that factors other than tax credits—such as the presence of a skilled workforce, proximity to research universities, and venture capital availability—might be more influential in attracting high-tech firms to the state.2
Fiscal Consolidation in 2013
The 2013 repeal was part of a larger budgetary effort to simplify the tax code and reduce the state’s exposure to long-term tax expenditures. By eliminating the ability to generate new Super Credits, the state effectively capped its future liability while still honoring the credits already earned by taxpayers through the carryforward transition rules.4
| Fiscal Metric | Impact Assessment (Pre-Repeal Context) |
| Corporate Incentive Totals | Approximately $44.2 million was estimated for various corporate incentives in the FY’15 cycle, with R&D credits being a major component.15 |
| Taxpayer Usage | Approximately 175 taxpayers were estimated to be affected by the R&D credit suite annually.5 |
| Reliability Index | MRS and OPEGA assigned varying reliability scores to these fiscal estimates, noting that the Super Credit’s complex limitations made year-over-year revenue loss difficult to predict.5 |
Transition and Carryforward Guidance
The most critical information for contemporary practitioners involves the rules for carrying forward unused Super Credits into tax years 2014 and beyond. The repeal legislation did not vanish these credits; instead, it placed them in a phased-out state with specific “sunset” windows.4
The 10-Year Carryforward Rule
A taxpayer who earned a Super Credit prior to 2014 is entitled to carry over and apply any unused portion to the tax due for any one or more of the next succeeding 10 taxable years.4 However, a specific threshold exists: to qualify for the full 10-year carryforward period, the unused credit must have been generated in a tax year beginning after December 31, 2008, and before January 1, 2014.12 Credits generated prior to 2009 generally fell under different, shorter carryover rules or have already expired.
Post-Repeal Usage Caps (The 25% Rule)
While the credit was active, it could offset up to 50% of a taxpayer’s liability. However, for carryforwards used in tax years beginning after the repeal (2014 and beyond), the annual application limit was slashed to 25%.4 This means that a company with a $1,000,000 carryforward and a $1,000,000 tax liability in 2022 can only use $250,000 of that credit, prolonging the time it takes to “burn through” the legacy asset and increasing the risk that the credit will expire before it can be fully utilized.12
Required Documentation: The MRS Worksheet
To claim a carryforward, a taxpayer must complete and enclose a specific worksheet with their Maine return (Form 1120ME, 1040ME, or 1041ME).12 The 2022 Carryforward Worksheet requires a line-by-line verification of the 25% cap and the previous-year floor.12
| Worksheet Line | Purpose and Applicability |
| Line 1 | Carryover from previous years (must have been reflected on the 2013 worksheet).11 |
| Line 2 & 3 | Current year tax after other credits multiplied by 25% (the annual cap).12 |
| Line 4 & 5 | Calculation of the “Floor” (Current year tax minus previous year tax).12 |
| Line 6 | The final allowable credit: the smallest of Line 1, Line 3, or Line 5.12 |
State Revenue Office Guidance and Instructional Bulletin No. 22
A common area of confusion for taxpayers is the role of MRS “Instructional Bulletins” in the R&D credit process. Specifically, “Instructional Bulletin No. 22” is frequently cited in discussions of innovation incentives. However, its primary focus is not the income tax credit under § 5219-L, but rather the sales and use tax exemptions for manufacturers.19
Bulletin 22 and the Manufacturing Exemption
Bulletin 22 provides critical guidance on what constitutes “production” and “experimental research” for the purpose of exempting machinery and equipment from sales tax.20 While this is a different tax type, the definitions of what qualifies as “research” equipment often mirror the definitions of “qualified research” for income tax purposes.20
For example, Bulletin 22 clarifies that equipment used in biological processes, biotechnology, and the “transformation of raw materials into a new and different product” can qualify for exemptions.20 A taxpayer claiming the Super Credit on their income tax return will often find that their capital investments in R&D laboratories also qualify for the sales tax exemptions outlined in Bulletin 22.8 The synergy between these incentives—income tax credits for wages and sales tax exemptions for equipment—creates a multi-dimensional support system for Maine researchers.8
Audit Expectations and MRS Rule 205
Taxpayers should be aware that MRS has the authority to request additional information to support any credit claim.12 This is particularly true for the Super Credit, given its reliance on a 1997 base amount. If a taxpayer cannot provide records from the 1994-1996 period to justify their base amount, the MRS may challenge the entire credit generation.1
Key documentation recommended by the MRS and industry analysts includes:
- Copies of Federal Form 6765 for all years the credit was generated.1
- Detailed employee wage data, including “time-tracking” logs that show the percentage of time spent on qualifying activities in Maine.1
- Project descriptions that articulate the “process of experimentation” and the specific technical uncertainty being addressed.1
- Documentation of the location where the research was performed to satisfy the “conducted in this State” requirement.1
Detailed Illustrative Example: The Lumber-Tech Scenario
To demonstrate how the Super Credit applies in the post-repeal carryforward era, let us examine “Lumber-Tech Inc.,” a fictional advanced materials firm based in Orono, Maine.
Background and Credit Generation
Lumber-Tech was an early pioneer in wood-composite materials and had significant R&D activity in the mid-90s.
- Average Maine QRE (1994-1996): $2,000,000.
- Super Credit Base Calculation: $\$2,000,000 \times 1.5 = \$3,000,000$.11
- 2013 Performance: In the final year of the credit, Lumber-Tech spent $5,000,000$ on Maine QREs.
- Generated Credit: $\$5,000,000 – \$3,000,000 = \$2,000,000$.4
Due to low tax liability in 2013, the company only used $200,000 of the credit, leaving a $1,800,000 carryforward entering 2014.11
Applying the Carryforward in 2022
Fast forward to the 2022 tax year. Lumber-Tech has successfully commercialized its products and has a robust tax liability.
- 2022 Tax after other credits: $1,200,000 (Line 2 of worksheet).12
- 2021 Tax after credits: $1,100,000 (Line 4 of worksheet).12
Step 1: Calculate the 25% Cap (Line 3)
- $\$1,200,000 \times 0.25 = \$300,000$.12
Step 2: Calculate the Previous Year Floor (Line 5)
- $\$1,200,000 – \$1,100,000 = \$100,000$.12
Step 3: Determine the Final Credit Amount (Line 6)
The company must take the smallest of:
- Available Carryforward: $1,800,000
- 25% Annual Cap: $300,000
- Room Above the Floor: $100,000
Allowable 2022 Super Credit: $100,000.12
Despite having a massive $1.8 million carryforward and $1.2 million in tax, the company is restricted to using just $100,000 because its tax liability only increased by that much over the previous year.4 This illustrates the “dragging” effect of the floor provision, which can significantly delay the realization of tax benefits.
The Future of the Super Credit: Restoration Efforts
Since the 2014 repeal, there has been a persistent debate in the Maine Legislature regarding whether the state should restore the Super Credit to remain competitive with other states (approximately 70% of which offer R&D credits).2
Restoration Bills (LD 498 and LD 977)
Two major attempts to restore the credit provide insight into the perceived gaps in current policy. LD 498 (127th Legislature) and LD 977 (129th Legislature) both proposed “An Act To Restore the Super Credit for Substantially Increased Research and Development”.7
These proposals generally aimed to:
- Retroactivity: Make the restoration retroactive to January 1, 2014, essentially pretending the repeal never happened.18
- Modernize the Base: Reset the base amount to the average of the 3 years immediately preceding the credit year, rather than the 1997 baseline.7 This would make the credit accessible to a whole new generation of companies that didn’t exist in 1994.
- Increase the Cap: Raise the annual usage limit from 25% to 50% to improve the “cash-flow” value of the credit.18
- Improve Accountability: Incorporate rigorous performance measures, such as tracking the number of full-time employees added who would not have been hired in the absence of the credit.9
While these bills have not been fully enacted into the permanent code in their original “super” form, they have influenced the ongoing debate about whether the standard 5% credit is sufficient to keep Maine at the forefront of the high-tech economy.2
Conclusion and Strategic Recommendations
The Maine Super Credit for Substantially Increased Research and Development represents a sophisticated, if now restricted, tool for corporate tax planning. Its transition from an active incentive to a legacy carryforward asset highlights the importance of understanding statutory longevity and the rigorous “floor and cap” mechanics of the Maine Revenue Services.4
For businesses still holding these credits, the path forward is one of meticulous compliance and patience. The 25% annual cap and the previous-year liability floor create a narrow window for utilization, making it imperative that firms maximize their “taxable headroom” through strategic growth and careful interaction with other tax credits.4 At the same time, the broader R&D landscape in Maine—supported by the permanent § 5219-K credit and the manufacturing exemptions in Bulletin 22—continues to offer a compelling, if complex, environment for innovation.1
Ultimately, the story of the Super Credit serves as a cautionary tale for economic development policy. While high-octane incentives can attract large-scale investment, their complexity and the resulting data gaps can lead to legislative skepticism and eventual repeal.2 As Maine looks toward its future, the focus appears to be shifting away from tiered “super” credits toward more transparent, data-driven incentives that can be more easily evaluated for their true impact on the state’s workforce and economy.2
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What is the R&D Tax Credit?
The Research & Experimentation Tax Credit (or R&D Tax Credit), is a general business tax credit under Internal Revenue Code section 41 for companies that incur research and development (R&D) costs in the United States. The credits are a tax incentive for performing qualified research in the United States, resulting in a credit to a tax return. For the first three years of R&D claims, 6% of the total qualified research expenses (QRE) form the gross credit. In the 4th year of claims and beyond, a base amount is calculated, and an adjusted expense line is multiplied times 14%. Click here to learn more.
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