Maine Revises Nexus Standards for Corporate & Sales Tax Purposes
On June 17, 2021, Maine Gov. Janet Mills signed legislation into law that adopted a factor presence nexus standard for Maine corporate income tax, removed the sales tax registration requirement for persons making at least 200 separate transactions in Maine, clarified the credit for income taxes paid to other states regarding COVID-19 teleworking, and added a penalty for failing to file information returns.
Factor Presence Nexus Standard
Under current law, Maine does not have a factor presence nexus standard for corporate income tax purposes. However, effective January 1, 2022, a corporation will have nexus for corporate income tax purposes in Maine if it meets either of these criteria:
- Is organized or commercially domiciled in Maine
- Although organized or commercially domiciled outside of Maine, the corporation’s property in Maine exceeds $250,000, payroll in Maine exceeds $250,000, sales in Maine exceed $500,000, or 25 percent of the corporation’s property, payroll, or sales is in Maine
In addition, a corporation that holds an interest directly or indirectly in a partnership has nexus with Maine if the partnership is organized or commercially domiciled in Maine and if the partnership’s property, payroll, or sales in Maine exceed any of the thresholds mentioned above. It should be noted these thresholds vary to a degree from the thresholds proposed by the Multistate Tax Commission (property of $50,000 and payroll of $50,000 to be precise).
Removal of Sales Tax Registration
The new legislation changed the nexus standard for sales tax purposes. Applicable to sales occurring on or after January 1, 2022, the sales tax registration requirement for persons selling tangible personal property or taxable services, including marketplace facilitators, in at least 200 separate transactions in the previous calendar year or the current calendar year is removed. However, persons with gross sales exceeding $100,000 in the previous calendar year or the current calendar year must continue to register to collect and remit Maine sales tax.
Extension of COVID-19 Telecommuter Provisions
Maine also extended its COVID-19 telecommuter provisions to tax years beginning in 2021. When determining whether compensation for personal services performed as an employee working remotely from a location in Maine is derived from sources in another jurisdiction for the purposes of the credit for income tax paid to other taxing jurisdictions, the compensation is sourced to that jurisdiction if these criteria are met:
- The employee was engaged in performing services from a location outside of Maine immediately before the COVID-19 emergency was declared
- The employee commenced working remotely from Maine due to the COVID-19 pandemic and during Maine’s or another jurisdiction’s state of emergency related to the COVID-19 pandemic
- The services were performed before January 1, 2022, and during either Maine’s or the other jurisdiction’s state of emergency
- The compensation is sourced by that jurisdiction as derived from or connected with sources in that jurisdiction under the laws of that jurisdiction
- The employee does not qualify for an income tax credit in that jurisdiction for Maine income taxes paid as a result of compensation
Creation of Penalty for Failure to File Information Return
Maine also instituted a $50 penalty for failing to or willfully furnishing a false or fraudulent return on or after January 31, 2022. The penalty will apply to each failure.
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