Maine Governor Janet Mills recently signed legislation adopting a new nexus standard for corporate income tax, removing the sales tax registration requirement for persons making at least 200 separate transactions in Maine, clarifying the credit for income taxes paid to other states regarding COVID-19 telework, and adding a penalty for failing to file information returns.
For corporate income tax purposes, beginning with tax year 2022, a corporation has nexus with Maine if it (1) is organized or commercially based in Maine; or (2) although organized or commercially based 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% of the corporation’s property, payroll or sales is in Maine. A corporation that holds an interest directly or indirectly in a partnership has nexus with Maine if the partnership is organized or commercially based in Maine or if the partnership’s property, payroll or sales in Maine exceed any of the thresholds mentioned above. Under current law, Maine does not have a factor presence nexus standard for corporate income tax purposes.
Applicable to sales occurring on or after January 1, 2022, for sales tax purposes, the requirement that persons selling tangible personal property or taxable services in at least 200 separate transactions in the previous calendar year, or the current calendar year, is removed. However, such persons with gross sales exceeding $100,000 in the previous calendar year or the current calendar year must continue to register. This change also applies to marketplace facilitators.
Additionally, for 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 purposes of the credit for income tax paid to other taxing jurisdictions, the compensation is sourced to that jurisdiction if:
1) The employee was engaged in performing services from a location outside of Maine immediately before the COVID-19 state of emergency was declared;
2) The employee commenced working remotely from Maine due to the COVID-19 pandemic and during Maine’s or the other jurisdiction’s state of emergency related to the COVID-19 pandemic;
3) The services were performed before January 1, 2022, and during either Maine’s or the other jurisdiction’s state of emergency;
4) The compensation is sourced by that jurisdiction as derived from or connected with sources in that jurisdiction under the laws of that jurisdiction; and
5) The employee does not qualify for an income tax credit in that jurisdiction for Maine income taxes paid as a result of the compensation.
Previously, Maine’s rule about this was limited to tax years beginning in 2020.
Persons required to file information returns on or after January 31, 2022, and who fail to do so, or who willfully furnish a false or fraudulent return, are subject to a $50 penalty for each failure. Previously, no penalty applied to this failure.
Employers should continue to monitor the tax landscape for changes regarding establishing nexus and withholding requirements that have come about because of COVID-19.