The tax reform bill signed by Maine Gov. John E. Baldacci on June 12, 2009, contains numerous changes affecting state sales tax rates, the sales tax base, and the taxation of leases and rentals. A proposed amendment that would have made the bill subject to voter referendum was defeated. The sales and use tax provisions reported below take effect on January 1, 2010, unless otherwise noted. The bill is similar to legislation previously approved by the Legislature.
State Sales Tax Rates
The legislation increases the state sales tax rate for the following sales transactions from 7% to 8.5%, on January 1, 2010: (1) the sale of liquor in licensed establishments; (2) the rental of living quarters in any hotel, rooming house, or tourist or trailer camp; and (3) the sale of prepared food. In addition, the definition of prepared food is expanded to include candy, defined as a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces that does not contain flour or require refrigeration.
Effective October 1, 2009, the sales tax rate imposed on short-term vehicle rentals increases from 10% to 12.5%. Further, the rental of living quarters in a trailer camp will be subject to sales tax at a rate of 7% beginning effective January 1, 2010.
Broadening of the Sales Tax Base
The legislation broadens the sales tax base by including in the definition of taxable service as of January 1, 2010, (1) amusement, entertainment, and recreation services; (2) installation, repair, and maintenance services; (3) transportation and courier services; and (4) personal property services. Accordingly, no longer expressly excluded from the definition of sale price are separately stated charges for labor or services used in installing or applying or repairing tangible personal property sold. In addition, taxable service will also include the rental or lease of tangible personal property with respect to leases that are entered into, extended, or renewed on or after April 1, 2010. Items removed from the definition of taxable service are (1) the rental or lease of an automobile; and (2) the sale of an extended service contract on an automobile that entitles the purchaser to specific benefits in the service of the automobile for a specific duration. However, as discussed below under Leases and Rentals, the terms lease and rental include lease and rental agreements covering motor vehicles.
Exemptions for certain taxable services are discussed below under Sales and Use Tax Exemptions.
Amusement, entertainment and recreation services include admission fees for (1) entertainment venues and performances, including theaters, movies, lectures, concerts, festivals, amusement parks, water parks, fairgrounds, but excluding licensed agricultural fairs, race tracks, carnivals, circuses, sports activities, stadiums, amphitheaters, museums, planetariums, animal parks, petting zoos, aquariums, historical sites, and convention centers; (2) miniature golf courses, billiard parlors, go-cart courses, and paintball facilities; (3) exhibition shows, such as auto, boat, camping, home, garden, animal, and antique shows; (4) scenic and sight-seeing excursions, including aircraft, helicopter, balloon, blimp, watercraft, railroad, bus, trolley and wagon rides, whitewater rafting, and guided recreation, but excluding scenic and sight-seeing excursions on federally navigable waters; and (5) entertainment services, such as those provided by bands, orchestras, disc jockeys, comedians, clowns, jugglers, children's entertainers, and ventriloquists. Amusement, entertainment and recreation services excludes fees charged for entry to health clubs, training lessons (such as for dance or martial arts), and events organized or performed by schools, governmental entities, and nonprofit entities.
Installation, repair or maintenance services are defined as (1) all services involved in (and all service and maintenance contracts related to) the installation, repair, or maintenance of jewelry, cameras, guns, musical instruments, electronic and mechanical equipment, lawn and garden equipment, computer hardware and office equipment, vehicles, and appliances; (3) tailoring; (4) shoe repair; and (5) furniture repair and restoration.
Personal property services include the following services as they relate to tangible personal property: art restoration; boat mooring; butchering; car washing; domestic services (including house cleaning and furniture and rug cleaning); dry cleaning; embroidery and monogramming; interior decoration; laundry and diaper services (excluding self-service laundry services); meal preparation; moving services; pet services (such as pet exercising, sitting, training, grooming, and boarding for nonmedical purposes); picture framing; pressure cleaning and washing; vehicle towing; and warehousing and storage services (including rental of storage units and warehouse space, but excluding warehousing and storage services provided to a business).
Transportation and courier services are defined as in-state transportation of persons or property by limousine and courier services. In this context, a limousine service is a livery service hired for a specific event.
Computation of Sales Tax
Every retailer must add the sales tax to the sale price on all sales of tangible personal property and taxable services. When the sale price involves a fraction of a dollar, the calculation of the tax must be carried to the 3rd decimal place, then rounded down to the next whole cent when the third decimal place is the numeral 1, 2, 3, or 4, and rounded up to the next whole cent whenever the third decimal place is the numeral 5, 6, 7, 8, or 9.
Under amendments in the legislation, when several purchases are made together and at the same time, the sales tax may be calculated on each item individually or on the total amount of the several items as the retailer elects. Current law states that when several purchases are made together at the same time, the tax must be computed on the total amount of the several items, except that purchases taxed at different rates must be separately totaled.
Leases and Rentals
The provisions in the bill affecting the taxation of leases and rentals of tangible personal property apply to leases entered into, extended, or renewed on or after April 1, 2010. The bill defines lease or rental as including a sublease or subrental and meaning any transfer of possession or control of tangible personal property for a fixed or indeterminate term for consideration. The terms lease and rental may also include a future option to purchase or extend. The terms also include agreements covering motor vehicles and trailers when the amount of consideration may be increased or decreased by reference to the amount realized upon the sale or disposition of the property.
As discussed above, the legislation includes in the definition of taxable service, the rental or lease of tangible personal property. Accordingly, the definition of sale is amended to mean any transfer, exchange, or barter, in any manner or by any means whatsoever, for a consideration, including the lease or rental of tangible personal property.
Under a new provision created by the legislation, sales tax imposed on the rental or lease of tangible personal property must be collected by the lessor when the property is delivered to the lessee or when the initial payment under the lease is required, whichever is earlier, on the basis of the total amount of the consideration to be paid by the lessee under the lease agreement. If the total amount of the consideration for the lease includes amounts not calculated when the lease is executed, the tax attributable to those amounts must be collected by the lessor when those amounts are billed to the lessee. If the lease is open ended, the sales tax must be collected by the lessor based on the total amount to be paid during the initial fixed term of the lease, and then for each subsequent renewal period as it becomes due. In this context, consideration includes the amount of any down payment, trade-in credit, or third-party rebate applied to reduce the cost of the leased property. The new provision does not apply to any lease associated with a sale and leaseback transaction when the sale and leaseback occurs within 90 days of the lessee's original purchase of the property.
The exemption for sales of property purchased and used by the present owner outside the state is amended to exclude leased property. When tangible personal property is leased outside Maine and later brought into the state, the sales tax due is the proportion of the sales tax otherwise due that the remaining portion of the lease bears to the entire lease term. In addition, when tangible personal property is leased outside Maine and later brought into the state, the credit for sales tax paid in the other jurisdiction may not exceed the proportion of the sales tax otherwise due that the period for which the property was leased in the other jurisdiction bears to the entire lease term.
If a lease on property for which sales tax has been paid on an accelerated basis is terminated by the lessee before the end of the lease term, the lessee is entitled to a refund of the tax allocable to that portion of the remaining lease payments. A refund may not be issued if the early termination is the result of an option to purchase the leased property or the lease has been terminated due to nonpayment. Similarly, if leased property for which sales tax has been paid on an accelerated basis is permanently removed from the state, the lessee is entitled to a refund of the sales tax allocable to that portion of the lease that remains in effect after the property has been removed from the state. A refund may not be issued unless the taxing jurisdiction to which the property is removed allows a corresponding refund or does not impose tax on any portion of the lease that remains after the property is removed from that taxing jurisdiction. A refund may not be issued if the other jurisdiction allows a credit to the lessee for the sales or use tax paid in Maine on the lease transaction.
With respect to property that is located at a manufacturing or fabrication facility, sales tax imposed must be paid by the lessor based on the acquisition cost of the machinery or equipment. Lease or rental payments by the lessee or renter are not subject to sales tax. Fabrication facility is newly defined as a site of at least 35 acres at which the primary business is the performance of fabrication services and any activities associated with or in support of the fabrication services. The term fabrication services is added and means the production of tangible personal property for consideration for a person who directly or indirectly furnishes the materials used in that production.
Sales and Use Tax Exemptions
The legislation exempts sales of taxable services performed on or with respect to tangible personal property located outside Maine, or with respect to property brought into Maine for the performance of the services where the seller subsequently delivers the property to a location outside Maine or to the U.S. Postal Service, a common carrier, or a contract carrier hired by the seller for delivery to a location outside Maine for use solely outside the state. Also exempted is the sale of a taxable service by a person that has made taxable sales during the most recent calendar year of no more than $5,000.
The legislation adds as an exemption from sales and use tax sales meals served by a retirement facility to its residents when the cost of the meals is included in a comprehensive fee that includes the right to reside in a residential dwelling unit, whether that fee is charged annually, monthly, weekly, or daily. Also added as an exemption are sales of taxable services performed on machinery and equipment that (1) is eligible for the refund or exemption for depreciable machinery and equipment purchases, or (2) qualifies for the sales tax exemptions for air or water pollution control facilities, machinery and equipment, or machinery and equipment for research.
An exemption is created for sales of installation, repair, or maintenance services made between affiliated taxpayers that are engaged in a unitary business, meaning a business activity characterized by unity of ownership, functional integration, centralization of management, and economies of scale. Under other amendments in the legislation, the sales and use tax exemptions provided to a person based upon its charitable, nonprofit, or other public purposes, except for those exemptions for sales of certain meals, do not apply to the sale of meals or lodging or the rental of automobiles.
Other New and Amended Sales and Use Definitions
Administrative support operations are newly defined as secretarial activities and the supervision of administrative support staff, bookkeeping and accounting services, customer assistance activities, purchasing and receiving activities, human resources activities, and executive, tax compliance, and legal support activities.
The definition of retail sale is amended to remove from the definition conditional sales, installment lease sales, and any other transfer of tangible personal property when the title is retained as security for the payment of the purchase price and is intended to be transferred later. The definition is also amended to exclude the sale of labor and parts used in the performance of repair services under a service or maintenance contract sold on or after January 1, 2010. As discussed above under Broadening of the Sales Tax Base, the definition of sale price no longer excludes separately stated charges for labor or services used in installing or applying or repairing the property sold. As discussed above under Leases and Rentals, the definition of sale is amended to mean any transfer, exchange or barter, in any manner or by any means whatsoever, for a consideration, including the lease or rental of tangible personal property.
Retirement facility is newly defined as a facility that includes residential dwelling units where, on an average monthly basis, at least 80% of the residents of the facility are at least 62 years of age. A definition of soft drink is added and means any nonalcoholic beverage that contains natural or artificial sweeteners. The term excludes any beverage that contains milk or milk products, greater than 50% of vegetable or fruit juice by volume, or flavored or unflavored soy milk, rice milk, almond milk, grain milk and similar milk substitutes.
The legislation amends the definition of use to mean the exercise in Maine of any right or power over tangible personal property incident to its ownership, including the derivation of income, whether received in money or in the form of other benefits, by a lessor from the rental of property located at a manufacturing or fabrication facility located in Maine. As discussed above under Leases and Rentals, a fabrication facility is a site of at least 35 acres at which the primary business is the performance of fabrication services and any activities associated with or in support of fabrication services.
Sales and Use Tax Registration of Sellers
Amendments in the legislation require every lessor engaged in the leasing of tangible personal property located in Maine to register for sales and use tax purposes. The law currently requires registration of such lessor if they do not maintain a place of business in Maine but make retail sales to purchasers from Maine.
Service Provider Tax Amendments
The definition of audio media; audio equipment is repealed. In addition, amendments in the legislation make the service provider tax exemptions for sales of international and interstate telecommunications services apply only with respect to sales to a business.
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