Understanding Maine Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Maine.
The sales tax is imposed on all sales of tangible personal property and taxable services sold at retail in Maine. Maine also charges sales tax on the following services:
- rental of living quarters in any hotel, rooming house, tourist, or trailer camp
- rental or lease of an automobile
- telephone or telegraph service
- extended cable television service
- rental of video tapes and video equipment
- fabrication services
Sales and use tax rate. The state of Maine has several sales and use tax rates. The general rate that applies to most sales of tangible personal property and services is 5 percent. However, different rates apply to a variety of goods and services.
The following are some of the rates applicable different goods or services in Maine:
- 12.5 percent on rentals of automobiles for less than one year
- 8.5 percent on all food prepared by a retailer
- 8.5 percent on liquor and prepared food in liquor establishments and restaurants
- 8.5 percent on rentals of rooms or shelter
Purchases from out-of-state vendors. In Maine, you will normally be allowed a credit for sales or use tax paid in another state for tangible personal property used in Maine. The amount of the credit may not exceed the amount of the Maine tax.
True Leases Are Tax Exempt
Lease and rent payments are not subject to sales and use tax when they are not considered to be purchases. True leases of tangible personal property are not considered to be purchases. In such cases, the lessor is considered the consumer of the property, and is liable for tax when purchasing the property for rental purposes. When personal property is sold under a leasing arrangement and the lessee must acquire title to the tangible personal property under the terms of the agreement, then the tax is due at the time the transaction is entered into.
Tax Is Imposed on Buyer, Paid by Seller
In Maine the incidence of the sales tax is on the consumer and the retailer is liable to the state for payment of the tax. The retailer is required to add the amount of the tax to the sale price and may recover the amount of the tax from the consumer in an action at law.
Absorbing the tax. Using a "no sales tax" advertising strategy to drum up business is not permitted. It is against the law in Maine to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.
Tax Permits Are Required
In Maine, applications for registration certificates may be obtained from the State Tax Assessor, Sales Tax Division. You do not have to pay a fee when you obtain your registration certificate for each place of business.
Many Items Are Tax Exempt
Maine has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from Maine sales tax. You'll want to check and see if you are exempt from the sales tax.
An exemption certificate may be issued by a purchaser of a nontaxable item. The exemption certificate may be based on the type of transaction (such as a resale exemptions.)
No Tax Imposed When Items Are Purchased for Resale
Sales for resale are excluded from the definition of the term retail sale. Accordingly, sales for resale are not subject to the Maine sales and use taxes. When tangible personal property is purchased for resale the purchaser is required to furnish the seller with a resale certificate. Invoices of goods sold for resale must be marked to indicate that they are exempt purchases. The words "Maine Sales Tax Exempt, for Resale" satisfy this requirement.
Resale exemption certificate requirements. A resale certificate must contain the following information:
- the seller's registration certificate number of the purchaser
- the type of business in which the purchaser for resale is engaged
- the name of the person selling the items to the purchaser
- a description of the property to be purchased by the purchaser
- the name and address of the purchaser
- the date on which the resale certificate is filled out
The description of the property may be either an itemized list of the particular property to be purchased, or a general description of the kind of property to be purchased.
Blanket Resale Certificates Are Permitted
A blanket resale certificate is a resale certificate that the buyer provides to a seller from whom the buyer will make numerous exempt resale purchases. The idea is that by providing a blanket resale certificate, both the buyer and the seller can avoid the hassle of having to deal with a new certificate with every purchase. A blanket resale certificate should have all the information as noted above for a resale exemption certificate. In addition to the other requirements, the blanket certificate should be marked "Blanket Certificate."
Physical Presence Triggers Sales Tax Liability
Maine does not have a statute that specifically taxes out-of-state mail order and catalogue sellers. Ordinarily, you will be responsible for paying this tax only if you have physical presence within Maine. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse, or any office space in Maine? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Maine for purposes of taking and transmitting orders from Maine? If your employee or independent contractor goes into Maine to take or transmit orders, your business may have physical presence in Maine. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Maine for purposes of delivering property? Frequent deliveries in Maine by your trucks will give you physical presence in Maine.
Claim Must Be Filed to Obtain Refund of Overpayments
Where merchandise is returned by your customer, you may deduct the original purchase price of the item on a subsequent sales tax return, provided that the original transaction was taxable and was reported. A refund is claimed by filing with the State Tax Assessor within three years of the date of the overpayment.
Maine Imposes Use Tax on Out-of-State Purchases
The use tax is imposed on the storage, use, or other consumption of tangible personal property or a service the sale of which would have been subject to the Maine sales tax.
Every person storing, using, or otherwise consuming tangible personal property or services in Maine is liable for the use tax. You, as a consumer, are liable for the use tax until the use tax has been paid or you have received a receipt from a registered seller showing that the seller has collected the sales or use tax.