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Taxes on Business Income in Maine

Filed under State Taxes. Fact checked on February 12, 2013.

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Maine imposes a corporate income tax on business income attributable to Maine. This tax is computed based upon corporate taxable net income is required in Maine. If you operate your business as a sole proprietorship or via a pass-through entity, you must report your business income on your personal tax return.

In Maine, you're generally free to choose to operate your business as a C corporation, S corporation, partnership, limited liability company (LLC), or sole proprietorship. However, the entity type you select for your business may, in some cases, decide whether you or your business pays income taxes on the business income.

C Corporations Are Subject to Corporate Income Tax

Domestic corporations (corporations organized in Maine) and foreign corporations (corporations organized in a state other than Maine) are subject to a Maine income tax. The corporate income tax is computed according to the following schedule:

Taxable Income Gross Tax
Up to $25,000 3.5%
Over $25,000 but not over $75,000 $875 plus 7.93% of the excess over $25,000
Over $75,000 but not over $250,000 $4,840 plus 8.33% of the excess over $75,000
Over $250,000 $19,418 plus 8.93% of the excess over $250,000

S Corporation Income Is Passed Through to Shareholders

If you meet the federal tax law requirements to operate as an S corporation, the IRS allows your business to "pass through" its income to the shareholders. This means that your business will not pay any corporate level federal income tax. However, you'll have to claim your entire share of the business income on your personal federal income tax return even if you did not take any money out of the business. Maine extends this favorable tax treatment to state corporate income tax liability, and S corporations will not be subject to the corporate income tax.

Partnership Income Is Passed Through to Partners

If you operate your business as a partnership, your partnership will not be taxed on its net income. Instead, partners must include in their Maine taxable adjusted gross income their distributive share of partnership income.

Maine Taxes LLCs Based Upon Their Federal Election

Maine law recognizes businesses operating as limited liability companies (LLCs). Domestic and foreign LLCs in Maine are classified as either partnerships or corporations for Maine tax purposes. LLCs follow the federal rules on how they will be taxed. Accordingly, if your LLC is treated as a partnership, it will not be taxed on its net income. Instead, members must include in their Maine taxable adjusted gross income their distributive share of LLC income.

If a business is classified as an association taxable as a corporation for federal income tax purposes, it will also be taxable as a corporation for Maine tax purposes.

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