Maine Tax Law Blog

Maine Business Court Invalidates Use Tax Assessment Against Aircraft Owner

On the heels of a taxpayer victory last year, another aircraft owner has successfully challenged Maine Revenue Services’ imposition of use tax on private aircraft that land in Maine.  In Mile High Air, LLC v. State Tax Assessor, the State Tax Assessor assessed Maine’s 5% use tax on an aircraft that landed in Maine for brief periods during its first year of ownership, and also received repair work at a Maine location.  The aircraft, however, was outside of Maine entirely for 278 days during its first year of ownership. Applying two 2011 Maine Supreme Court decisions involving aircraft use tax to the unique facts of this case, the Maine Business Court determined that the aircraft involved in this case was exempt from Maine use tax.  The Court concluded that the imposition of use tax on this aircraft would be an “overbroad application” of the use tax because the usage of the aircraft in Maine was “insufficient to justify use taxation.”  In the words of the Court, “the use of the aircraft outside of Maine was sufficiently substantial to make unjust the imposition of a use tax in Maine.”  The Maine Legislature passed a limited measure exempting certain aircraft from Maine sales and use tax beginning in 2007.  In 2011, the Legislature passed a broader amendment exempting all aircraft and aircraft repair parts from Maine sales and use tax from July 1, 2011 until June 30, 2015.  Neither the 2007 nor the 2011 legislation was retroactive, and the use of the Mile High Aircraft in Maine occurred prior to the effective dates of these legislative amendments. Mile High Air was represented by Jon Block and Rob Creamer of Pierce Atwood’s State and Local Tax Group.  If you have questions about how Maine use tax may apply to your aircraft, boat or other property, please contact any member of Pierce Atwood’s State and Local Tax Group.

Revamped Maine Tax Appeal System to Take Effect July 1st

The Maine Board of Tax Appeals Is Coming Soon

Recent legislation creates the Maine Board of Tax Appeals and eliminates the Independent Appeals Office, which was created just last year.  If a taxpayer disagrees with an assessment by the State Tax Assessor, the taxpayer must timely petition the Assessor for reconsideration.  Under the new regime, if the taxpayer continues to disagree after the Assessor’s reconsideration, the taxpayer now has the option of petitioning either the Board of Tax Appeals or the Superior Court directly.  However, decisions of the Board may then be appealed to the Superior Court.

The Board is an independent panel, not subject to the supervision of the Bureau of Revenue Services.  The Board consists of 3 members to be appointed by the Governor, no more than two of whom can be lawyers.  Appeals to the Board will be heard by an independent appeals officer.  The decision of the appeals officer will be adopted, modified, or rejected by the full Board.  If either the taxpayer or the Assessor disagrees with the decision of the Board, either party may petition the Superior Court for review.  At the Superior Court, the parties may raise any argument or issue regardless of whether it was raised during the underlying proceeding. 

 

Legislature Increases Oversight of Maine Revenue's Sales and Use Tax Policy Changes

Over the years, taxpayers have complained about enforcement initiatives or statutory interpretations implemented by Maine Revenue Services in the sales and use tax area that create revenue but have not been subjected to the legislative process.  The Legislature has responded to this by creating more legislative oversight. 

Before implementing a significant change in policy, practice or interpretation of the sales and use tax law that would result in additional revenue, Maine Revenue Services must now consult with the Attorney General to determine if the change should be reviewed by the appropriate legislative committee.  The committee may then schedule a time for review and discussion of the proposed change.

Tax Committee Review of Maine Revenue Sales and Use Tax Policy Changes - LD 590, An Act to Codify the Review Practice of Certain Changes in the Application of the Sales and Use Tax Law – Public Law 2011, Chapter 503

New Tree Growth Tax Law Compliance Initiatives Enacted

Maine’s tree growth tax law, which provides for current use taxation of land used for commercial forestry, came under much legislative scrutiny this year.  Two new laws were enacted to deal with this topic, Chapters 618 and 619.

Chapter 618 imposes additional restrictions to be satisfied by owners seeking to classify their property under the Maine Tree Growth Tax Law.  Beginning August 1, 2012, when asked to provide evidence of compliance with a forest management and harvest plan, a landowner will be required to attest that the property is being used to grow trees to be harvested for commercial use or for other allowable purposes.  The Act creates a multi-step process for notifying a landowner of failure to comply with the Law, and imposes new penalties for such failure.  Property eligible for Tree Growth classification under the Law will now be reduced if it has a structure on it or if it is in a shoreland area. 

Chapter 618 also amends the Farm and Open Space Tax Law by creating an additional category for “managed forest open space land,” which is an area of forest for which the owner has submitted a forest management and harvest plan.  Managed forest open space is eligible for an additional 10 percent reduction in value under the alternative valuation method.

Chapter 619 tasks the Director of the Bureau of Forestry with conducting periodic random sampling of land enrolled under the Maine Tree Growth Tax law to ensure compliance with forest management and harvest plans.  Furthermore, upon request by a municipal assessor or the State Tax Assessor, the Director of the Bureau of Forestry also must provide assistance in evaluating whether a forest management and harvest plan satisfies the statutory requirements and whether a landowner’s harvesting complies with his or her plan. 

Tree Growth Tax Law Compliance - LD 1138, An Act to Amend the Maine Tree Growth Tax Law and the Open Space Tax Law – Public Law 2011, Chapter 618;  LD 1470, An Act to Evaluate the Harvesting of Timber on Land Taxed under the Maine Tree Growth Tax Law – Public Law 2011, Chapter 619

 

"Tax Zapper" Software Outlawed in Maine

So-called “tax zapper” software has become a major problem in other states and countries.  To combat this new form of tax evasion, Maine's Legislature has created a new tax crime related to “automated sales suppression devices” and “phantom-ware,” which are software programs that falsify electronic sales records, often through cash registers, to reduce a company’s tax obligations.  The possession, purchase, or ownership of an automated sales suppression device or phantom-ware is a Class D crime.  The manufacture, sale, installation or transfer of these programs is a Class C crime. 

Tax-Zapper Crime - LD 1764, An Act to Reduce High-Technology Tax Evasion and Theft – Public Law 2011, Chapter 526

New Maine Use Tax Amnesty Program Coming

A new Maine Use Tax Amnesty Program was enacted this week.

Under the newly created program, a taxpayer will be absolved from use tax liability, civil penalties, and criminal prosecution with respect to use tax incurred before January 1, 2012, if the taxpayer:

Comes forward between October 1, 2012, and November 30, 2012;

Fully and accurately reports the taxpayer’s proper use tax liability for the years 2006 through 2011; and 

Pays the use tax liability for the three years between 2006 and 2011 in which the use tax liability is highest.  The use tax liability for the three years between 2006 and 2011 in which use tax is lowest, as well as years before 2006, need not be paid. 

The tax liability for the three highest years must be paid before November 30, 2012.  However, the assessor is authorized to enter into an installment arrangement as long as the tax is fully paid by May 31, 2013. 

If a taxpayer would prefer to come forward before October 1, the assessor may, but is not required to, compromise the use tax liability on the same terms as under the amnesty program. 

If a taxpayer fails to timely pay use tax, Maine Revenue may impose civil penalties and the Attorney General may criminally prosecute under certain circumstances. 

What is Maine Use Tax?

Maine use tax is a substitute for Maine sales tax for property that is used in Maine but for which no sales tax has been paid.  Use tax applies to both businesses and individuals and is imposed at the same rate as sales tax.   Many of the exemptions that apply to sales tax also apply to use tax.  Examples of situations that give rise to Maine use tax are:

• Taxpayer purchases a refrigerator at a store in New Hampshire (or other non-sales tax state) but uses it Maine.
• Taxpayer purchases office supplies over the internet for use in Maine, and the internet retailer does not collect Maine sales tax.
• Taxpayer purchases jewelry from a mail order catalogue, and the catalogue retailer does not collect Maine sales tax.
• Taxpayer purchases artwork in another state for delivery to Maine.  No tax is paid in the state of purchase because of an exemption or exclusion from tax for items delivered to another state.
• Taxpayer purchases inventory tax-free for resale in Maine, but withdraws items from inventory for the taxpayer’s own use.

Opportunity for Out-of-State Retailers with Maine Nexus Concerns

Out of state retailers who may have established nexus in Maine but have not yet registered to report and collect tax have a window of opportunity – from October 1 through November 30, 2012 --  to do so at low cost, under the 2012 Maine Use Tax Compliance Program described below. 

Note that this program does not cover income taxes, so that if a retailer conducts activities that are not protected by PL 86-272 it may wish to consider seeking a voluntary disclosure arrangement (VDA) to cover income tax liabilities. 

Please call Sarah Beard or Jon Block if you would like assistance or for more information. 

JBlock@pierceatwood.com

SBeard@PIerceatwood.com

 

Maine Tax Reform Being Studied -- Again

The Taxation Committee of the Legislature is holding a series of sub-committee meetings this fall to discuss another effort aimed at reforming Maine's tax system.  The sub-committee has invited a number of academics, business people, accountants, economists, lawyers and other "experts" to give perspectives on what tax reform should look like.  The major themes being discussed include reducing the top Maine income tax rate, broadening the sales tax base by eliminating exemptions and exclusions, tax simplification, tax fairness, tax volatility and related topics.  Pierce Atwood is closely monitoring these discussions.  If you have questions, please contact Jon Block or Andrea Maker. 

Maine Creates Friendlier Skies for Aviation

A group of nonresident aircraft owners, represented by Pierce Atwood's State and Local Tax Group, has successfully challenged Maine’s 5% use tax on aircraft that land in the State.  The Maine Supreme Court ruled that certain aircraft owned by non-residents could not be taxed if they were “substantially used” outside of Maine.  As a result of this case, a number of taxpayers, though not all, saw their tax assessments cancelled.  Blue Yonder LLC v. State Tax Assessor, 2011 ME 49. 

Second, the recently enacted state budget has taken further important steps to improve Maine’s position in the aviation field.  Effective July 1, 2011 and continuing until June 30, 2015, Maine will exempt from sales and use tax the “sales, use or leases of aircraft and sales of repair and replacement parts exclusively for use in aircraft or in the significant overhauling or rebuilding of aircraft or aircraft parts or components.”  P.L. 2011, Ch. 380, Part GGGG.  This law will not only exempt all aircraft from Maine’s sales and use tax effective July 1st, it will also allow Maine’s aviation businesses to compete on a level playing field for repair and overhaul work that currently goes to states that do not tax aircraft repair parts.  From that perspective, this new law is likely to create jobs and spur economic activity in and around Maine’s airports and at the former Brunswick Naval Air Station.  Pierce Atwood is proud to have worked in conjunction with several of its aviation clients, associations and other interested parties to help make this legislation a reality.  To learn more about this new law and its positive implications for the State, see Maine does away with aircraft sales taxes from the June 22nd edition of the Bangor Daily News.

If you have questions about the applicability of the Maine Supreme Court decisions or the new legislation to your particular aircraft or aviation business, please contact Jon Block.

Important Changes to Maine’s Administrative Tax Appeal Process

Pierce Atwood State and Local Tax Group

 Client Alert         

 Important Changes to Maine’s Administrative Tax Appeal Process

 

 

Governor LePage has signed into law LD 1371 (P.L. Ch. 439), An Act To Promote Fair and Efficient Resolutions in Tax Disputes, which makes several significant reforms in the way Maine Revenue Services deals with Taxpayers.  http://www.mainelegislature.org/legis/bills/bills_125th/chapters/PUBLIC439.asp

The major goals of the law are to make the process of appealing a tax assessment more fair and less burdensome for taxpayers at the administrative level, and to create a more robust Taxpayer Advocate to assist taxpayers who are dealing with issues at Maine Revenue Services.  This legislation was designed, drafted and promoted by Pierce Atwood.  The bill was strongly supported by both the Maine Society of Certified Public Accountants and the Maine State Chamber of Commerce.  It will be effective on July 1, 2012.

 

This Act eliminates Maine Revenue Services’ (“MRS’”) existing appeals office which reports to the State Tax Assessor and replaces it with an Independent Appeals Office, led by a Chief Appeals Officer who will be hired by the Commissioner of Administrative and Financial Services.  The Chief Appeals Officer will be required to exercise independent judgment when ruling on an appeal.  To help maintain this independence, the Chief Appeals Officer and any subordinate appeals officers will not be permitted to have any ex parte communications with either MRS or the taxpayer.  Appellate decisions will no longer require approvals of the division that issued the assessment and other Maine Revenue officials before being issued.  Another change is the creation of a 90 day period beginning when a taxpayer files a request for reconsideration (the appeal) before the Independent Appeals Office will consider the request.  During this time, the MRS division that issued the assessment and the taxpayer are encouraged to resolve issues the taxpayer has raised through informal discussion and settlement negotiations. 

 

LD 1371 also creates the office of the Maine Taxpayer Advocate, who will be selected by the Commissioner of Administrative and Financial Services and who will have the authority to help taxpayers with problems they may have with Maine Revenue Services.  The Advocate is empowered to investigate taxpayer complaints and make recommendations to the State Tax Assessor with respect to those complaints.  The Advocate is also required to submit an annual report to the Governor and Legislature concerning any systemic problems Maine Revenue Services may have in dealing with taxpayers.

 

LD 1371 was sponsored by Representative L. Gary Knight, co-chair of the Maine Legislature’s Committee on Taxation. 

 

For more information about this new legislation, please contact:

 

Jonathan Block           jblock@pierceatwood.com

 

Robert Creamer           rcreamer@pierceatwood.com

 

Sarah Beard                sbeard@pierceatwood.com

Governor LePage’s Supplemental Budget Contains Several Tax Provisions

Governor LePage’s Supplemental Budget Contains Several Tax Provisions

The supplemental budget recently proposed by Governor LePage for the fiscal year ending June 3, 2011 contains a number of changes to Maine’s tax statutes.  These changes are primarily procedural and do not affect Maine tax rates.

As expected, the proposed budget would conform Maine’s income tax statutes to the U.S. Internal Revenue Code as amended through December 31, 2010.

Another change is increasing the time that a taxpayer has for filing an amended Maine return after a federal change affecting the taxpayer’s Maine tax liability.  Instead of the current 90 days, taxpayers would be given 180 days to file an amended return.  The budget also clarifies when this time period commences.

The time period for responding to requests for information from Maine Revenue Services, after which an estimated assessment will be issued, would be extended from 30 days to 60 days.

Finally, taxpayers would be allowed to apply for a refund within three years of when they had incorrectly paid or overpaid a tax, instead of the current two years.  The three year period for requesting a refund from the date when a return was filed remains unchanged.

The supplemental budget will now be considered by the Legislature.  We will be monitoring the process for additional changes that may affect taxpayers.