Posted by Rob Creamer
Governor Baldacci recently signed into law P.L. 2007, c. 629, “An Act to Continue Maine’s Leadership in Covering the Uninsured.” To view click here.
Effective August 1, 2008, the Act places a new tax, at the following rates, on the sale in Maine of soft drinks and the materials made to use them: (1) 42 cents on each gallon of bottled soft drinks; (2) $4.00 on each gallon of syrup used to make soft drinks; and (3) 42 cents on each gallon of soft drinks produced from a powder or base product. These taxes will be used to fund Dirigo Health, the controversial plan designed to provide universal access to health care for Maine residents. A coalition spearheaded by the Maine Beverage Association is attempting to gather support for a people’s veto of the Act. If the coalition can collect some 55,000 signatures in support of the veto, the Act will be put on hold and the question of whether it should go into effect will be placed on this fall’s ballot as a referendum question. The law also contains increased taxes on beer and wine.
Assuming it becomes effective, the impact of the Act will be larger than its title suggests, because the Legislature has defined a “soft drink” as including more than that term is normally thought to imply:
[A] “Soft Drink” means any nonalcoholic beverage, whether naturally or artificially flavored, whether carbonated or noncarbonated . . . including, but not limited to, soda water, cola, and other flavored drinks, any fruit or vegetable drink containing 10% or less of natural fruit juice or natural vegetable juice and all other drinks and beverages commonly referred to as soft drinks.
Under this definition, flavored water, iced teas and many types of juices will be considered soft drinks. Coffee and tea will also be considered soft drinks if they are bottled as a liquid for sale.
The tax is imposed on manufacturers, distributors and wholesalers of soft drinks, syrup and powder bases, but the Act does not state at what point in the manufacture or distribution of these products the tax must be collected. The Act also requires each manufacturer, distributor or wholesaler that sells soft drinks, syrup or powder bases in Maine, or offers these products for sale in Maine, to obtain a license from Maine Revenue Services (“MRS”) for the “privilege of conducting such business within the State.” Retailers who purchase soft drinks or the syrup or powder for making them from unlicensed manufacturers, distributors and wholesalers must also obtain a license from MRS.
Because the law is slated to go into effect on August 1st, and it is not yet known whether the people’s veto effort will be successful in collecting sufficient signatures to postpone the law’s effective date, distributors, manufacturers, wholesalers and retailers of soft drinks in Maine need to take steps to be in full compliance with the law by the scheduled August 1 effective date. Otherwise, assessments of back taxes, interest and penalties could ensue.
There are several exemptions to the new tax, including: (1) sales to the federal government; (2) products exported from Maine; (3) coffee or tea bases; (4) certain juices and concentrates; (5) sales to other licensed wholesalers, distributors or manufacturers; (6) infant formula; (7) water with no flavoring that has not been artificially carbonated; (8) dietary aids; (9) powders and other base products designed to be mixed by the consumer; and (10) milk products.
Not surprisingly, there are numerous questions over what constitutes a soft drink, when the tax applies and who is responsible for paying it. Some of the questions that have arisen so far are:
What constitutes a milk product?
Do “milks” such as almond or soy milk qualify?
Will the tax be imposed on both the syrup used to make soft drinks and the soft drinks themselves?
What does it mean for a soft drink to be offered for sale?
How must affected business obtain the licenses the Act requires?
How must products be exported from Maineto qualify for the exemption?
If there is a people’s veto of the Act but it is not later voted down, will the Act be retroactively effective to August 1st?
Should affected businesses begin collecting the tax now, in anticipation of this possibility?
Maine Revenue Services is developing some guidance on these issues, but has yet to issue any official publications that affected businesses can rely on. Pierce Atwood LLP’s State & Local Tax Group attorneys, however, have had the chance to informally discuss with the agency some of the positions it may take in implementing the Act. For more information on this new tax, please email me at RCreamer@pierceatwood.com.