Maine has recently enacted a major piece of tax reform legislation, P.L. 2009, c. 382, ("Chapter 382") which creates a flat 6.5% income tax for most taxpayers, in an effort designed to reduce the tax burden on most Maine residents. To make up for this reduction in income tax, however, Chapter 382 greatly expands Maine's sales tax base by taxing many services that have traditionally been tax free and radically changing the tax treatment of certain transactions, such as leases and rentals.
Newly Taxed Services
The newly taxed services fall into four main categories:
1. Amusement, entertainment and recreation services, which includes a wide range of activities, such as:
- Admission to "entertainment venues and performances," such as theaters, concerts, festivals, amusement parks, race tracks, animal parks, historical sites and sports activities;
- Entry into billiard parlors, miniature golf courses, and "exhibition shows" such as boat, camping and home and garden shows;
- Sight-seeing tours, including helicopter, boat and wagon rides, as well as rafting and guided recreation; and
- Entertainment services, such as those provided by jugglers, clowns, comedians and children's entertainers.
2. Installation, repair and maintenance services, which includes:
- Services involved in the installation, repair or maintenance of many items such as jewelry, cameras, guns, electronic and mechanical equipment, computer hardware, lawn and garden equipment, and vehicles;
- Tailoring and shoe repair; and
- Furniture repair and restoration.
3. Personal property services, which include:
- Dry cleaning;
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Car washing;
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Many types of pet services;
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Picture framing;
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Domestic services including house and rug cleaning;
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Storage services; and
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Vehicle towing and boat mooring.
4. Transportation and Courier Services, which encompasses the in-state transportion of persons or property by limousine or courier services.
Many of these terms will need to be defined before taxpayers can know exactly which services are taxable. For example, it is unclear what type of gathering constitutes a "festival," or what types of devices are "electronic and mechanical equipment," or even whether a bar with a pool table would be charging for entry into a "billiard parlor" if it required a cover charge. We recommend that any businesses or individuals who are unsure of whether their activities constitute taxable services contact us for assistance with obtaining guidance from Maine Revenue Services to either confirm that they do not need to collect sales tax or avoid liability for failing to do so.
Treatment of Leasing and Renting as a Taxable Service
Chapter 382 also makes the leasing or renting of tangible personal property a taxable service, and the lessee or rentee is liable for the tax, which must be collected by the lessor or rentor at the time the rented property is delivered or when the first payment is required, whichever is sooner. The amount of tax due is calculated using the total amount of payments that will be made under the lease agreement and, as noted, is payable up-front at the beginning of the lease, and not as rents are collected. If the lease is open-ended, the tax is based on the total amount to be collected during the initial, fixed term of the lease, and then tax must also be collected later for each subsequent renewal period.
Certain sale and leaseback transactions may be exempt from this treatment, as well as the leasing of equipment located at fabrication and manufacturing facilities. A portion of the tax may be refundable for leased property that leaves the State before the expiration of the lease. Please contact us for more information on whether your leasing or renting activities may be tax-exempt, or, if not, how you should be collecting and remitting tax on those activities.
For more information, please contact:
Robert A. Creamer, 207-791-1322, rcreamer@pierceatwood.com
Jonathan A. Block, 207-791-1173, jblock@pierceatwood.com
Sarah H. Beard, 207-791-1378, sbeard@pierceatwood.com
