Effective October 1 – Dealers From Outside the State of Maine Are Liable to Collect/Remit Maine Sales Tax

Effective October 1 and as per the June 21, 2017 vote that overrode Gov. Paul LePage’s veto, Maine Legislation 1405 will establish a new economic sales tax, up to 2%. LD 1405 requires remote sellers (meaning dealers who sell to customers from Maine) to collect and remit sales tax on the sale of tangible personal property, services delivered within the state and on products that are delivered electronically. This tax is not retroactive and agriculture (as defined by the state of Maine) and other exemptions still apply. Specifically, dealers are exempt from this new requirement if they either:

  1. Have gross revenue attributable to delivery of tangible personal property, products delivered electronically or services that are taxable by Maine of $100,000 or less in the previous or current calendar year or;
  2. Less than 200 total separate transactions of either sales of tangible personal property, products transferred electronically or services taxable by Maine for delivery into the state for the previous or current calendar year.

It is of interest to note that the Maine legislature has already considered the possibility that these new rules will be challenged. The legislation states that remote sellers who fail to comply with this law will be subject to a declaratory judgement against them by the state without an audit or other collection procedure if the state believes that the seller meets the thresholds established obligating them to pay tax within Maine. When an action is filed arguing against the constitutionality of this law, the court must enjoin the state from implementing this law during the period while the action is still pending. (This provision will not apply if there is a prior judgement establishing the validity of this tax.) These provisions were added as a way for the state to alleviate the "complicated position" Maine has placed remote sellers in under this new law. While the state intends to clarify the obligations imposed under this law, including its overall constitutionality, until that time if and when an action has been filed, the obligations a remote seller has under this law would be stayed until a final judgement or declaration has been made. It should also be noted that if during pending action a remote seller’s obligations under this law have been enjoined, once that injunction has been lifted, the application of this tax would only be applied prospectively unless the taxpayer has voluntarily agreed to collect and remit this tax during the pending challenge.

About the Author(s)

Rex Collins is a Principal at HBK CPAs and Consultants. He directs HBK’s National Dealership Industry Group, which provides tax, accounting, transactional and operational consulting exclusively to dealers. Rex can be reached by email at rcollins@hbkcpa.com; or by phone at 317-504-7900.

Shane Finn directs HBK’s State and Local Tax Practice with special emphasis on the impact of state and local taxation on dealerships. Shane can be reached by email at sfinn@hbkcpa.com; or by phone at 215-628-8080.

Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.