PLEASE NOTE: Legislative Information cannot perform research, provide legal advice, or interpret Maine law. For legal assistance, please contact a qualified attorney.
An Act To Update Certain Provisions in the Income Tax and Service Provider Tax Laws
Be it enacted by the People of the State of Maine as follows:
PART A
Sec. A-1. 30-A MRSA §5681, sub-§5, as amended by PL 2019, c. 343, Pt. H, §1, is further amended to read:
 
5. Transfers to funds.   No later than the 10th day of each month, the State Controller shall transfer to the Local Government Fund 5% of the receipts during the previous month from the taxes imposed under Title 36, Parts 3 and 8, and Title 36, section 2552, subsection 1, paragraphs A to F and, L,and N, and credited to the General Fund without any reduction, except that for fiscal years 2015-16, 2016-17, 2017-18 and 2018-19 the amount transferred is 2%, for fiscal year 2019-20 the amount transferred is 3% and for fiscal year 2020-21 the amount transferred is 3.75% of the receipts during the previous month from the taxes imposed under Title 36, Parts 3 and 8, and Title 36, section 2552, subsection 1, paragraphs A to F and, L,and N, and credited to the General Fund without any reduction, and except that the postage, state cost allocation program and programming costs of administering state-municipal revenue sharing may be paid by the Local Government Fund. A percentage share of the amounts transferred to the Local Government Fund each month must be transferred to the Disproportionate Tax Burden Fund and distributed pursuant to subsection 4-B as follows:
 
C. For months beginning on or after July 1, 2009 but before July 1, 2010, 15%;
 
D. For months beginning on or after July 1, 2010 but before July 1, 2011, 16%;
 
E. For months beginning on or after July 1, 2011 but before July 1, 2012, 17%;
 
F. For months beginning on or after July 1, 2012 but before July 1, 2013, 18%;
 
G. For months beginning on or after July 1, 2013 but before July 1, 2014, 19%; and
 
H. For months beginning on or after July 1, 2014, 20%.
Sec. A-2.  36 MRSA §2551, sub-§2-B  is enacted to read:
 
2-B.  Digital audio-visual and digital audio services.     "Digital audio-visual and digital audio services" means the electronic transfer of digital audio-visual works and digital audio works with the right of less than permanent use granted by the seller, including when conditioned upon continued payment from the purchaser or a subscription. For purposes of this subsection, "permanent" means perpetual or for an indefinite or unspecified length of time and "subscription" means an agreement with a seller that grants a purchaser the right to obtain products transferred electronically, in a fixed quantity or for a fixed period of time, or both.
Sec. A-3.  36 MRSA §2551, sub-§2-C  is enacted to read:
 
2-C.  Digital audio-visual works.     "Digital audio-visual works" means a series of related images that, when shown in succession, impart an impression of motion, together with accompanying sounds, if any.
Sec. A-4.  36 MRSA §2551, sub-§2-D  is enacted to read:
 
2-D.  Digital audio works.     "Digital audio works" means works that result from the fixation of a series of musical, spoken or other sounds, including ringtones. For purposes of this subsection, "ringtones" means digitized sound files that are downloaded onto a device and that may be used to alert the purchaser with respect to a communication.
Sec. A-5. 36 MRSA §2552, sub-§1, ¶L, as amended by PL 2013, c. 368, Pt. OOOO, §3, is further amended to read:
 
L. Ancillary services; and
Sec. A-6. 36 MRSA §2552, sub-§1, ¶M, as enacted by PL 2013, c. 368, Pt. OOOO, §4, is amended to read:
 
M. Group residential services for persons with brain injuries.; and
Sec. A-7.  36 MRSA §2552, sub-§1, ¶N  is enacted to read:
 
N.  Digital audio-visual and digital audio services.
Sec. A-8.  36 MRSA §2556-A  is enacted to read:
§ 2556-A. Sourcing for sales of digital audio-visual and digital audio services
The sale of digital audio-visual and digital audio services is sourced in this State pursuant to this section.
 
1.  First use by purchaser at business location of seller.     When the first use of the service is made by the purchaser at a business location of the seller, the sale is sourced to that business location.
 
2.  First use by purchaser at location other than business location of seller.     When the first use of the service is not made by the purchaser at a business location of the seller, the sale is sourced to the location where the first use by the purchaser or the purchaser's donee is made, including the location indicated by instructions for delivery to the purchaser or donee known to the seller.
 
3.  Sourced to address of purchaser in seller's business records.     For a sale when subsections 1 and 2 do not apply, the sale is sourced to the location indicated by an address for the purchaser that is available from the business records of the seller that are maintained in the ordinary course of the seller's business when use of this address does not constitute bad faith.
 
4.  Sourced to address of purchaser not in seller's business records.     For a sale when subsections 1 to 3 do not apply, the sale is sourced to the location indicated by an address for the purchaser obtained during the consummation of the sale, including the address of a purchaser's payment instrument, if no other address is available, when use of this address does not constitute bad faith.
 
5.  Sourced to address from which service provided.     When subsections 1 to 4 do not apply, including the circumstance in which the seller is without sufficient information to apply subsections 1 to 4, the location is determined by the address from which the service was provided, disregarding for these purposes any location that merely provided the digital transfer of the product sold.
Sec. A-9. 36 MRSA §2559, as amended by PL 2015, c. 300, Pt. A, §35, is further amended to read:
§ 2559.Application of revenues
Revenues derived by the tax imposed by this chapter must be credited to a General Fund suspense account. On or before the last day of each month, the State Controller shall transfer a percentage of the revenues received by the State Tax Assessor during the preceding month pursuant to the tax imposed by section 2552, subsection 1, paragraphs A to F and, L and N to the Local Government Fund as provided by Title 30-A, section 5681, subsection 5. The balance remaining in the General Fund suspense account must be transferred to service provider tax General Fund revenue. On or before the 15th day of each month, the State Controller shall transfer all revenues received by the assessor during the preceding month pursuant to the tax imposed by section 2552, subsection 1, paragraphs G to J and M to the Medical Care Services Other Special Revenue Funds account, the Other Special Revenue Funds Mental Health Services - Community Medicaid program, the Medicaid Services - Adult Developmental Services program and the Office of Substance Abuse - Medicaid Seed program within the Department of Health and Human Services.
Sec. A-10. Application date. This Part applies to sales occurring on or after October 1, 2020.
PART B
Sec. B-1. 36 MRSA §5102, sub-§10, as amended by PL 2011, c. 655, Pt. QQ, §4 and affected by §8, is further amended to read:
 
10. Taxable corporation.   "Taxable corporation" means, for any taxable year, a corporation that has substantial nexus with this State pursuant to section 5200-B, including any corporation with income subject to federal tax under the Code, Section 1374 or 1375, and that has, at any time during that taxable year, realized Maine net income and includes any S corporation with realized Maine net income that is subject to federal tax under the Code, Section 1374 and 1375.
Sec. B-2.  36 MRSA §5200-B  is enacted to read:
§ 5200-B. Corporate income tax nexus
 
1.  Nexus established.     A corporation has substantial nexus with this State, for the purposes of the tax imposed under section 5200, if that corporation:
 
A.  Is organized or commercially domiciled in this State; or
 
B.  Is organized or commercially domiciled outside this State, if the corporation's property, payroll or sales in this State, as defined in subsection 2, exceed any of the following thresholds for the taxable year:
 
(1) For property, $250,000;
 
(2) For payroll, $250,000;
 
(3) For sales, $500,000; or
 
(4) Twenty-five percent of the corporation's property, payroll or sales.
 
2.  Property, payroll and sales defined; calculation.     For purposes of this section, property, payroll and sales are calculated as provided under chapter 821 and associated rules adopted by the assessor, except that the sales calculation does not exclude sales of tangible personal property under section 5211, subsection 14, paragraph B. For a taxpayer permitted or required to use a special apportionment method under section 5211, subsection 17, the property, payroll and sales used to determine nexus under this section must be consistent with the property, payroll and sales used for the special apportionment method.
 
3.  Corporate partners.     A corporation that holds an interest directly or indirectly in a partnership has substantial nexus with this State if the partnership is organized or commercially domiciled in this State or if the partnership's property, payroll or sales in this State, as defined in subsection 2, exceed any of the thresholds in subsection 1, paragraph B.
Sec. B-3. 36 MRSA §5211, sub-§14, as amended by PL 2009, c. 571, Pt. GG, §1 and affected by §2, is further amended to read:
 
14. Sales factor formula.   The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this State during the tax period, and the denominator of which is the total sales of the taxpayer everywhere during the tax period. For purposes of calculating the sales factor, "total sales of the taxpayer" includes sales of the taxpayer and of any member of an affiliated group with which the taxpayer conducts a unitary business. The formula must exclude from both the numerator and the denominator sales of tangible personal property delivered or shipped by the taxpayer, regardless of F.O.B. point or other conditions of the sale, to a purchaser within a state in which the taxpayer is not taxable within the meaning of subsection 2, unless any member of an affiliated group with which the taxpayer conducts a unitary business is taxable in that state in the same manner as a taxpayer is taxable under subsection 2.
 
A.  For purposes of calculating the sales factor, "total sales of the taxpayer" includes sales of the taxpayer and of any member of an affiliated group with which the taxpayer conducts a unitary business.
 
B.  The sales factor formula must exclude from both the numerator and the denominator sales of tangible personal property delivered or shipped by the taxpayer, regardless of F.O.B. point or other conditions of the sale, to a purchaser within a state in which the taxpayer is not taxable within the meaning of subsection 2, unless any member of an affiliated group with which the taxpayer conducts a unitary business is taxable in that state in the same manner as a taxpayer is taxable under subsection 2.
Sec. B-4. Application. This Part applies to tax years beginning on or after January 1, 2021.
PART C
Sec. C-1. 36 MRSA §5403, sub-§1, as enacted by PL 2015, c. 267, Pt. DD, §33, is amended to read:
 
1. Individual income tax rate tables.   For the tax rate tables in section 5111: Beginning in 2020 and each year thereafter, by the dollar amounts of the tax rate tables specified in section 5111, subsections 1-F, 2-F and 3-F, except that for the purposes of this subsection, notwithstanding section 5402, subsection 1-B, the "cost-of-living adjustment" is the Chained Consumer Price Index for the 12-month period ending June 30th of the preceding calendar year divided by the Chained Consumer Price Index for the 12-month period ending June 30, 2015;
 
A.  Beginning in 2016 and each year thereafter, by the lowest dollar amounts of the tax rate tables specified in section 5111, subsections 1-F, 2-F and 3-F, except that for the purposes of this paragraph, notwithstanding section 5402, subsection 1-B, the "cost-of-living adjustment" is the Chained Consumer Price Index for the 12-month period ending June 30th of the preceding calendar year divided by the Chained Consumer Price Index for the 12-month period ending June 30, 2015; and
 
B.  Beginning in 2017 and each year thereafter, by the highest taxable income dollar amount of each tax rate table, except that for the purposes of this paragraph, notwithstanding section 5402, subsection 1-B, the "cost-of-living adjustment" is the Chained Consumer Price Index for the 12-month period ending June 30th of the preceding calendar year divided by the Chained Consumer Price Index for the 12-month period ending June 30, 2016;
Sec. C-2. 36 MRSA §5403, sub-§7, as enacted by PL 2017, c. 474, Pt. B, §24, is amended to read:
 
7. Personal exemptions.   Beginning in 2018 and each year thereafter, by the dollar amounts contained in section 5126-A, subsection 1, except that for the purposes of this subsection, notwithstanding section 5402, subsection 1-B, the "cost-of-living adjustment" is the Chained Consumer Price Index for the 12-month period ending June 30th of the preceding calendar year divided by the Chained Consumer Price Index for the 12-month period ending June 30, 2017; and
Sec. C-3. 36 MRSA §5403, sub-§8, as enacted by PL 2017, c. 474, Pt. B, §24, is amended to read:
 
8. Personal exemption phase-out.   Beginning in 2018 and each year thereafter, by the dollar amount of the applicable amounts specified in section 5126-A, subsection 2, paragraphs A, B and C, except that for the purposes of this subsection, notwithstanding section 5402, subsection 1-B, the "cost-of-living adjustment" is the Chained Consumer Price Index for the 12-month period ending June 30th of the preceding calendar year divided by the Chained Consumer Price Index for the 12-month period ending June 30, 2017.;
Sec. C-4.  36 MRSA §5403, sub-§9  is enacted to read:
 
9.  Dependent exemption tax credit.     Beginning in 2020 and each year thereafter, by the dollar amounts contained in section 5219-SS, subsections 1, 2 and 3, except that for the purposes of this subsection, notwithstanding section 5402, subsection 1-B, the "cost-of-living adjustment" is the Chained Consumer Price Index for the 12-month period ending June 30th of the preceding calendar year divided by the Chained Consumer Price Index for the 12-month period ending June 30, 2019. If the amount, adjusted by application of the cost-of-living adjustment, is not a multiple of $5, any increase must be rounded to the next lowest multiple of $5; and
Sec. C-5.  36 MRSA §5403, sub-§10  is enacted to read:
 
10.  Dependent exemption tax credit phase-out.     Beginning in 2020 and each year thereafter, by the dollar amount of the Maine adjusted gross income thresholds specified in section 5219-SS, subsection 4, except that for the purposes of this subsection, notwithstanding section 5402, subsection 1-B, the "cost-of-living adjustment" is the Chained Consumer Price Index for the 12-month period ending June 30th of the preceding calendar year divided by the Chained Consumer Price Index for the 12-month period ending June 30, 2019.
Sec. C-6. 36 MRSA §5403, 2nd ¶, as amended by PL 2017, c. 474, Pt. B, §25, is further amended to read:
Except for subsection 5, paragraph A and subsection 9, if the dollar amount of each item, adjusted by the application of the cost-of-living adjustment, is not a multiple of $50, any increase must be rounded to the next lowest multiple of $50.
PART D
Sec. D-1. 36 MRSA §5122, sub-§1, ¶LL, as enacted by PL 2017, c. 474, Pt. C, §2, is repealed.
Sec. D-2. 36 MRSA §5122, sub-§2, ¶TT, as reallocated by RR 2019, c. 1, Pt. A, §69, is repealed.
Sec. D-3. 36 MRSA §5200-A, sub-§1, ¶DD, as enacted by PL 2017, c. 474, Pt. C, §6, is repealed.
Sec. D-4. 36 MRSA §5200-A, sub-§2, ¶GG,  as reallocated by RR 2019, c. 1, Pt. A, §73, is repealed.
Sec. D-5. Application; retroactivity. This Part applies retroactively to tax years beginning on or after January 1, 2018.
 
SUMMARY
This bill makes the following changes to the income tax and service provider tax laws.
Part A updates, clarifies and simplifies the service provider tax law regarding consumer purchases of digital media by equalizing the tax treatment between the various modes of purchase for sales occurring on or after October 1, 2020.
Part B clarifies and simplifies the corporate income tax law by establishing clearly defined, objective nexus thresholds as a practical structure for the current general "economic nexus" standard. These so-called factor presence thresholds clarify the minimum thresholds that, when exceeded by a corporation, subject that corporation to the Maine corporate income tax. In addition, the new thresholds create a safe harbor for corporations with little activity within the State that nonetheless have nexus under current law due to a small, but greater than de minimis, physical presence in the State. The new thresholds are $250,000 of property, $250,000 in payroll or $500,000 in sales in Maine, or 25% of total property, payroll or sales in Maine, as determined under the Maine Revised Statutes, Title 36, chapter 821. The thresholds apply to tax years beginning on or after January 1, 2021.
Part C updates the individual income tax law by extending and aligning inflation indexing provisions in 2 respects. First, the bill indexes the recently enacted dependent exemption tax credit for inflation. Second, the bill aligns inflation indexing for the lowest income tax brackets and the highest income tax brackets by allowing an additional one-year inflation adjustment for the highest income tax bracket, indexing the dollar amounts to the same inflation benchmark, the Chained Consumer Price Index for the 12-month period ending June 30, 2015. These changes apply to tax years beginning on or after January 1, 2021.
Part D updates and simplifies Maine income tax law by conforming the Maine income tax with the federal net operating loss limitation. This Part applies retroactively to tax years beginning on or after January 1, 2018.