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18 DEPARTMENT
OF ADMINISTRATIVE AND FINANCIAL SERVICES
125 BUREAU
OF REVENUE SERVICES
Chapter 801: APPORTIONMENT
Summary: This rule explains apportionment for corporations, pass-through
entities, sole proprietorships and other business types as required by 36
M.R.S.A., Chapter 821, and §5142(6). The
rule applies to C corporations, S corporations, partnerships, estates, trusts
and sole proprietorships that have income from business activity both within
and without Maine. See 36 M.R.S.A. §5142(6). This rule also applies for purposes of
determining the apportionable income base when calculating the credit for taxes
paid to other jurisdictions on certain income.
See 36 M.R.S.A. §5217-A. This
rule does not apply to financial institutions subject to the Franchise Tax
contained in 36 M.R.S.A., Chapter 819.
Outline of Contents:
.01 Definitions
.02 Determination of unitary business
.03 Apportionment
.04 Taxability in another state
.05 Consistency
.06 Sales factor
.07 Corporate partners
.08 Variations
.09 Property value and factor
.10 Payroll value and factor
.11 Application date
.01 Definitions
A. Costs of performance. "Costs of performance" means direct
costs determined in a manner consistent with generally accepted accounting
principles and in accordance with accepted conditions or practices in the trade
or business of the taxpayer. In cases when
it is impossible or impracticable to determine the costs of performance
attributable to different states, the gross receipts from the performance of services
attributable to this state are measured by the ratio that the time spent in
performing the services in this state bears to the total time spent in
performing the services everywhere. Time
spent in performing services include the amount of time expended in the
performance of a contract or other obligation which gives rise to such gross
receipts. Personal service not directly
connected with the performance of the contract or other obligation, such as
time expended in negotiating the contract, is excluded from the computations.
B. Domicile. "Domicile" means the principal
place from which the business activities of a taxpayer are directed or managed. If it is not possible to determine the
principal place from which the business activities of a taxpayer are directed
or managed, the state of the taxpayer's incorporation is considered its state
of domicile.
C. Income-producing
activity. "Income-producing
activity" means, for each separate item of income, the transactions and
activity directly engaged in by the taxpayer for the ultimate purpose of
obtaining gain or profit. For
apportionment purposes, such activity does not include transactions and
activities performed on behalf of a taxpayer, such as those conducted on the
taxpayer’s behalf by an independent contractor.
Income-producing activity includes, but is not limited to:
(1) The rendering of personal services by
employees or the utilization of tangible and intangible property by the
taxpayer in performing a service;
(2) The sale, rental, leasing, licensing the
use of or other use of real property; and
(3) The rental, leasing, licensing the use
of, or other use of tangible or intangible personal property.
D. Located
in the State. “Located in the State” has the same meaning as in 36 M.R.S.A.
§5206-D(11)(A)-(D).
E. Office.
"Office” means a permanent or temporary location where a business
entity makes sales or holds itself out to the public as conducting business. The home of a business’s sales representative
is generally not an "office" of the business for purposes of this
rule unless the representative is publicly held out as doing business on behalf
of the business at that location, either by publishing the home address as the
business’s own address or through other actions.
F. State. “State” means any state of the
G. Total time. “Total time” means the total number of days. Any portion of a day is counted as an entire
day.
H. Taxpayer. “Taxpayer” means a corporation required
to file a federal income tax return, a pass-through entity required to file a federal
information return, a sole proprietorship required to file federal Form 1040,
Schedule C, or any other business entity required to file a federal
return. “Taxpayer” does not mean a
partner or other owner of a pass-through entity, except where specifically
stated.
I. Unitary business. “Unitary business” means a business activity that
is characterized by unity of ownership, functional integration, centralization
of management and economies of scale.
.02 Determination of unitary business. The activities of a corporation or group of
affiliated corporations constitute a unitary business if those activities are
integrated with, dependent upon and contributive to each other and to the
operations of the corporation or group as a whole. The presence of any of the following factors
creates a strong presumption that the activities of the corporation or group
constitute a single trade or business:
A. All activities are in the same general
line or type of business;
B. The activities constitute different
steps in a vertically-structured enterprise; or
C. The corporation or group is
characterized by strong centralized management, including but not limited to
centralized departments for such functions as financing, purchasing,
advertising and research.
.03 Apportionment. If the business activity of a taxpayer occurs
both within and without Maine, and if by reason of such activity the taxpayer
is taxable in another state, the portion of the net income (or net loss)
derived from sources within Maine is determined by apportionment in accordance
with 36 M.R.S.A. §§5210, 5211 and 5142(6) and the provisions of this rule. A corporation or affiliated group of
corporations may be engaged in more than one unitary business. In that event, the corporation must, for each
line of business, separately apportion its income using the appropriate Maine
apportionment factor. Maine utilizes a
“water’s edge” combined reporting methodology for determining the apportionable
income base. The income subject to
apportionment is income required
to be reported on the taxpayer’s federal income tax return as modified by Maine
law. The apportionment factor must only include those amounts
attributable to the apportionable income base for that taxable year. Variation may be allowed when petitioned for by
the taxpayer or may be required by the Assessor. See 36 MRSA § 5211(17).
Prorating deductions. In most
cases, an allowable deduction of a taxpayer will relate to apportionable income. In some cases, an allowable deduction may
relate to both apportionable income and to income that Maine is prohibited from
taxing by the laws or Constitution of the United States, or by the Constitution
of Maine. 36 M.R.S.A. §5200-A (2)(A) and
(F). In such cases, the deduction must
be prorated between apportionable income and exempt income in a manner that
fairly distributes the deduction among the classes of income to which it is
applicable.
.04 Taxability in
another state
A. In
general. A taxpayer’s income from
business activity is taxable in another state if the taxpayer, by reason of
such activity, is taxable in that state within the meaning of 36 M.R.S.A.
§5211(2).
A
taxpayer is taxable in another state if:
(1) By reason of business activity in
another state, the taxpayer is subject to a net income tax, a franchise tax measured
by net income, a franchise tax for the privilege of doing business, or a
corporate stock tax, as described in subsection B below; or
(2) By reason of such activity, the other
state has jurisdiction to subject the taxpayer to a net income tax, regardless
of whether or not the state actually imposes such a tax on the taxpayer, as
described in subsection D below.
B. When
a taxpayer is subject to a tax under 36 M.R.S.A. §5211(2). A taxpayer is subject to one of the taxes
specified in 36 M.R.S.A. §5211(2) in another state if the taxpayer carries on
activities in that state and the state imposes such a tax on the taxpayer. A taxpayer that asserts that it is subject to
one of the specified taxes in another state must furnish to the Assessor, upon
the Assessor’s request, evidence to support that assertion. The Assessor may request that such evidence
include proof that the taxpayer has filed the requisite tax return in the other
state and has paid any taxes imposed under the law of the other state.
C. Effect
of voluntary tax payment. A taxpayer
is not subject to one of the taxes specified in §5211(2) in another state if
the taxpayer voluntarily files and pays one or more of the specified taxes when
not required to do so by the laws of that state or pays a minimal fee for
qualification, organization or for the privilege of doing business in that
state, but (a) does not actually engage in business activity in that state, or
(b) does actually engage in some business activity not sufficient for nexus
with that state and the minimal fee bears no relationship to the volume of the
taxpayer’s business activity within that state.
D. When
a state or foreign country has jurisdiction to subject a taxpayer to a net
income tax. The second test under
§5211(2) applies if the taxpayer’s business activity is sufficient to give the
state jurisdiction to impose a net income tax by reason of such activity under
the Constitution and statutes of the United States. Jurisdiction to tax is not present where the
state is prohibited from imposing the tax by reason of the provisions of Public
Law 86-272 (15 U.S.C.A. §§381-385). The
determination of whether a foreign country or a political subdivision thereof
has jurisdiction to subject the taxpayer to a net income tax is made as though
the jurisdictional standards applicable to a state of the United States,
including P.L. 86-272, apply in that country.
If jurisdiction is otherwise present, that country or political
subdivision thereof is not considered to lack jurisdiction by reason of the
provisions of a treaty between it and the United States.
E. Producing
exempt income. A taxpayer is not
“taxable in another state” for purposes of §5211(2) if the only activities the
taxpayer conducts in that other state are activities pertaining to the
production of income that the State of Maine is prohibited from taxing by the
laws or Constitution of the United States or by the Constitution of Maine.
.05 Consistency
A. Year-to-year
consistency. The taxpayer must
disclose in its Maine return the nature and extent of any inconsistency between
that return and its Maine returns for prior years with respect to the
composition of its unitary business, the classification of income, the
prorating of deductions to business and constitutionally exempt income, and the
determination of the sales apportionment factor.
B. State-to-state
consistency. If the returns filed by
a taxpayer for all states to which the taxpayer reports are not uniform in the
composition of its unitary business, the classification of income, the
prorating of deductions to business and constitutionally exempt income, and the
determination of the sales apportionment factor, the taxpayer must disclose in
its Maine return the nature and extent of the variance.
.06 Sales factor. 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. 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 §5211(2). 36 M.R.S.A. §5211(14). To avoid duplication, intercompany sales
between corporations in a unitary business must be eliminated from both the
numerator and the denominator of the sales factor.
For tax years beginning on or after January 1, 2010,
“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 §5211(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 §5211(2). 36 M.R.S.A. §5211(14). To avoid duplication, intercompany sales
between corporations in a unitary business must be eliminated from both the
numerator and the denominator of the sales factor. For discussion of return reporting
requirements for unitary business returns see Me. Dep’t of Admin. & Fin. Servs., Bur. Of Rev. Servs., 18
125 CMR 810.
A. Generally. "Sales" means all gross receipts of
the taxpayer. "Sales" includes
federal and state excise taxes (including sales taxes) if those taxes are
passed on to the buyer or included as part of the selling price of the product. “Sales in this State” means all gross
receipts of the taxpayer in the State of Maine including, but not limited to,
receipts derived from the sale of tangible personal property pursuant to §5211(15)
and receipts derived from the sale of other than tangible personal property
pursuant to §5211(16-A). Interest
income, service charges, carrying charges or time-price differentials
incidental to a sale must be included as sales in the state to which the sale
is attributable, regardless of the place where the accounting records are
maintained or the contract or other evidence of indebtedness is located. The following are rules for determining
"sales" in various situations.
(1) In the case of a taxpayer engaged in
manufacturing and selling or purchasing and reselling goods or products,
"sales" includes all gross receipts from the sales of such goods or
products (or other property of a kind that would properly be included in the
inventory of the taxpayer if on hand at the close of the tax period) held by
the taxpayer primarily for sale to customers in the ordinary course of its
trade or business.
(2) In the case of cost-plus-fixed-fee
contracts, such as the operation of a government-owned plant for a fee,
"sales" includes the entire reimbursed cost plus the fee.
(3) In the case of a taxpayer engaged in
providing services, such as the operation of an advertising agency or the
performance of equipment service contracts or research and development
contracts, "sales" includes the gross receipts from the performance
of such services, including fees, commissions, and similar items.
(4) In the case of a taxpayer engaged in
renting real or tangible property, "sales" includes the gross
receipts from the rental, lease, or licensing the use of the property.
(5) In the case of a taxpayer engaged in the
sale, assignment, or licensing of intangible personal property such as patents
and copyrights, "sales" includes the gross receipts therefrom.
(6) If a taxpayer derives receipts from the
sale of equipment used in its business, those receipts constitute sales. For example, a truck express company owns a
fleet of trucks and sells its trucks under a regular replacement program. The gross receipts from the sales of the
trucks are included in the sales factor.
(7) “Sales” includes income from capitalized
leases to the extent that the income from such leases is included in the
federal gross income of the taxpayer.
B. Gross
receipts. “Gross receipts” means the
gross amounts realized (the sum of money and the fair market value of other
property or services received) on the sale or exchange of property, the
performance of services, or the use of property or capital (including rents,
fees, royalties, interest and dividends) in a transaction that produces income,
in which the income or loss is recognized (or would be recognized if the transaction
were in the United States) under the Internal Revenue Code. Amounts realized on the sale or exchange of
property are not reduced for the cost of goods sold or the basis of property
sold. Gross receipts do not include, for
example, such items as:
(1) Repayment, maturity, or redemption of
the principal of a loan, bond, or mutual fund or certificate of deposit or
similar marketable instrument;
(2) The principal amount received under a
repurchase agreement or other transaction properly characterized as a loan;
(3) Proceeds from issuance of the taxpayer’s
own stock or from sale of treasury stock;
(4) Damages and other amounts received as
the result of litigation;
(5) Property acquired by an agent on behalf
of another;
(6) Tax refunds and other benefit
recoveries;
(7) Pension reversions;
(8) Contributions to capital (except for
sales of securities by securities dealers);
(9) Income from forgiveness of indebtedness;
or
(10) Amounts realized from exchanges of
inventory that are not recognized by the Internal Revenue Code.
C. Sales
of tangible personal property in this State. A sale of tangible personal property is in
Maine if the property is delivered or shipped to a purchaser (other than the
United States Government, see subsection D below) who takes possession within
Maine.
Sales are in Maine if
the property is delivered or shipped to a purchaser in Maine regardless of the
f.o.b. point or other conditions of sale.
(1) Tangible property is delivered or
shipped to a purchaser within Maine if the recipient is located in Maine, even
though the property is ordered from outside Maine.
(2) Property is delivered or shipped to a
purchaser in Maine if the shipment terminates in Maine, even if the purchaser
subsequently transfers the property to another state.
(3) The term “purchaser within this state”
includes the ultimate recipient of the property if the taxpayer, at the
direction of the purchaser, delivers to or has the property shipped to the
ultimate recipient within Maine.
(4) When property being shipped by a seller
from the state of origin to a consignee in another state is diverted to a
purchaser in Maine, the sales are in Maine.
D. Sales
of tangible personal property to the United States Government. Sales of tangible personal property to the
United States Government are in this State if the property is shipped from an
office, store, warehouse, factory, or other place of storage in this State. Generally, sales by a subcontractor to a
prime contractor who is the party to the contract with the United States
Government do not constitute sales to the United States Government.
E. Sales
other than sales of tangible personal property. Receipts from the sales of other than
tangible personal property must be sourced as follows below. When no other sourcing rule is applicable,
the sales must be sourced so as to fairly represent the extent of the
taxpayer’s business activity in this State.
(1) Receipts
from the performance of services. Generally,
receipts from the performance of services must be sourced to the state where
the services are received.
(a) Non-business
customer. When it is unclear where
the services were received, the sale is deemed to have occurred at the home of
the customer.
(b) Business
customer. When it is unclear where
the services were received, the sale is deemed to have occurred at the office
of the business customer where the services were ordered in the regular course
of the customer’s trade or business. If
the ordering location can not be determined, the sale is deemed to have
occurred at the office to which the services were billed.
(c) Federal
government. If the customer is the
federal government, the services are deemed to have been received in this State
if the greater proportion of the income-producing activity is performed in this
State than in any other state based on costs of performance.
(2) Gross
receipts from the sale of patents, copyrights, or trademarks. Generally, gross receipts from the license,
sale or other disposition of patents, copyrights, trademarks or similar items
of intangible personal property must be attributed to this State if the
intangible property is used in this State by the licensee.
(a) Used
in more than one state. When the
intangible personal property is used by the licensee in more than one state,
the income must be apportioned to this State according to the portion of use in
this State.
(b) Federal
government. When the purchaser or
licensee of the intangible personal property is the Federal Government, the
receipts are attributable to this State if the greater proportion of the
income-producing activity is performed in this State than in any other state
based on the costs of performance.
(3) Receipts
from the sale, lease, or rental of real property. Generally, receipts from the sale, lease,
rental or other use of real property must be sourced to this State if the real
property is located in this State.
(4) Receipts
from the lease or rental of tangible personal property. Generally, receipts from the lease or rental
of tangible personal property must be attributed to this State if the tangible
personal property is located in this State.
(5) Receipts
from the sale of partnership interest.
Gain or loss from the sale of a partnership interest must be sourced in
accordance with §5142(3-A). The gain or
loss from the sale of a partnership interest is sourced to Maine by multiplying
the gain or loss by the ratio of the original cost of the partnership’s
tangible property located in Maine to the original cost of the partnership’s
tangible property everywhere, determined at the time of the sale. A different ratio must be calculated if more
than 50% of the value of the partnership’s assets consists of intangible
property. The foregoing allocation
calculations do not apply to the sale of a limited partner’s interest in an
investment partnership when more than 80% of the value of the partnership’s
total assets consists of intangible personal property held for investment,
except that such property cannot include an interest in a partnership unless
that partnership is itself an investment partnership.
(6) Receipts
from financial services. Receipts
from financial services must be sourced to this State in accordance with §5206-E
(2)(C)-(I), and as follows:
(a) Interest, including fees and penalties
in the nature of interest from loans located in Maine, is determined at the
time the original agreement was made;
(b) Net gain attributed to this State from
the sale of loans is determined based on the ratio of interest, fees and
penalties from loans located in this State, determined in accordance with subparagraph
(a), to interest, fees and penalties from all loans;
(c) Interest, including fees and penalties
in the nature of interest from credit card receivables, and receipts from fees (including
annual fees) is charged to credit card holders associated with credit card
holders whose billing address is in this State;
(d) Net gain attributed to this State from
the sale of credit card receivables is determined based on the ratio of credit
card interest, fees and penalties associated with credit card holders whose
billing address is in this State to all credit card interest, fees and
penalties;
(e) Receipts from credit card reimbursement
fees, including related payment processing fees, attributed to this State are determined
based on the ratio of credit card interest, fees and penalties associated with
credit card holders whose billing address is in this State to all credit card
interest, fees and penalties;
(f) Receipts from merchant discount, including
related payment processing fees, are in this State if the commercial domicile
of the merchant is in this State. The
receipts are computed net of any credit card holder charge-backs, but are not
reduced by any interchange transaction fees or by any issuer’s reimbursement
fees paid to another for charges made by its credit card holders; and
(g) Receipts from loan servicing fees
attributed to this State are determined based on the ratio of interest, fees
and penalties in the nature of interest from loans located in this State,
determined in accordance with subparagraph (a), to interest, fees and penalties
in the nature of interest from all loans.
Loan servicing fees received for servicing secured or unsecured loans of
another must be included in the numerator if the borrower is located in this
State.
(7) Gross
receipts from the sale of goodwill. Receipts
from the sale of goodwill must be sourced to this State according to the
portion of use in this State based upon the previous taxable year’s sales factor
for all sales.
(8) Gross
receipts from the sale of accounts receivable and the sale of collection
services. Receipts from the sale of
accounts receivable and collection services must be sourced as the underlying
sales related to the debt was sourced.
.07 Corporate partners.
A. Generally. A corporation with an interest in a pass-through
entity, such as a partnership, limited partnership, limited liability
partnership, limited liability company, S corporation, or other similar entity must
include its distributive share of the pass-through entity income, loss, or
deduction in calculating its income, in accordance with the Internal Revenue
Code and 36 M.R.S.A. §5102(8), and must apportion its income pursuant to
paragraph D below. The character of any
item included in the distributive share is determined as if it were realized or
incurred directly by the corporation. The
business of the pass-through entity is treated as the business of the
corporation.
B. Taxable
in Maine. A corporation that is not
otherwise subject to Maine’s tax jurisdiction is nevertheless taxable in Maine
if it is a partner, shareholder or member in a pass-through entity whose
activities, if conducted directly by the corporation, would subject the
corporation to the Maine corporate income tax.
C. Taxable
in another state. A corporation is
taxable in another state within the meaning of Section .04 if the corporation
is a partner, shareholder or member in a pass-through entity with activities in
that state that cause the pass-through entity or its partner, shareholder or
member to be taxable in that state under the rules described in Section .04.
D. Apportionment
rules. In general, if a corporate
partner, shareholder or member is taxable in another
state, it must apportion its taxable net income using the apportionment
percentage in 36 M.R.S.A. §5211(8).
(1) Sales
factor. In determining the
denominator of its sales factor, a corporate partner, shareholder or member must include its pro rata share of the pass-through entity’s total sales during the pass-through entity’s taxable year.
In determining the numerator of its sales factor, a corporate partner, shareholder or member must include its pro rata share of such sales in
(a) Sales by the corporation to the pass-through entity in an amount equal to the total of such sales
multiplied by the corporation’s interest in the pass-through
entity; and
(b) Sales by the pass-through entity to the corporation in an amount not to exceed
the total of all sales made by the pass-through
entity multiplied
by the corporation’s interest in the pass-through
entity.
(2) Pro
rata share. For purposes of this
section, a corporate partner’s, shareholder’s or
member’s pro rata share of a pass-through entity’s sales
shall be its percentage interest in pass-through
entity profit
or loss for the taxable year, as stated on the partner’s, shareholder’s or member’s Schedule K-1.
However, if, under the pass-through entity agreement, a partner’s, shareholder’s or member’s share of gain or loss from the sale of
particular pass-through entity assets is different from
its profit or loss ratio stated on Schedule K-1, gross receipts from sales of
such assets shall be attributed to its sales factor in the same proportion as
the partner’s, shareholder’s or member’s interest in gain or loss
from the sale. In the event of a
termination or other change in a partner’s,
shareholder’s or member’s
interest during the taxable year, the partner’s,
shareholder’s or member’s
pro rata share of sales must be modified to reflect pass-through entity sales during the actual period that the partner, shareholder or member held its interest.
.08 Variations
A. Special
apportionment formulas. A taxpayer
may petition for, or the assessor may require, an apportionment variation, if
the apportionment provided by statute and this rule does not fairly represent
the extent of the taxpayer’s business activity in the State. Nothing in this rule precludes the assessor
from establishing appropriate procedures for determining the correct
apportionment, including the use of separate accounting, determination of
appropriate factors, or any other method to effectuate equitable apportionment.
B. Factors
for corporate partners. The property
and payroll factors of a special apportionment formula for a corporation with
an interest in a pass-through entity may be proposed using the guidance below.
(1) Property
factor. In determining the
denominator of its property factor, a corporate partner, shareholder or member must include its pro rata share of the total
value of the pass-through entity’s real and tangible
personal property, owned or rented, used during the pass-through entity’s taxable year.
In determining the numerator of its property factor, a corporate partner, shareholder or member must include its pro rata share of the value of
such property located in
(a) When a corporation rents property to the
pass-through entity, the corporation must include the original cost
of the property in its property factor. The
pass-through entity must not include any portion of the value of
this property in its property factor.
(b) When the pass-through
entity rents
property to the corporation, the corporation must include in its property
factor the sum of (i) the original cost of the property multiplied by the
corporation’s percentage interest in the pass-through
entity,
plus (ii) eight times the net annual rental rate of the property multiplied by
the difference between 100% and the corporation’s percentage interest in the pass-through entity.
(2) Payroll
factor. In determining the
denominator of its payroll factor, a corporate partner, shareholder or member must include its pro rata share of the total
compensation paid by the pass-through entity during the pass-through entity’s taxable year.
In determining the numerator of its payroll factor, a corporate partner, shareholder or member must include its pro rata share of such
compensation paid in
.09 Property value and factor. The Assessor may require taxpayers to provide
information on tax returns on property value and factor. The property factor also may be used in
appropriate circumstances in determining an apportionment variation, as
provided under §5211(17). The property
factor is a fraction, the numerator of which is the average value of the
taxpayer’s real and tangible personal property owned or rented and used in
Maine during the tax period and the denominator of which is the average value
of all the taxpayer’s real and tangible personal property owned or rented and
used during the tax period.
A. Real
and tangible personal property. The
term "real and tangible personal property" includes land, buildings,
machinery, stocks of goods, equipment, and other real and tangible personal
property but does not include coin or currency.
B. Property
used during the taxable year. Property
is included in the property factor if it is actually used or is available for
use or capable of being used during the tax period by the taxpayer. Property held in reserve or standby
facilities or property held as a reserve source of materials must be included
in the factor. For example, a plant
temporarily idle or raw material reserves not currently being processed are
includable in the factor. Property or
equipment under construction during the tax period (except inventoriable goods
in process) must be excluded from the factor until such property is actually
used by the taxpayer. If the property is
partially used by the taxpayer while under construction, the value of the
property to the extent used must be included in the property factor. Property used by the taxpayer must remain in
the property factor until its permanent withdrawal is established by an
identifiable event such as its sale, or the lapse of an extended period
of time (normally, five years) during which the property is held for sale.
C. Property
in transit; mobile property. Property
in transit between locations of the taxpayer to which it belongs is considered
to be located at the destination for purposes of the property factor. Property in transit between a buyer and
seller that is included by a taxpayer in the denominator of its property factor
in accordance with its regular accounting practices must be included in the
numerator according to the state of destination. The value of mobile or movable property, such
as construction equipment, trucks or leased electronic equipment, that is
located both within and without this State during the taxable year, is determined
for purposes of the numerator of the property factor on the basis of total time
within Maine during the taxable year. Automobiles
assigned to traveling employees are included in the numerator of the factor of
the state to which the employee's compensation is assigned under the payroll
factor.
D. Valuation
of owned property. Property owned by
the taxpayer is valued at its original cost.
"Original cost" means the basis of the property for federal
income tax purposes (prior to any federal adjustments) at the time of
acquisition by the taxpayer and adjusted by subsequent capital additions or
improvements thereto and partial disposition thereof, by reason of sale,
exchange, abandonment, etc. However,
capitalized intangible drilling and development costs are included in the
factor whether or not they have been expensed for either federal or state tax
purposes. If the original cost cannot be
ascertained, the property must be included in the factor at its fair market
value as of the date of its acquisition by the taxpayer.
Generally, the average
value of all property owned by the taxpayer is determined by averaging the
values at the beginning and ending of the tax period. However, the Assessor may require or allow
averaging of monthly values if substantial fluctuations in the values of the
property exist during the taxable year or if property is acquired after the
beginning of the taxable year or disposed of before the end of the taxable
year.
E. Valuation
of rented property. Property rented
by the taxpayer is valued at 8 times the net annual rental rate. Subrentals are not deducted.
If property is used at
no charge or rented for a rate other than a reasonable market rate, the
property must be included in the property factor on the basis of a reasonable
market rental rate.
The "annual rental
rate" is the amount paid as rent for the property for a twelve-month
period. When property is rented for less
than a twelve-month period, the net rent paid for the actual period of rental
constitutes the "annual rental rate" for the tax period. However, when a taxpayer has rented property
for a term of 12 or more months and the current tax period covers a period of
less than 12 months, the net rent paid for the short tax period must be
annualized. If the rental term is for
less than 12 months, the rent must not be annualized beyond its term. Rent will not be annualized because of the
uncertain duration when the rental term is on a month-to-month basis.
"Rent" is the
actual sum of money or other consideration payable, directly or indirectly, by
the taxpayer or for its benefit for the use of the property and includes:
(1) Any amount payable for the use of real
or tangible personal property, or any part thereof, whether designated as a
fixed sum of money or as a percentage of sales, profits or otherwise;
(2) Any amount payable as additional rent or
in lieu of rents, such as interest, taxes, insurance, repairs or any other
items required to be paid by the terms of the lease or other arrangement but
does not include amounts paid as service charges, such as utilities, janitor
services, etc. If a payment includes
rent and other charges unsegregated, the amount of rent must be determined by
consideration of the relative values of the rent and the other items.
"Rent" does
not include incidental day-to-day expenses such as hotel or motel
accommodations, daily rental of automobiles, etc. “Rent” does not include
royalties based on extraction of natural resources, whether represented by
delivery or purchase. For this purpose,
a royalty includes any consideration conveyed or credited to a holder of an
interest in property that constitutes a sharing of current or future production
of natural resources from such property, irrespective of the method of payment
or how such consideration may be characterized, whether as a royalty, advance
royalty, rental or otherwise.
Leasehold improvements
are treated as property owned by the taxpayer regardless of whether the
taxpayer is entitled to remove the improvements or of whether the improvements
revert to the lessor upon expiration of the lease.
.10 Payroll value
and factor. The Assessor may require taxpayers to provide
information on tax returns on payroll value and factor. The payroll factor also may be used in
appropriate circumstances in determining variations on the apportionment
formula as provided under §5211(17). The
payroll factor is a fraction, the numerator of which is the total amount of
compensation paid in this State during the tax period by the taxpayer, and the
denominator of which is the total compensation paid everywhere during the tax
period.
A. Effect
of accounting method. If a taxpayer
has adopted the accrual method of accounting, all compensation properly accrued
will be deemed to have been paid. However,
compensation may be included in the payroll factor by use of the cash method if
the taxpayer is required to report such compensation under that method for
unemployment compensation purposes.
B. Base
of operations. “Base of operations”
means the taxpayer’s place of business from which an employee customarily
begins work or to which the employee customarily returns at some other time to
receive instructions, direction and supervision from the taxpayer or
communications from customers or other persons, to replenish stock or other
materials, to repair equipment, or to perform any other function necessary to
the exercise of the employee’s trade or profession.
C. Compensation. The term "compensation" means
wages, salaries, commissions and any other form of remuneration paid to
employees for personal services. Payments
made pursuant to a contract to an employee-leasing company for leased employees
or to a temporary service company for temporary employees are
compensation. Payments made to an
independent contractor, or any other person not properly classifiable as an
employee, are excluded. Only amounts
paid directly to employees are included in the payroll factor. Amounts considered paid directly include the
value of board, rent, housing, lodging, and other benefits or services
furnished to an employee by the taxpayer in return for personal services
provided that such amounts constitute income to the recipient under the
Internal Revenue Code. In the case of
employees not subject to the Internal Revenue Code (e.g., those employed in
foreign countries), the determination of whether such benefits or services
would constitute income to the employees is made as though such employees were
subject to the Internal Revenue Code. Employer
contributions under a retirement plan, qualified cash or deferred arrangement
as defined in Internal Revenue Code §401(k) and employer contributions to
nonqualified deferred compensation plans are generally included in the payroll
factor.
D. Employee. "Employee" means any officer of a
corporation or any individual who would be considered an employee under the
common law rules governing the employer-employee relationship. Generally, an individual is considered to be
an employee if the individual is included by the taxpayer as an employee for
purposes of the payroll taxes imposed by the Federal Insurance Contributions
Act. This presumption may be overcome by
evidence provided by a taxpayer that an individual who is included as an
employee for purposes of the Federal Insurance Contributions Act would not be
an employee of the taxpayer under the usual common law rules.
E. Independent
contractor. "Independent
contractor" means any individual who performs services for a taxpayer, but
who is not an employee of the taxpayer, and who is not otherwise subject to the
supervision or control of the taxpayer in the performance of the services.
F. Payroll
in states in which taxpayer is not taxable.
Compensation paid to employees whose services are performed entirely in
a state where the taxpayer is immune from taxation, for example, by P.L.
86-272, is included in the denominator of the payroll factor.
.11 Application date. This Rule applies to tax years beginning on
or after January 1, 2010.
STATUTORY AUTHORITY: 36
M.R.S.A. §112(1)
EFFECTIVE DATE:
September 30, 1976
AMENDED:
December 31, 1979
April 27, 1982
EFFECTIVE DATE
(ELECTRONIC CONVERSION):
May 1, 1996
REPEALED AND REPLACED:
February 17, 2001
AMENDED:
March 12, 2008 – filing 2008-98
February 8, 2009-filing 2009-47
September 12, 2010-filing 2010-389
March 19, 2011-filing 2011-78