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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., 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. § 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. 36 M.R.S. § 5217-A. This rule does not apply to financial
institutions subject to the Franchise Tax contained in 36 M.R.S., 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. §
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 United
States, the District of Columbia, the Commonwealth of Puerto Rico, any territory
or possession of the United States, and any foreign country or political
subdivision thereof. 36 M.R.S. §
5210(6).
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. §§ 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. Variations may be allowed when
petitioned for by the taxpayer or may be required by the Assessor. 36 M.R.S.
§ 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. §
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. §
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. § 5211(2).
A taxpayer is subject to one of the taxes specified in 36 M.R.S. §
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 subsection A,
paragraph (2) above 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
A. 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, except that:
(1) For tax
years beginning on or after January 1, 2009, 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. § 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.
(2) 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. § 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 C.M.R. 810.
(3) For
tax years beginning on or after January 1, 2013, the numerator of the sales
factor does not include sales of a person whose only business activity in the
State during the taxable year is the performance of services during a disaster
period that are solely and directly related to a declared state disaster or
emergency that were requested by the State, a county, city, town, or political
subdivision of the State or a registered business. 36 M.R.S. § 5211(16-B).
B.
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.
C.
Gross receipts. “Gross receipts” means the gross amounts
realized (the sum of money and the fair market value of other property or
services received, less any returns and allowances) 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.
D. 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.
E.
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.
F.
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. § 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. § 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 Maine.
To avoid duplication, however, the following sales must be eliminated
from both the numerator and denominator of the sales
factor:
(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 Maine. To avoid duplication, however, the
following adjustments must be made to the value of any property leased or rented
by the corporation to the pass-through
entity or vice
versa.
(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 Maine during the taxable
year.
.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. Except where otherwise stated, this Rule
applies to tax years beginning on or after January 1,
2010.
STATUTORY
AUTHORITY: 36 M.R.S. § 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
April 5, 2015-filing 2015-056