18-125 C.M.R. ch. 326 — Rule 326. Leases and Rentals of Tangible Personal Property

18
DEPARTMENT OF ADMINISTRATIVE AND FINANCIAL SERVICES
125
MAINE REVENUE SERVICES
Chapter 326: LEASES AND RENTALS OF TANGIBLE PERSONAL PROPERTY
SUMMARY: Sets forth requirements for leases and rentals of tangible personal property
relating to Maine Sales and Use Tax Law. This Rule is effective for lease and rental transactions
occurring on and after January 1, 2025.
SECTION 1. Definitions.
1. Custom computer software program. "Custom computer software program," which
has the same meaning as in 36 M.R.S. § 1752(1-E), means any computer software that is
written or prepared exclusively for a particular customer. "Custom computer software
program" does not include a "canned" or prewritten software program that is held or exists
for a general or repeated sale, lease or license, even if the program was initially developed on
a custom basis or for in-house use. An existing prewritten software program that has been
modified to meet a particular customer's needs is a "custom computer software program" to
the extent of the modification, and to the extent that the amount charged for the modification
is separately stated.
2. Lease or rental. "Lease or rental," which has the same meaning as in 36 M.R.S. §
1752(5-D) and includes the terms "lease" and "rental," means any transfer of possession or
control of tangible personal property for a fixed or indeterminate term for consideration and
may include future options to purchase the property or extend the lease or rental. "Lease or
rental" includes a sublease and subrental. "Lease or rental" also includes an agreement
entered into on or after January 1, 2026, covering motor vehicles and trailers where the
amount of consideration may be increased or decreased by reference to the amount realized
upon sale or disposition of the property as defined in 26 U.S.C. § 7701(h)(1) and is also
known as a terminal rental adjustment clause (TRAC) lease.
"Lease or rental" does not include:
A. Leases and contracts payable by rental or license fees for the right of possession and
use when such leases and contracts are determined by the assessor to be "in lieu of
purchase";
B. A transfer of possession or control of property under a security agreement or deferred
payment plan that requires the transfer of title upon completion of the required
payments;
C. Providing tangible personal property along with a person to operate that property, for
a fixed or indeterminate period of time, when that person is necessary for the tangible
personal property to perform as designed and the person does more than maintain,
inspect or set up the tangible personal property; or
D. The lease or rental of property that is subject to the provisions of the service provider
tax imposed pursuant to Title 36, chapter 358.
The characterization of a transaction as a lease or rental under generally accepted accounting
principles, the Internal Revenue Code, the Uniform Commercial Code, or other provisions of
federal, state, or local law does not affect a determination that a transaction is a lease or
rental under chapters 211 through 225 of Title 36 of the Maine Revised Statutes.
3. Lessee. "Lessee" means a person who leases or rents tangible personal property located
in this State from a lessor.
4. Lessor. "Lessor," which has the same meaning as in 36 M.R.S. § 1752(5-E), means a
person who leases or rents tangible personal property located in this State to another person.
5. Prewritten software program. "Prewritten software program," also known as
"canned" software or commercial off-the-shelf (COTS) software, means computer software,
including prewritten upgrades, that is not designed and developed by the author, developer or
other creator to the specifications of a specific purchaser. "Prewritten software program"
includes video games.
A. The combining of two or more prewritten software programs or prewritten parts of
the programs does not necessarily cause the combination to be something other than a
prewritten software program.
B. "Prewritten software program" includes computer software designed and developed
by the author or other creator to the specifications of a specific purchaser when it is
sold to a person other than the purchaser.
C. If a person modifies or enhances computer software of which the person is not the
author or creator, the person is considered to be the author or creator only of the
person's modifications or enhancements.
D. A prewritten software program, or a prewritten part of the computer software that is
modified or enhanced to any degree, where the modification or enhancement is
designed and developed to the specifications of a specific purchaser, remains a
prewritten software program. However, when the value of such modification or
enhancement to the prewritten software program is separately stated from that of the
prewritten software program, such modification or enhancement is considered custom
computer software.
6. Primary property location. For the purposes of sourcing leases and rentals of tangible
personal property pursuant to 36 M.R.S. § 1819, "primary property location" means an
address for the tangible personal property that is provided by the lessee that is available to the
lessor from the lessor's records and maintained in the ordinary course of business, when use
of this address does not constitute bad faith. A primary property location is not altered by
intermittent use at different locations, such as use of business property that accompanies
employees on business trips or service calls.
7. Product transferred electronically. "Product transferred electronically," which has the
same meaning as in 36 M.R.S. § 1752(9-E), means a digital product transferred to the
purchaser electronically the sale of which in nondigital physical form would be subject to tax
under Part 3 of Title 36 of the Maine Revised Statutes as a sale of tangible personal property.
8. Tangible personal property. "Tangible personal property," which has the same
meaning as in 36 M.R.S. § 1752(17), means personal property that may be seen, weighed,
measured, felt, touched or in any other manner perceived by the senses, but does not include
rights and credits, insurance policies, bills of exchange, stocks and bonds and similar
evidences of indebtedness or ownership. "Tangible personal property" includes electricity.
"Tangible personal property" includes prewritten computer programs. "Tangible personal
property" includes any product transferred electronically.
SECTION 2. Registrants.
1. Every lessor engaged in the leasing of tangible personal property located in this state
must register with Maine Revenue Services (MRS) and collect and remit the sales tax in
connection with the lease or rental of that property.
2. An out-of-state lessor of equipment shall register and comply with the provisions of
36 M.R.S. § 1754-B when its tangible personal property is located in Maine in the possession of
a lessee.
3. Each time period for which a lease or rental payment is charged is considered a
separate sale in determining whether a retailer is responsible for the tax in accordance with
Maine Sales and Use Tax Law.
SECTION 3. Sale price.
For the calculation of the taxable sale price of the lease or rental of an automobile, see
Section 7 of this Rule.
1. Included within sale price. The sale price of the lease or rental of tangible personal
property shall include:
A. The total amount of payment received for the leasing of tangible personal
property, whether received in money or otherwise, without any deduction on
account of the cost of the property sold, the cost of the materials used, labor or
service cost, interest paid, losses, or any other expenses;
B. All charges, including but not limited to maintenance and service contracts, setup,
hook-up, assembly or disassembly, erection and dismantling, cancellation charges
and early termination charges, transportation charges for delivery completed or
arranged by the lessor to the lessee, pickup and other handling charges,
administrative charges, fuel charges, surcharges, and late return charges, whether
or not such amounts are separately stated;
C. Payments paid by the lessee to a third party for the benefit of the lessor that are
required by the terms of the lease or rental agreement; and
D. All itemized charges for costs incurred by the lessor and passed on to the lessee as
separate charges in the lease or rental agreement, including but not limited to
finance or interest charges, property tax, or inspection fees.
2. Exclusions from sale price. The sale price of the lease or rental of tangible personal
property shall not include:
A. The price charged for labor or services used in installing, applying, or repairing
the tangible personal property leased or rented, if separately charged or stated;
B. The price charged for the cost of transportation from the lessor's place of business
or other point from which shipment is made directly to the lessee, provided that
those charges are separately stated, and the transportation occurs by means of
common carrier, contract carrier, or the United States mail;
C. Separately stated charges for optional insurance coverage for the protection of the
lessee or of the lessee's personal property, such as liability insurance, personal
accident insurance, or personal effects protection; or
D. Charges for goods and services sold after the lease or rental has terminated,
including a disposition fee.
SECTION 4. Exclusions from "lease or rental."
The following are excluded from the definition of "lease or rental."
1. Leases "in lieu of purchase." If tangible personal property is, for all intents and
purposes, sold but the transaction is designated as a lease or rental for the purpose of retaining
title in the seller and as security for payment of the purchase price, the lease or rental will be
deemed to be "in lieu of purchase." A lease shall be deemed to be in "in lieu of purchase" when,
once the lessee enters into the so-called lease agreement, the lessee must acquire title to the
tangible personal property under the terms of the agreement. The total value of the lease or
rental payments charged will be considered to constitute the sale price upon which tax is based.
Separately stated finance charges and personal property taxes shall be excluded from the sale
price.
The Assessor may review the specific terms of a particular lease in order to determine
whether it is a lease "in lieu of purchase." A lease will generally be a lease "in lieu of purchase"
under the following circumstances if any of the following conditions are satisfied:
A. If the terms of the lease create a security interest as defined by 11 M.R.S. § 1-
1201(35); or
B. If the lease contains an option to purchase the leased property for $1.00 or other
nominal consideration.
2. Transfer of possession or control of property under a security agreement. A
retailer may purchase tangible personal property and subsequently transfer possession to a
customer under an agreement or deferred payment plan that requires monthly or other recurring
periodic payments by the customer for a specific period of time. Upon completion of the
required payments and pursuant to the agreement or deferred payment plan, title of the property
is transferred by the retailer to the customer who then becomes the owner of the tangible
personal property. No tax is due on the periodic payments that the retailer receives from the
customer; however, the sales or use tax is payable to the retailer at the time of purchase by the
customer of the tangible personal property.
3. Providing tangible personal property along with an operator. The provision of
tangible personal property for a fixed or indeterminate period of time along with an operator for
that tangible personal property is not considered a "lease or rental" for purposes of Maine Sales
and Use Tax Law. A condition of this exclusion is that the operator is necessary for the
equipment to perform as designed. For the purpose of this exclusion, an operator must do more
than maintain, inspect, or set up the tangible personal property.
4. Leases and rentals subject to the service provider tax. The rental of video media
and video equipment, and the rental of furniture, audio media, and audio equipment pursuant to a
rental-purchase agreement as defined in 9-A M.R.S. § 11-105, are services taxable under the
service provider tax. A rental-purchase agreement of furniture, audio media, and audio
equipment is not a transfer of possession or control of property under a security agreement as
described above in Section 4.2.
SECTION 5. Purchases for resale.
1. A lessor that purchases tangible personal property intended for subsequent lease or
rental tax-free must present a valid resale certificate.
2. Parts and accessories purchased for use in the repair or maintenance of tangible
personal property used exclusively for leasing purposes may be purchased by the lessor tax-free
by presenting a valid resale certificate. Purchases of repair parts by lessees are not purchases for
resale and are taxable unless another exemption or exclusion from tax applies.
3. Tangible personal property purchased for resale without payment of the tax where the
property is intended to be utilized exclusively for lease or rental, and is so used, but then is
subsequently used by the lessor for some purpose other than for lease or rental, is subject to the
sales and use tax upon this subsequent use. The tax shall be measured by the purchase price of
the tangible personal property and is in addition to the tax due on the lease or rental payments.
4. Tangible personal property purchased for both lease or rental and for use by the
purchaser may not be purchased tax-free as a sale for resale and is subject to tax.
5. A retailer who purchases tangible personal property for outright sale but, while
holding the property in the retailer's inventory, makes use of the property in the retailer's
business through lease or rental, is responsible for collecting the sales and use tax on the lease or
rental payments.
SECTION 6. Exempt leases and rentals.
1. A lessor of tangible personal property shall not charge and collect the tax on the
payment for a lease or rental if the lessor takes from the lessee a fully completed certificate of
exemption or affidavit as evidence that the tangible personal property to be leased will be used in
an exempt manner under Maine Sales and Use Tax Law.
2. Tangible personal property leased or rented by a contractor for use in a construction
contract with an organization that has been granted a sales tax exemption under 36 M.R.S. §
1760 or a governmental agency is subject to tax, even if the lease or rental of the tangible
personal property is specifically for use on the exempt job.
3. The rental of safe deposit boxes, self-storage units, or baggage lockers is not a rental
of tangible personal property but instead constitutes a rental of storage space at the business
location of the lessor and is not subject to tax.
SECTION 7. Leases and rentals of automobiles.
In the case of the lease or rental of an automobile where the lease requires recurring
periodic payments, all monthly payments are sourced to the primary property location pursuant
to 36 M.R.S. § 1819(4).
For a lease or rental of an automobile that does not require recurring periodic payments
- i.e., the total lease payment is due as one lump sum - the payment is sourced the same as a sale
of tangible personal property, pursuant to 36 M.R.S. § 1819(2).
The computation of the taxable sale price and the rate of tax imposed on the lease or
rental of an automobile differ depending upon the duration of the lease term as specified in this
Section.
1. Short-term lease or rental of an automobile; sale price, rate of tax. "Short-term"
means a lease or rental period of less than one year. Under 36 M.R.S. § 1811, the short-term
rental of an automobile is taxed at a higher rate than the general sales tax rate. The short-term
rental rate does not apply to vehicles with more than four (4) wheels, motorcycles, motor homes,
or trucks and vans weighing more than 10,000 pounds. The short-term rental rate does not apply
to the rental of a cargo van.
Separately stated fees that are not part of the taxable sale price of the vehicle include, but
are not limited to, reimbursement of tolls, charges for goods and services sold after the rental has
terminated (e.g., fuel sales), and sales of optional insurance coverage for the protection of the
lessee or of the lessee's personal property. All fees must be disclosed when an estimated quote is
provided to the lessee.
2. Long-term lease or rental of an automobile; sale price, rate of tax. In the case of
the lease or rental of an automobile for a period of one year or more, the taxable sale price of a
lease shall be computed on (A) the value of the total monthly lease payment multiplied by the
number of payments in the lease or rental; (B) the amount of equity involved in any trade-in; and
(C) the value of any cash down payment, pursuant to 36 M.R.S. § 1752(14)(A)(5). Collection
and remittance of the tax is the responsibility of the person that negotiates the lease transaction
with the lessee. The full amount of sales tax is due in the month in which the lease begins. The
lease or rental of an automobile for a period of one year or more is subject to the general sales
tax rate.
A. Total monthly lease payments. The amount of total monthly lease payments is
determined by multiplying the dollar amount of each lease payment by the
number of payments in the lease term. Taxes, such as certain excise taxes and
sales taxes, are excluded from the sale price. Certain charges, such as registration
fees, life/disability insurance, gap insurance, warranties, and management services
are excluded from the sale price only if separately stated from the lease payment.
A fee charged when the lessee opts to return an automobile to the lessor rather
than exercising the option to purchase it - e.g., a "disposition fee," or a charge for
excess mileage or excess "wear and tear" - is not subject to sales tax.
B. Equity involved in trade-in. "The amount of equity involved in any trade-in" is
the value of any trade-in that reduces the cost of the lease.
C. Cash down payment. "The value of any cash down payment" means any initial
cash payment that is applied toward the cost of the lease, including rebates. "The
value of any cash down payment" does not include pre-payment of lease
payments or of required upfront costs disbursed by the lessor such as sales tax,
excise tax, and/or registration fees.
3. Long-term leases of automobiles by nonresidents. Nonresidents of Maine that
enter into a lease of an automobile for a period of one year or more with a Maine retailer, where
the nonresident is going to immediately remove the automobile from Maine, may complete an
Affidavit of Exemption for Immediate Removal (Form ST-A-106). If an accurately completed
affidavit is accepted by the retailer in good faith, the retailer is not required to collect sales tax on
the lease transaction. If the retailer knew or had reason to know that the lessee did not intend to
immediately remove the automobile from the State, or was not a nonresident at the time of the
commencement of the lease, the retailer may be liable for the tax.
SECTION 8. Lease and rental transactions between related entities or parties and casual
leases and rentals.
1. The retail lease or rental of tangible personal property between separate entities with
the same or similar ownership is subject to Maine sales and use tax.
2. Casual leases and rentals are not retail sales subject to tax, unless the tangible
personal property leased or rented is a motor vehicle, aircraft, watercraft, trailer, truck camper, or
special mobile equipment. Tax must be collected on the lease or rental payments made on the
casual lease or rental of those properties unless the property is leased to a corporation,
partnership, trust, limited liability company or limited liability partnership when the lessor is the
owner of 50% or more of the common stock of the corporation or of the ownership interest in the
partnership, trust, limited liability company, or limited liability partnership.
SECTION 9. Computer software and products transferred electronically.
1. Products transferred electronically. When a product transferred electronically is
transferred to the purchaser (e.g., downloadable to the purchaser's computer hardware or other
device), the sale, lease, rental, or license of the product is a taxable sale of tangible personal
property.
2. Custom computer software programs. Sales of custom computer software
programming are not subject to Maine sales or use tax, as "custom computer software programs"
are excluded from the definition of "tangible personal property" in 36 M.R.S. § 1752(17).
3. Sale or lease of prewritten software programs. Prewritten software programs for
sale, rental, lease, or license are generally subject to the Maine sales tax, regardless of the fact
that the prewritten software program may require some modification for a purchaser's computer
or device.
A. Taxable transfers of prewritten software programs. Taxable transfers of
prewritten software programs include, but are not limited to, sales transacted by
electronic delivery, "load and leave," licenses and leases, transfers of rights to use
computer software installed on an in-state third-party server accessed by the
holder of the software license, upgrades, and license upgrades.
(1) Sold in a tangible medium. The sale, rental, lease, or license of a prewritten
software program stored on a tangible medium - i.e., on a disc or disk, a USB
flash drive, etc. - is subject to Maine sales and use tax.
(2) "Load and leave" method. The sale, rental, lease, or license of a prewritten
software program that is transferred using a "load and leave" method, where
the seller or an agent of the seller transfers the prewritten software program
from a portable storage device onto the purchaser's computer(s) at the
purchaser's location, is subject to sales tax, as it is also delivered on a tangible
medium.
(3) Products transferred electronically. Prewritten software programs
transferred electronically are subject to Maine sales and use tax when
downloadable in this State or for use in this State and sold, rented, leased, or
licensed for consideration. This includes "mobile apps" downloadable to a
smartphone, electronic tablet, or other mobile electronic devices.
(4) License fees. Paying a license fee to use a prewritten software program for a
defined period of time constitutes a lease or rental of the computer software.
(5) Enhancements to prewritten software programs. Transactions for
enhancements to prewritten software programs, such as upgrades or "in-app"
purchases, including "in-game" purchases, are subject to Maine sales and use
tax if the prewritten software program is subject to Maine sales and use tax. If
the prewritten software program was free, but the customer is charged for
enhancements, the enhancements are subject to Maine sales and use tax if the
prewritten software program would have been subject to Maine sales or use
tax had there been a charge.
B. Cloud computing; remotely accessed software. Prewritten computer software
that is sold, rented, leased, or licensed for consideration where the computer
software is remotely accessed over the Internet from an out-of-state server, over
private or public networks, or through wireless media, and no software is
downloadable onto the licensee's computer or device, is not considered a retail
sale of a product transferred electronically and is not subject to Maine sales and
use tax.
4. Software maintenance contracts. A retailer makes a retail sale of tangible personal
property when the retailer enters into a computer software maintenance contract with a customer
to provide future updates or upgrades to the customer's computer software. These contracts are
therefore subject to Maine sales and use tax at the time of entering into the contract.
Additionally, if the computer software maintenance is contracted for and included as part of a
transaction for a prewritten software program under a single, non-itemized price, the entire
transaction is subject to Maine sales and use tax.
5. Software sales billed to Maine. Prewritten software programs billed to a location in
Maine will be presumed to be used in Maine. This presumption may be overcome by
establishing that the prewritten software program license was used exclusively by the customer
at a location outside of Maine. For example, if a business headquartered in Maine bills all
purchases of prewritten software programs to Maine, then it is required to pay tax on all those
purchases. The business may apply to MRS for a refund of the tax due on licenses not used in
Maine under 36 M.R.S. § 2012.
SECTION 10. Sourcing of leases and rentals of tangible personal property.
The lease or rental of tangible personal property or products transferred electronically
shall be sourced according to 36 M.R.S. § 1819.
STATUTORY AUTHORITY: 36 M.R.S. § 112
EFFECTIVE DATE (NEW): October 6, 2025 - filing 2025-188