18-125 C.M.R. ch. 801 — Rule 801. Apportionment

18
DEPARTMENT OF ADMINISTRATIVE AND FINANCIAL SERVICES
125
BUREAU OF REVENUE SERVICES
INCOME/ESTATE TAX DIVISION
Chapter 801: APPORTIONMENT
Summary: This rule explains apportionment for corporations, pass-through entities, sole proprietorships,
and other business types that have income from business activity both within and without Maine as
required by 36 M.R.S §§ 5142(6) and 5210-5211. For tax years beginning on or after January 1, 2022,
this rule does not apply to a corporation unless that corporation has income tax nexus with Maine during
the taxable year as determined in accordance with 36 M.R.S. §§ 5200-B and 5202-D, and MRS Rule 808
(18-125 C.M.R., ch. 808). This rule does not apply to financial institutions that are subject to the
Franchise Tax contained in 36 M.R.S. §§ 5205-5206-G.
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
Prorating deductions
.12
Application date
.01 Definitions
A. Affiliated group. "Affiliated group" means a group of two or more corporations in
which more than 50 percent of the voting stock of each member corporation is directly
or indirectly owned by a common owner or owners, either corporate or non-corporate, or
by one or more of the member corporations. 36 M.R.S. § 5102(1-B).
B. 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 includes 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.
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C. 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.
D. 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.
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. Taxpayer. "Taxpayer" for purposes of this rule means a corporation required to file a
federal income return, a tax 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" for purposes of this rule does
not mean a partner or other owner of a pass-through entity, except where specifically
stated.
H. Total time. "Total time" means the total number of days. Any portion of a day is
counted as an entire day.
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 an affiliated group of
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:
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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. §§ 5142(6) and 5210-5211 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 or affiliated group of corporations 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 include only 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).
.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 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 36 M.R.S. § 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
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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 certain income exempt from Maine income tax. A taxpayer is not "taxable
in another state" for purposes of 36 M.R.S. § 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
proration of business and constitutionally-exempt income deductions, 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 proration of business and constitutionally-exempt income
deductions, and the determination of the sales apportionment factor, the taxpayer must
disclose in its Maine return the nature and extent of each variance.
.06 Sales factor
A. Formula. The sales factor is a fraction in which the numerator is the total sales of the
taxpayer in this State during the tax period and the denominator 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 36 M.R.S. § 5211(2) and
section .04 above. See 36 M.R.S. § 5211(14). To avoid duplication,
intercompany sales between corporations in a unitary business must be
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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 36 M.R.S. § 5211(2) and
section .04 above, 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 36 M.R.S. § 5211(2) and section .04
above. 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 MRS Rule 810 (18-
125 C.M.R., ch. 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 36 M.R.S. § 5211(15)
and receipts derived from the sale of other than tangible personal property pursuant to 36
M.R.S. § 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
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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.
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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 E below) who takes possession within Maine
regardless of F.O.B point or other conditions of sale.
Tangible property is delivered or shipped to a purchaser within Maine if:
(1) the recipient is located in Maine, even though the property is ordered from
outside Maine, and
(2) the property is delivered or shipped to a purchaser within Maine if the
shipment terminates in Maine, even if the purchaser subsequently transfers
the property to another state.
The term "purchaser within Maine" 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.
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 sourcing
rule is applicable, the sales must be sourced 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. Services may be received by a person other than the person who
contracted for or paid for the services. The determination of where services are
received is based on all available facts and is not limited to the books and records of
the taxpayer or any person related to the taxpayer.
The determination of where a service is received is distinct from the determination
of the amount of gross receipts under subsection C, above, from the performance of
services that are attributed to Maine. A taxpayer's inability or difficulty in
determining the amount of receipts from the performance of services is distinct from
a determination that the state where the services are received is not readily
determinable.
(a) Non-business customer. When it is not readily determinable where the
services were received, the services are deemed to be received at the home of
the customer.
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(b) Business customer. When it is not readily determinable where the services
were received, the services are deemed to be received 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 cannot be determined, the
services are deemed to be received 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.
(d) Variations under 36 M.R.S. § 5211(17). Nothing in this subsection shall
prohibit the taxpayer from petitioning for, or the assessor from requiring, an
alternative apportionment method to calculate the taxpayer's sales factor in
order to fairly represent the extent of the taxpayer's business activity in this state
as provided under 36 M.R.S. § 5211(17) and section .08 of this rule.
Examples of Sourcing Receipts from the Performance of Services
Under the General Rule
In-Person Services
Example 1: Taxpayer Salon Corp. has retail locations in Maine and in other
states where it provides hair cutting services to customers. The services
provided at Salon Corp.'s Maine locations are received in Maine, and the
receipts from the performance of such Maine hair cutting services are
attributed to Maine. The services provided at Salon Corp.'s locations outside
Maine, even when provided to Maine residents in those locations, are not
received in Maine, and the receipts from the performance of those out-of-state
hair cutting services are attributed outside of Maine.
Services concerning Real Property
Example 2(a): Taxpayer Landscape Corp. provides landscaping and
gardening services in Maine and in neighboring states. Landscape Corp.
provides landscaping services at the Maine vacation home of an individual
who is a resident of another state and who is located outside Maine at the time
the services are performed. Landscape Corp.'s services provided at the Maine
location are received in Maine, and the receipts from the performance of such
services are attributed to Maine.
Example 2(b): Same facts as in Example 2(a), except that Landscape Corp.
provides the landscaping services to Retail Corp., a corporation with retail
locations in several states, and the services are provided to Retail Corp.'s
locations in Maine and in other states. Landscape Corp.'s services are
received in Maine, and the receipts from the performance of such services are
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attributed to Maine, to the extent that such services are provided to Retail
Corp.'s locations in Maine.
Services concerning Tangible Personal Property
Example 3(a): Taxpayer Camera Corp. provides camera repair services at a
Maine retail location to walk-in customers. In some cases, Camera Corp.
repairs a camera that is brought to its Maine location at a Camera Corp.
facility that is located in another state. In such cases, the repaired camera is
then returned to the customer at Camera Corp.'s Maine location. Camera
Corp.'s services are received in Maine, and the receipts from the performance
of such services are attributed to Maine.
Example 3(b): Same facts as in Example 3(a), except that a customer located
in Maine mails the camera directly to the out-of-state facility owned by
Camera Corp. to be fixed and receives the repaired camera back in Maine by
mail. Camera Corp.'s services are received in Maine, and the receipts from
the performance of such services are attributed in Maine.
Services concerning Teaching/Training
Example 4(a): Taxpayer Seminar Corp. provides seminars in person in
Maine. The seminars and the materials used in connection with the seminars
are prepared outside the state, the instructors who teach the seminars include
instructors that are resident outside the state, and the students who attend the
seminars include students that are resident outside the state. Seminar Corp's
teaching/training services are received in Maine, and the receipts from the
performance of such services are attributed to Maine.
Example 4(b): Same facts as in Example 4(a), but the seminar is provided
online with students attending electronically from several states. In this case,
the services are received in Maine only for those students attending
electronically from Maine, and the receipts from the performance of such
services are attributed to Maine only for those students attending
electronically from Maine.
Advertising and Related Services
Example 5: Taxpayer Direct Mail Corp., a corporation that is based outside
of Maine, provides direct mail services to its customer, Business Corp.
Business Corp. contracts with Direct Mail Corp. to deliver printed fliers to a
list of customers that is provided to it by Business Corp. Some of Business
Corp.'s customers are in Maine, and some of those customers are in other
states. Direct Mail Corp. uses the postal service to deliver the printed fliers to
Business Corp.'s customers. Direct Mail Corp.'s services are received in
Maine, and the receipts from the performance of such services are attributed
to Maine, to the extent that such printed fliers are delivered on behalf of
Business Corp. to Business Corp.'s customers in Maine.
Example 6. Taxpayer Ad Corp., a corporation that is based outside of Maine,
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sells advertising and advertising-related services in Maine and in neighboring
states. Ad Corp. enters into a contract with Business Corp., which is located
outside Maine, to design and place advertisements to be displayed in Maine
and to design fliers to be mailed to Maine residents. All of the design work is
performed outside Maine. Ad Corp.'s services are received in Maine, and the
receipts from the performance of such services are attributed to Maine, to the
extent that the advertisements are displayed in Maine and to the extent that
the fliers are delivered on behalf of Business Corp. to Business Corp.'s
customers in Maine.
Example 7: Taxpayer Network Corp., a corporation that is based outside of
Maine, sells advertising time to customers pursuant to which the customers'
advertisements will run as commercials during Network Corp.'s televised
programming as distributed by unrelated cable television, satellite television
transmission companies, and its own broadcasts. Network Corp.'s services are
received in Maine, and the performance of such services are attributed to
Maine, to the extent that the audience for Network Corp.'s televised
programming during which the advertisements run is in Maine.
Example 8: Taxpayer Web Corp., a corporation that is based outside of
Maine, provides internet content to viewers in Maine and other states. Web
Corp. sells advertising space to business customers pursuant to which the
customers' advertisements will appear in connection with Web Corp.'s
internet content. Web Corp.'s internet advertising services are received in
Maine, and the receipts from the performance of such services are attributed
to Maine, to the extent that the viewers or clicks of the internet advertising are
in Maine.
Cable TV Services
Example 9: Taxpayer Cable TV Corp., a corporation that is based outside of
Maine, has two revenue streams. First, Cable TV Corp. sells advertising time
to customers pursuant to which the customers' advertisements will run as
commercials during Cable TV Corp.'s televised programming. Some of these
customers, though not all of them, have a physical presence in Maine.
Second, Cable TV Corp. sells monthly subscriptions to individual customers
in Maine and in other states. Cable TV Corp.'s service of selling advertising
time is received in Maine, and the receipts from the performance of such
services are attributed to Maine, to the extent that the audience for Cable TV
Corp.'s televised programming during which the advertisements run is in
Maine. Cable TV Corp.'s subscription services are also received in Maine,
and the receipts from the performance of such services are attributed to
Maine, to the extent that Cable TV Corp.'s programming is received by
customers in Maine.
Pharmacy Benefit Management Services
Example 10: Taxpayer PBM Corp., a corporation that is based outside of
Maine, contracts with Insurer Corp. to provide pharmacy claims processing
and adjudication services for Insurer Corp.'s plan members in Maine and
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other states. PBM Corp.'s services are received in Maine, and the receipts
from the performance of such services are attributed to Maine, to the extent
that Insurer Corp.'s members access their pharmacy benefits (including their
prescription drug benefits) in Maine, such as at a retail pharmacy in Maine.
(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. Gross receipts from the sale
of a partnership interest must be sourced in accordance with 36 M.R.S. §
5211(16-A)(F). The gross receipts from the sale of a partnership interest is
sourced to Maine by multiplying the gross receipts 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 36 M.R.S. § 5206-E (2) (C) - (I) and
as follows:
(a) Interest, including fees and penalties in the nature of interest from loans
located in this State, is determined at the time the original agreement
was made;
(b) Net gain attributed to this State from the sale of loans is determined
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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) charged
to 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
were 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
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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 above 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 above.
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 sales factor 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
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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,
whether 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 36 M.R.S. §
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.
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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.
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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 36
M.R.S. § 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.
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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 are
included at 85% as compensation or to a temporary service company for temporary
employees are included at 100% as 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 Prorating deductions. 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.
.12 Application date. Except where otherwise stated, this Rule applies to tax years beginning on or
after January 1, 2010, except that, for tax years beginning on or after January 1, 2022, this rule
does not apply to a corporation unless that corporation has income tax nexus with Maine during
the taxable year as determined in accordance with 36 M.R.S. §§ 5200-B and 5202-D and MRS
Rule 808 (18-125 C.M.R., ch. 808).
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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
April 20, 2022 - filing 2022-055
June 25, 2025 - filing 2025-132
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