18-125 C.M.R. ch. 808 — Rule 808. Corporate Income Tax Nexus

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DEPARTMENT OF ADMINISTRATIVE AND FINANCIAL SERVICES
125
BUREAU OF REVENUE SERVICES
INCOME/ESTATE TAX DIVISION
Chapter 808: CORPORATE INCOME TAX NEXUS
SUMMARY: This rule describes the circumstances under which a corporation is subject to the
income tax jurisdiction of Maine under 36 M.R.S., Part 8.
Outline of Contents:
.01
Definitions
.02
General rule for evaluation of corporate income tax nexus
.03
Activities establishing nexus; tax years beginning prior to January 1, 2022
.04
Corporate income tax nexus; tax years beginning on or after January 1, 2022
.05
Imputed Activity
.06
Exception for certain solicitation activities (P.L. 86-272)
.07
Exemption for certain out-of-state suppliers of spirits; taxable years beginning on or after
January 1, 2022
.01
Definitions.
A. Assessor. "Assessor" means the State Tax Assessor or any designated agent.
B. Bureau. "Bureau" means the Maine Bureau of Revenue Services, also known
as "Maine Revenue Services."
C. Documentary evidence. "Documentary evidence" means journals, books of
account, invoices, expense reports, or other records maintained by a taxpayer in the
regular course of its business. Generally, an affidavit or other document prepared
in anticipation of, or in response to a tax audit, examination, or litigation is not
documentary evidence.
D. Employee. "Employee" means any individual who would be considered an
employee under the common law rules governing the employee-employer
relationship. An individual is presumed to be an employee of a foreign corporation
rather than an independent contractor if the foreign corporation treats the individual
as an employee for purposes of the payroll taxes imposed by the Federal Insurance
Contributions Act.
E. Foreign corporation. "Foreign corporation" means a business entity subject to
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income taxation as a corporation under the laws of the United States, as further
defined under 36 M.R.S. § 5102(6), that is formed under the laws of a jurisdiction
other than the State of Maine.
F. Missionary sales activity. "Missionary sales activity" means the activity of
generating retail demand for the products of a manufacturer or distributor (and
indirectly generating wholesale orders for those products) by promoting the
products to retailers who typically order the products from a wholesaler or other
middleman.
G.
Office. "Office" means a permanent or temporary location where a
corporation makes sales or holds itself out to the public as conducting business. The
office of a corporation's sales representative is generally not an "office" of the
corporation for purposes of this rule if the representative does not publicly hold him
or herself out as doing business on behalf of the corporation at that location, either
by publishing the home address as a corporate business address or through other
actions.
H.
Out-of-state supplier of spirits. "Out-of-state supplier of spirits" means a
corporation domiciled in another state that approves an order or request from
outside this State for spirits placed by the Maine Bureau of Alcoholic Beverages
and Lottery Operations ("BABLO").
I. Partnership. "Partnership" means any entity subject to taxation under the
Internal Revenue Code, Subtitle A, Chapter 1, Subchapter K, other than a financial
institution subject to tax pursuant to Title 36 of the Maine Revised Statutes, chapter
819.
J. Sample or display room. "Sample or display room" means a temporary
location, such as a hotel room or space in a trade show exhibit, where
representatives of a foreign corporation exhibit samples of the corporation's
products, but do not make sales, approve orders for sales, or conduct any of the
activities listed at section .03, subsection (B) below.
K. Samples. "Samples" means representative products of a corporation that are
used in sales demonstrations or distributed in limited quantities without charge in
order to acquaint existing or prospective customers with the corporation's products.
.02 General rule for being subject to corporate income tax nexus. A corporation is subject to
Maine income tax if it has nexus with Maine and has income properly apportionable to Maine
pursuant to Title 36 M.R.S., chapter 821, regardless of whether it is authorized to do business in
this State. A corporation has nexus with Maine if it engages in the activities listed in section .03
below or meets the criteria of 36 M.R.S. § 5200-B and section .04 below of this rule. However, a
corporation's activities will not subject it to the income tax jurisdiction of Maine if the constitution
or laws of the United States, including 15 United States Code § 381 et seq. (P.L. 86-272), preclude
the exercise of jurisdiction.
.03 Activities establishing nexus; tax years beginning prior to January 1, 2022. For tax years
beginning prior to January 1, 2022, a corporation generally has income tax nexus with Maine if it
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(a) does business in Maine; or (b) owns or uses any part or all of its capital, plant, or other property
in Maine in a corporate capacity, as opposed to a strictly fiduciary capacity.
A. Doing business. Without limitation, a corporation does business in Maine if it
engages in any of the following activities in this state:
1. Maintains an office or other place of business;
2. Executes a contract;
3. Exercises or enforces contract rights;
4. Buys, sells or procures services or property; or
5. Employs labor.
B. Owning or using property. Without limitation, a corporation owns or uses
property in Maine if it:
1. Owns property that is held by another person in this State under
a lease, consignment, or other arrangement;
2. Uses in this State property that it holds under a lease, license, or
other arrangement; or
3. Maintains a stock of goods in this State.
.04 Corporate income tax nexus; tax years beginning on or after January 1, 2022. For tax
years beginning on or after January 1, 2022, a corporation has income tax nexus with Maine if it:
A. Is organized or commercially domiciled in Maine; or
B. Is organized or commercially domiciled outside Maine, and the corporation's Maine
property, payroll or sales exceed any of the following thresholds for the taxable year:
1. Property of $250,000;
2. Payroll of $250,000;
3. Sales of $500,000; or
4. Twenty-five percent of the corporation's total property, payroll, or sales.
Maine property, payroll, and sales are calculated in the same manner used to determine
income apportionment under 36 M.R.S., chapter 821 and rules adopted by the Assessor,
except that the sales calculation does not exclude sales of tangible personal property
under 36 M.R.S. § 5211(14)(B). For a taxpayer permitted or required to use a special
apportionment method under 36 M.R.S. § 5211(17), the property, payroll, and sales
used to determine nexus under this rule must be consistent with the property, payroll,
and sales used for the special apportionment method.
A corporation that holds an interest directly or indirectly in a partnership has nexus with
Maine if the partnership is organized or commercially domiciled in Maine or if the
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partnership is organized or commercially domiciled outside Maine and the partnership's
property, payroll, or sales exceed the thresholds established in subsection B of this
section.
.05 Imputed activity. For the purposes of determining whether a corporation is subject to Maine's
tax jurisdiction pursuant to sections .03 or .04 above, the activities of the corporation's employees,
agents, or representatives, however designated, will be imputed to the corporation. An agent or
representative may be an individual, corporation, partnership, or other entity. Activities conducted
in Maine on behalf of a corporation by an independent contractor will be imputed to the corporation
to the extent allowed by the Constitution and laws of the United States.
.06 Exception for Certain Solicitation Activities (P.L. 86-272). A foreign corporation that has
nexus with Maine is nevertheless not subject to the Maine income tax if its activities in this State
are all activities that are set forth in P.L. 86-272. P.L. 86-272 precludes Maine from imposing a
tax on the income of a foreign corporation if the sole activity of the foreign corporation in the State
is the solicitation by the foreign corporation's representatives (in the name of the foreign
corporation or in the name of a prospective customer) of orders for the sale of tangible personal
property, provided that the orders are sent outside of the State of Maine for approval or rejection,
and provided that the orders are filled by shipment or delivery outside of Maine. Some examples
of common solicitation activities are found at subsection (D) of this section below. See subsection
(E) of this section below for examples of unprotected activities.
A. Limitations. P.L. 86-272 restricts a state's income tax jurisdiction only if the
taxpayer's activity is limited to solicitation of orders for the sale of tangible
personal property. P.L. 86-272 does not afford protection in the following
circumstances:
1. A combination of solicitation activities and non-solicitation
activities in Maine;
2. The solicitation of orders for the sale or provisions of services,
either standing alone or in combination with the solicitation of
orders for tangible property. Some examples of the sale of a mixture
of services and tangible personal property are photographic
development and the provision of architectural or engineering
services; and
3. The solicitation of orders for the sale, lease, rental, license, or
other disposition of real property or intangibles.
B. Scope of "solicitation." Whether the activities of a foreign corporation fall
within the scope of "solicitation" within the meaning of P.L. 86-272 is a factual
determination. The examples of activities provided at subsection (D) and (E) of this
section below are intended as guidelines. They are not exhaustive and will not
precisely describe the activities of many foreign corporations. In applying the
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guidelines to particular circumstances and activities of specific foreign
corporations, the Assessor will use the following rules of construction:
1.
The term "solicitation" includes only actual requests for
purchases and activities that are entirely ancillary to requests for
purchases. An activity is entirely ancillary to the requesting of
purchases only if it serves no independent business purpose apart
from its connection to the soliciting of orders.
2. Activities conducted by a foreign corporation with respect to a
particular order generally do not constitute "solicitation" if they
occur after the order has been placed.
C. De minimis activities. Non-solicitation business activities conducted by a
foreign corporation in Maine will not subject the foreign corporation to taxation if
the activities, taken together, are de minimis. De minimis activities are those that
establish only a trivial additional connection with this State. An activity regularly
conducted within this State pursuant to company policy or on a continuous basis
will not normally be considered trivial. Whether or not an activity consists of a
trivial additional connection with Maine is measured on both a qualitative and
quantitative basis. If the activity either qualitatively or quantitatively creates a non-
trivial connection with the State of Maine, the activity does not qualify for the
protection afforded by P.L. 86-272. Establishing that the disqualifying activities
account for a relatively small part of the business conducted within this State is not
determinative of whether a de minimis level of activity exists. The relative
economic importance of the disqualifying in-state activities, as compared to the
protected activities, does not determine whether the conduct of the disqualifying
activities within the taxing State is inconsistent with the limited protection afforded
by P.L. 86-272. If the Assessor believes that a taxpayer conducts in this State any
activity listed in subsection (E) of this section below, the Assessor will require the
taxpayer to carry the burden of substantiating any claim that its activities were de
minimis. Documentary evidence will be given substantial weight in establishing the
nature and extent of the taxpayer's activities. Affidavits or other evidence not
contemporaneous with the events in question will be given little weight.
D. Protected activities. The following in-state activities conducted by a foreign
corporation will not cause the loss of protection for otherwise protected sales that
occur in the State of Maine:
1. Soliciting orders for sales by any type of advertising;
2. Soliciting of orders by an in-state resident employee or
representative of the foreign corporation, so long as such person
does not maintain or use any office or other place of business in the
state other than an "in-home" office as described in subsection (E),
paragraph 20 of this section below;
3. Carrying samples and promotional materials only for display or
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for distribution without charge or other consideration;
4. Furnishing and setting up display racks and advising customers
on the display of the foreign corporation's products without charge
or other consideration;
5.
Providing automobiles to sales personnel for their use in
conducting protected activities;
6. Passing orders, inquiries and complaints on to the corporation's
home office;
7. Missionary sales activities and advertising campaigns incidental
to missionary sales activities;
8. Coordinating shipment or delivery without payment or other
consideration and providing information relating thereto either
before or after the placement of an order;
9. Checking of customers' inventories without a charge therefor
(for re-order, but not for other purposes such as quality control);
10. Maintaining a sample or display room for an aggregate of 14
days or fewer during the tax year, provided that no sales or other
activities inconsistent with mere solicitation take place;
11. Recruiting, training or evaluating sales personnel, including
occasionally using homes, hotels or similar places for meetings with
sales personnel;
12. Mediating direct customer complaints with the sole purpose of
ingratiating the sales personnel with the customer and facilitating
requests for orders; and
13. Owning, leasing, using or maintaining personal property for
use in the "in-home" office or automobile of an employee or
representative, when the use of the personal property is limited to
the conducting of protected activities. Thus the use by a foreign
corporation's employee or representative of equipment such as a
cellular telephone, facsimile machine, photocopier or personal
computer, when limited strictly to the carrying on of protected
solicitation and activity entirely ancillary to such solicitation or
permitted by this rule, does not, by itself subject the foreign
corporation to Maine's income tax jurisdiction.
E. Unprotected activities. The following in-state activities (assuming they are not
de minimis -- see subsection (C) in this section above) will cause otherwise
protected activities to lose their protection:
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1. Making repairs or providing maintenance or service to the
property sold or to be sold;
2. Collecting current or delinquent accounts, whether directly or by
third parties, through assignment or otherwise;
3. Investigating credit worthiness;
4. Installation or supervision of installations at or after shipment or
delivery;
5. Conducting training courses, seminars or lectures for personnel
other than personnel involved only in solicitations;
6. Providing any kind of technical assistance or services, including,
but not limited to, engineering assistance or design services, unless
the purpose of such assistance or services is solely to facilitate the
solicitation of orders;
7. Investigating, handling, or otherwise assisting in resolving
customer complaints, other than mediating direct customer
complaints with the sole purpose of ingratiating sales personnel with
the customer and facilitating requests for orders;
8. Approving or accepting orders;
9. Repossessing property;
10. Securing deposits on sales;
11. Picking up or replacing damaged or returned property or stale
or unsalable inventory;
12. Hiring, training, or supervising personnel, other than personnel
involved only in solicitation;
13. Using agency stock checks or any other instrument or process
by which sales are made within this state by sales personnel;
l4. Maintaining a sample or display room in excess of two weeks
(14 days) at any one location during the tax year;
15. Carrying samples for sale, exchange, or distribution in any
manner for consideration or other value;
16. Owning, leasing, using, or maintaining any of the following
facilities or property:
a. Repair shop.
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b. Parts department.
c. Any kind of office other than an in-home office
as described in subsection (20) of this section below.
d. Warehouse.
e. Meeting place for directors, officers, or
employees.
f. Stock of goods other than samples for sales
personnel or goods used entirely ancillary to
solicitation.
g. Telephone answering service that is publicly
attributed to the company or to an employee or agent
of the company.
h. Mobile stores, i.e., vehicles with drivers who are
sales personnel making sales from the vehicles.
i. Real property or fixtures to real property of any
kind.
17. Consigning stocks of goods or other tangible personal property
to any person, including an independent contractor, for sale;
18. Conducting any activity not listed in subsection (D) of this
section that is not entirely ancillary to requests for orders, even if
such activity helps to increase orders;
19. Except as provided by 36 M.R.S. § 5200-B(3), owning an
interest in any partnership, grantor trust, or other pass-through entity
whose activities, if conducted directly by a foreign corporation,
would give Maine jurisdiction over the foreign corporation, unless
the activities of the pass-through entity are limited to solicitation
protected by P.L. 86-272;
20. Maintaining, by any employee or other representative, an
office or place of business of any kind, other than an in-home office
located within the residence of the employee or other representative
that (1) is not publicly attributed to the company or to the employee
or representative of the company in such capacity, and (2) is used
solely for soliciting and receiving orders from customers, for
transmitting such orders outside the state for acceptance or rejection
by the corporation, or for other activities protected by P.L. 86-272
or subsection (D) of this section. If the corporation maintains a
telephone or other public listing within the state either in its own
name or in the name of its employee or representative in such
capacity, or if there is any other indication through advertising or
business literature that the corporation or its employee or
representative can be contacted at a specific address within the state,
the Assessor will normally view the corporation's activities as
exceeding the protection afforded by P.L. 86-272. However, the
normal distribution and use of business cards and stationery
identifying the employee or representative's name, address,
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telephone and fax numbers and affiliation with the company will
not, by itself, be considered unprotected activity. The maintenance
of any office or other place of business in this state that does not
strictly qualify as an "in-home" office as described above causes the
loss of protection. For the purpose of this rule, it is not relevant
whether the corporation pays directly, indirectly, or not at all for the
cost of maintaining an in-home office; and
21. Entering into a franchising or licensing agreement; selling or
otherwise disposing of franchises and licenses; or selling or
otherwise transferring tangible personal property pursuant to such
franchise or license by the franchiser or licensor to its franchisee or
licensee with the state.
.07
Exemption for certain out-of-state suppliers of spirits; taxable years beginning on or
after January 1, 2022. For taxable years beginning on or after January 1, 2022, a
corporation that is an out-of-state supplier of spirits sold to BABLO within the Department
of Administrative and Financial Services (including a contractor or agent of BABLO) may
not be considered to have sufficient nexus, and is not subject to Maine corporate income tax,
if the corporation's in-state activities are limited solely to the activities described in 36
M.R.S. § 5202-D(2).
STATUTORY AUTHORITY: 36 M.R.S., Section 112
EFFECTIVE DATE: October 2, 1994
LAST AMENDED:
May 10, 2022 - filing 2022-078
May 3, 2023 - filing 2023-064